A trickle, but no rush of people and capital

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 002272

SIPDIS

STATE FOR NEA/ARP, NEA/RA, AND EB
COMMERCE FOR CLOUSTAUNAU,
4500/ITA/MAC/DAS
3131/CS/OIO/ANESA

E.O. 12958: DECL: 07/06/2009
TAGS: PREL PGOV ECON EFIN EINV SA TC
SUBJECT: A trickle, but no rush of people and capital
from Saudi Arabia to the UAE


Classified by Richard A. Albright, Charge d'Affaires,
a.i., reasons 1.5 (b) and (d).


1. (C) Summary: Terror attacks and insecurity have
prompted a small number of expatriates to leave Saudi
Arabia and relocate to the United Arab Emirates,
according to business, government, and diplomatic
contacts, as well as press reports. The limited
exodus concerns individuals, not entire firms.
Meanwhile, the UAE's stable business climate has
continued to attract Saudi investment, especially in
the real estate market, and there is evidence that
fund flows from Saudi Arabia into the UAE's capital
markets have driven up the UAE stock market. End
Summary.


2. (U) After the recent series of terror attacks in
Saudi Arabia, rumors began circulating in the UAE
about an exodus of expatriates and Saudi capital from
the Kingdom. According to local press reports, terror
bombings had created a panic within the Western
community, and started to stifle capital flow into
Saudi Arabia.


3. (U) The Gulf News on June 22 quoted Saudi economist
Ihsan bu Hulaiga as saying that reports about the
relocation and withdrawal of some Western companies
from Saudi Arabia are exaggerated." These firms are
very well established in Saudi Arabia and a pullout
was not an option, he said. "Don't forget that we are
now into summer and many expatriates, including
Westerners, leave Saudi Arabia for their annual
holidays. This might have given rise to speculation
that Westerners are fleeing Saudi Arabia because of
those terror attacks," he added.

American citizens and other expats trickling out
-------------- ---


4. (C) American citizen and immigration authority
contacts have told our consular staff that several
Amcits either have relocated, or are seeking to
relocate, from Saudi Arabia to the UAE for security
reasons. A hospital administrator at Shaykh Khalifa
Medical Center in Abu Dhabi told one of our consular
staff, "We are receiving a greater than usual number
of applications from (American) employees currently
working in Saudi Arabia and we have (hired) a number
of staff in the last year from that country."


5. (C) Colleagues at other diplomatic missions in the
UAE had similar anecdotes. "There is a lot of
unhappiness among Indians" over the security situation
in Saudi Arabia, Indian Embassy First Secretary Suresh
Reddy told Polchief. "We are getting calls from our
citizens who are interested in any openings in
companies in the UAE. These are engineers and other
professionals. "They are looking to move out because
of their sense of insecurity."

Businesses staying put
--------------


6. (C) While some individuals may be leaving Saudi
Arabia out of a sense of insecurity, we have no
reports of companies transferring their operations or
large numbers of employees to the UAE for security
reasons. Foreign firms are very well established in
Saudi Arabia and have the means to protect their
employees and families in the Kingdom, American
business contacts in the UAE told us. John
Velliquette, President of the American Business Group
of Abu Dhabi and Vice President and Operations Manager
for Raytheon, said his company had no plans to
transfer any personnel to the UAE, even though he had
suggested it. "Headquarters refused, saying that if
things were that bad, why keep people close to the
fire. It is better to send them back to the U.S.," he
said. Contacts at the American Business Council in
Dubai, while commenting frequently on a long-standing
multi-year trend of multinational companies moving
their regional headquarters from Saudi Arabia to Dubai
for "quality of life" reasons, have given no
indication that they perceive the trend to have
accelerated in recent weeks.


7. (C) Dieter Onken, a German security expert who said
he came to Abu Dhabi in 2003 after spending 21 years
in Saudi Arabia, maintains there is no mass exodus
from Saudi Arabia in any direction. Onken told
Polchief that some individual business people may
transfer to the UAE if their operations allow it, "but
it is not on a massive scale." A small company may
move to Jebel Ali near Dubai, he added, but large
companies will stay in Saudi Arabia because they have
the means to protect themselves. He said he did not
leave the Kingdom for security reasons, and is, in
fact, considering going back to start his own security
company with a Saudi partner. "People simply have to
be careful. This situation could go on for a while."


8. (C) Some U.S. company representatives (specifically
the smaller defense contractors at Al-Dhafrah Air
Base) told us that they are experiencing difficulties
filling open slots in the UAE. The senior Systems
Administrator (please protect) for the communications
contract at the air base noted that his employees had
not expressed any security concerns to him and did not
intend to return to the United States before
completion of the contract. He wondered, however, if
events in the region were discouraging qualified
people from applying for several vacant positions.
"We had no problem filling these slots this time last
year, but now we're not even receiving resumes." In
Dubai, however, the rental market in neighborhoods
favored by expatriate families has heated up markedly
in the past two months, during a season (early summer)
that normally sees higher levels of vacancies due to
families departing at the end of the school year.
This year, contacts in the real estate industry tell
us, four-bedroom villas are scarce, and those that
come on the market are snapped up quickly, at rates
10-15 percent higher than those that prevailed several
months ago. The perception among realtors is that the
boom is being fueled by families relocating from Saudi
Arabia. The families who choose Dubai are said to be
only a small fraction of those that are choosing
Bahrain, a factor that leads many to believe that
recent developments in Bahrain could lead to an even
greater influx into Dubai.

Saudi capital boosts UAE stock market
--------------


9. (U) On June 20, Gulf News reported that fund flows
from Saudi Arabia into the capital markets of the UAE
were responsible for the strong performance a week
earlier of the Dubai Financial Market (DFM) and Abu
Dhabi Securities Market (ADSM). "This is because many
consider the UAE as the safest place in the region and
hence they are bringing in money to the bourses here
where the valuations are also relatively attractive,"
a broker told the newspaper. Official statistics from
the UAE Stock Authority, which nominally oversees both
the Abu Dhabi and Dubai exchanges, indicate that
approximately 7 percent of investors on the UAE
exchanges are from Saudi Arabia. Saudi participation
in the DFM and ADSM has increased by 3 percent since
late last year.

Saudi investment targets Dubai real estate market
-------------- --------------


10. (C) There is a long history of Saudi investment in
Dubai, particularly in real estate, but we have been
hearing numerous reports that the trend has been
picking up of late. Several new high-rises along
Shaykh Zayed Road in Dubai have reportedly been
purchased outright by investors from Saudi Arabia.
One of the most prominent examples is the Al Salam
Group's $150 million acquisition of the Dubai
International Financial Center's flagship "Gate
Building." While it is not possible to say with
certainty that nervousness about the situation at home
is prompting Saudis to pull out their money and put it
elsewhere in the neighborhood, there is certainly a
perception here that such a trend is at play, and some
anecdotal evidence to back it up.


11. (C) Nabil Maaloul (please protect),a Tunisian
financier with strong Emirati and Saudi contacts,
predicted that 2004 would be a record year for Dubai
in terms of attracting Saudi capital, especially in
the real estate market. "Saudis feel the Kingdom of
Saudi Arabia is weak and are uncomfortable sending
money to Europe." Maaloul went on to add, "Dubai is
safe, secure, and modern - it is the last good chance
for (Saudis) to invest in the region."

ALBRIGHT