ECONOMIC AND SOCIAL COMMENTS AT MAY BUSINESS

UNCLAS SECTION 01 OF 03 JEDDAH 000425 SIPDIS SIPDIS RIYADH, PLEASE PASS TO DHAHRAN; DEPARTMENT FOR NEA/ARP; PARIS FOR ZEYA; LONDON FOR TSOU E.O. 12958: N/A TAGS: ECON PGOV PREL SA SOCI SUBJECT: ECONOMIC AND SOCIAL COMMENTS AT MAY BUSINESS BREAKFAST: THE ECONOMY'S GOOD, THE MARKET IS SUSPECT, REFORM IS VITAL, BUT U.S.-SAUDI RELATIONS AT THE PERSONAL LEVEL MAY BE WEAKENING ¶1. SUMMARY. Business leaders attending a monthly speech sponsored by the American Businessmen of Jeddah (ABJ) maintain their optimism for the Saudi economy. They are, however, cautious when commenting on the local stock exchange. Their concern is that the market is still grossly overvalued. A consultant stated that investors and businesses will have to learn to acept the discipline of the market. In the mornin's speech, a prominent editor criticized Saudi bueaucracy as an obstacle o reform. He also calld for wholesale revision of the Saudi educational system. The editor then passionately called for audis to not be cowed or bullied by the United States. He recounted cases of poor treatment of Saudis in the U.S. and recommended that Saudis seek relations elsewhere. A prominent Saudi businessman endorsed this view, offering examples of what he felt was unsatisfactory treatment by Americans. The decline in good will evident in these comments is a worrisome portent for the future of the bilateral relationship. END SUMMARY. STOCK MARKET STILL SUSPECT BUT GYRATIONS DON'T DAMPEN OPTIMISM OF BUSINESS COMMUNITY ¶2. Despite more than four months of violent fluctuations, with a decidedly negative trend, business leaders in Jeddah retain their optimism for the present and future prosperity of the region. However, it must be stressed that this confidence in the economy is not confidence in the stock market. In a recent gathering of businessmen several told Pol/Econ Chief that the market, then above 14,000 was wildly overvalued. One volunteered that he would not be surprised if the market dropped to seven or eight thousand. Another declared that he doesn't invest in the local stock market, and wouldn't until the stock prices of Saudi companies bore at least some reasonable relation to their actual earnings. ¶3. Similar opinions still held sway among the more savvy businessmen and investors. The Saudi Tadawal All Shares Index was closing in on 11,000 by late May. Nevertheless, the businessmen Pol/Econ Chief spoke with continued to express confidence in their own business ventures and the economy of the Kingdom. Concern for the stock market was primarily a fear that wide-spread losses among the unsophisticated small investors who had flocked to the market at the end of the boom period would prompt the government to adopt policies that interfere with rational, economic decision-making. There was a frequently announced belief that economic education was a vital priority for the Saudi investing public. REVERSE EXPOSES MARKET TO REALITY, BUT EVEN COMPANIES REFLECT HERD-MENTALITY ¶4. An American financial and management consultant who has been advising Saudi companies, predicted that the recent market reverses were a hard but probably necessary introduction to the discipline of the market. Not only were the investors learning this lesson, but so were the local companies. However, he admitted that many companies were slow to learn the necessary lessons. He has been trying to convince Saudi companies that transparency and sound governance were vital facets of a healthy, attractive company, but change is slow. He also remarked on the herd-mentality that drove many companies to throw themselves into the market. He related that many companies continue to see an IPO as the preferred means of raising capital simply because so many other companies are doing so. He said he tries to evaluate their status and needs and convince them that selling part of their equity, particularly in a very unstable market, is not, in many of their cases, their best fiscal decision. He is at pains to make them realize that selling equity means they are also surrendering ownership and at least a measure of control to external influences. COMMENT. This observation suggests that despite their many highly educated managers, many Saudi companies remain relatively unsophisticated when it comes to knowledge of the financial options available to corporations operating in the modern global economy. END COMMENT. JOURNALIST'S REMARKS: BUREAUCRACY AN OBSTACLE TO PROGRESS JEDDAH 00000425 002 OF 003 ¶5. The featured speaker at the ABJ was Khaled Al Maeena, Editor in Chief of the moderate, English-language "Arab News." He began by blaming many of the problems faced by businesses in Saudi Arabia on an unresponsive, self-serving bureaucracy. He noted that many Saudi bureaucrats fail to act quickly, are reluctant to act at all, or seek only to maintain their own power and influence. He expanded