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