SARG TRUMPETS NEW GULF INVESTMENT

C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 000005

SIPDIS

SIPDIS

NEA/ELA
NSC FOR ABRAMS/DORAN/SINGH
TREASURY FOR GLASER/SZUBIN/LEBENSON
EB/ESC/TFS FOR SALOOM

E.O. 12958: DECL: 12/29/2015
TAGS: EINV ECON SY
SUBJECT: SARG TRUMPETS NEW GULF INVESTMENT

REF: A. DMS 6280


B. DMS 4435

C. DMS 5373

Classified By: Charge d'Affaires Stephen Seche, reasons 1.4 b/d


1. (C) Summary: According to SARG announcements in local and
international news, the Syrian economy attracted billions of
dollars of foreign direct investment (FDI) from Arab sources
during 2005. The investors have yet to make major
commitments, however, and the announcements are a
continuation of the previously-reported SARG tactic of
creating "investment hype" in order to show that Syria has
avoided international isolation (refs A, B). While the
SARG's figures are wildly inflated, Arab investors are
attracted to the profit-making potential in Syria's mostly
undeveloped real estate and tourism market. Even at more
modest levels, the new, predominantly Gulf investments in
real property will help Syria significantly increase its
previously paltry FDI numbers. End summary.


2. (U) Local and international news media recently reported
that a group of Syrian, Kuwaiti and Saudi investors received
preliminary SARG approval to launch a 15-year, USD 15 billion
project to build a tourism and recreation complex near Jebel
as-Sheikh (Mount Herman) overlooking the Golan Heights. This
news follows recent reports of billions of dollars of new,
foreign investment in Syria's economy during 2005 from Gulf
sources. The announced projects include: a $4 billion,
5-year project by the Kuwaiti-based Aref Group to build a
large financial and commercial center on the outskirts of
Damascus; a $3.4 billion retail and residential housing
complex by the Dubai-based Imaar Group; a $1 billion
investment by Majid al-Futtaim, another large Dubai-based
company, to build a tourist complex on the Damascus-Beirut
highway; and an $800 million project in commercial property
by the Tiger Group, which according to press reports is
comprised mostly of Syrian expatriates living in the
Emirates.


3. (C) According to Embassy sources, however, the investors
have not yet committed significant portions of the announced
amounts to the projects and are instead limiting themselves
to initial purchases of real property while waiting for the
political situation to become clearer. Hawazen Esber, Majid
al-Futtaim's General Manager for Property Development in
Syria, stated his company has spent $50 million- a small sum
for the company but a relatively large investment for Syria-
to secure the land for its planned tourist complex, but that
it has no concrete timetable to develop it. (Note: In 2004,
Syria received approximately $180 million in FDI from all
sources, $42 million of which came from other Arab countries.
End note.) He said that the major Gulf investors like
al-Futtaim and Imaar are attracted by the money-making
potential for real estate in Syria, which he described as a
virgin market. Esber added that there is a perception among
Gulf investors that the international community is not
committed to economic sanctions against Syria, and that the
risks, therefore, appear manageable given the growth
prospects of the Syrian market and the potential for those
getting in early to make huge profits.


4. (C) Other sources have stated that real property in Syria
is undervalued, and while Gulf investors may not be
interested in putting their petro-dollars in industrial
projects that could be affected by sanctions, real estate in
Syria is a potential bargain for investors with a long time
horizon. In addition, sources report that Syria's regulatory
environment has improved, which makes it easier for Gulf
investors to enter the market. Esber stated that he has
witnessed a positive change in the attitude of SARG officials
toward foreign investment over the past 6-months,
particularly at the Ministry of Tourism. He said that
pioneer projects like the recently opened Four Seasons Hotel
in downtown Damascus have paved the way for future investors
to receive vital exemptions from Syria,s archaic tenant and
labor laws, and that there is optimism among Gulf investors
that the climate will improve further.


5. (C) Despite the fact that FDI is increasing over 2004
levels, the SARG continues to inflate the figures to reassure

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the Syrian public that the country is avoiding international
isolation. As part of the SARG's public affairs campaign
(ref C),Deputy Prime Minister for Economic Affairs Abdallah
Dardari traveled to Malaysia in November to announce that the
Malaysian and Syrian governments had signed an MOU to build a
$60-100 million Malaysian Industrial Park along the Syrian
coast. Azmi Sulaiman, First Secretary at the Malaysian
Embassy in Damascus, however, discounts the significance of
Dardari's announcement. According to him, the impetus for
the visit came only from the Syrian side and that he expects
no actual investment in the near future. Sulaiman said that
he generally refers potential Malay investors to the US
Department of State's Country Commercial Guide for background
on Syria, and advises them against investing in Syria unless
they have deep pockets to withstand probable losses.


6. (C) Comment: While the SARG's investment figures are
hyped, the constant announcements of new investment support
the government's contention that the US is increasingly alone
in its efforts to pressure and isolate the regime and help
reassure a worried public. Still, part of the much-hyped
Gulf investment is real, albeit at only a fraction of its
announced levels. To date, Gulf investors have been very
careful to hedge their bets and invest in real property that
they feel confident will retain its value no matter the
political situation.
SECHE