beyond the economy complaining that the bureaucracy is an obstacle to progress in virtually all aspects of Saudi society, explicitly citing the government's reluctance to oppose conservative and religious elements who stymie necessary reforms. EDUCATION MUST BE REFORMED, FOR OUR OWN GOOD ¶6. He then turned to a topic very much the center of attention at the moment, because it is the end of the school year--education. Al Maeena insisted that Saudi education must be drastically improved at all levels. He noted that current educational standards simply did not prepare Saudis for competition in an open world market. But he then added, reform is necessary not because outsiders, and specifically, the U.S., dictates that education be changed, but because the Saudi people need and demand a solid, practical education. SAUDIS NEED NOT BEG AMERICA ¶7. Then, rather surprisingly given the domestic focus of the first part of the speech, he continued on the theme that Saudi Arabia did not have to bend to American demands. According to Al Maeena, Saudi Arabia need not "beg from America" for education, trade, or support. While acknowledging that the terrorist attacks of 2001 were a shock to America, he complained about the ill-treatment that, he claimed, Saudis habitually received when applying for visas or when traveling in the United States. He pointed to the incident, widely reported in the media in the preceding days, occurring in Florida where two Saudi students had ridden on a school bus and been arrested when they spoke Arabic. Ignoring the sensitivity strangers on a school bus cause in America, he contended that such would not have happened to students from any other land. ¶8. His complaints multiplied, relating that Saudis were constantly suspect and singled out for harsh treatment. He confessed that, like the students on the school bus, he also on occasion, has lied and claimed that he was from Morocco or some other Arab country, which he believed was more readily tolerated in America. He then went on to advise that Saudis did not have to endure such hostility. He observed that medical treatment may be had in Germany; Saudis can seek educational and business opportunities in India, Asia, Japan, even Australia and disregard the United States. RESPECTED BUSINESS LEADER ENDORSES RECOMMENDATION ¶9. After Al Maeena concluded, respected businessman Wahib Binzagr, patriarch of the Binzagr merchant family which controls many enterprises throughout Saudi Arabia, rose and seconded the journalist's remarks. The septuagenarian Binzagr, who has been traveling to the United States for at least forty years and has been a mainstay of the American-Saudi business group for many years, confessed that he also felt unwelcome and uncomfortable in the United States. He also admitted to denying that he was a Saudi for fear that he would arouse suspicion. He said that he now left for the airport at least an hour earlier when traveling in America, because he expected to be held for additional questioning. ¶10. He insisted that after the terrorist attacks, his new Saudi passport was returned to him with a "number added to it," claiming that he did not know who added the "number," but that ever since that time he had been the victim of intense questioning and stringent searches whenever he traveled in the U.S. He said he was often questioned in a, to him, foolish manner, about the duration of his trips and his answers were met with suspicion, even when he related that he had traveled because he was dining with the Saudi ambassador to the U.S. He said he no longer contemplated JEDDAH 00000425 003 OF 003 travel to the U.S. for pleasure, although he has owned a home there since the 1960's. He ended his comment with the assertion that he did not feel it was vital that Saudis deal only with the U.S.; there were other options. DECLINE IN PERSON-TO-PERSON CONTACTS TROUBLING FOR FUTURE OF U.S.-SAUDI RELATIONSHIP ¶11. COMMENT: While the official U.S.-Saudi relationship may be improving, the attitudes developing among individual Saudis, including those with long-standing and cordial relations with the U.S., are disquieting. Both Al Maeena and Binzagr have traveled extensively in America for decades; now they are ready to eschew that relationship and encourage others to do likewise. They did not express hostility, merely a developing disinclination to deal with America, expressing a fear that they and other Saudis would be mistreated. Numerous other contacts have related a similar growing individual reluctance to deal with the United States, even among colleagues or family members who previously had warm regard for the U.S. This attitude, combined with the Saudi government's recently inaugurated "Eastern Policy," seeking strengthened relationships with rising Asian powers, may bode ill for the future strength of U.S. social and economic bonds with the Kingdom. END COMMENT. Gfoeller