MORSELS FROM THE BUSINESS BREAKFAST TABLE

C O N F I D E N T I A L SECTION 01 OF 02 JEDDAH 000451

SIPDIS

SIPDIS

RIYADH, PLEASE PASS TO DHAHRAN; DEPARTMENT FOR NEA/ARP;
PARIS FOR ZEYA; LONDON FOR TSOU

E.O. 12958: DECL: 07/02/2016
TAGS: ECON KISL PGOV PREL SA
SUBJECT: MORSELS FROM THE BUSINESS BREAKFAST TABLE

REF: JEDDAH 437

Classified By: Consul General Tatiana Gfoeller, for
reasons 1.4 (b) and (d).


1. (C) SUMMARY: In conversations at the June meeting of the
American Businessmen of Jeddah (ABJ),one American
businessman admitted that he had lost confidence in the
bearish Saudi stock market. An American financial consultant
noted that improved adherence to principles of corporate
governance and transparency would expose silent partners and
corporate hangers-on and could reveal the economic influence
of the Royal Family and others who have traded political
influence for economic benefit. END SUMMARY.

FINALLY OUT OF THE MARKET


2. (C) In a private conversation before the beginning of the
keynote speech, at the June General Membership Meeting of the
American Businessmen of Jeddah (ABJ) (reftel),an American
businessman who works for a major Saudi company confessed
with some chagrin that he had fnally abandoned the Saudi
stock market. Initialy bullish on the Taduwal, he had begun
investingin mutual funds which were the only avenue through
which a foreigner could invest in Saudi companie. Stoically
enduring the first market reverses arlier this year, he took
over his own portfolio with relief after the government
allowed foreigners to purchase stocks directly. But he
admitted that by the time his portfolio had lost 42% of its
peak value, he had had enough and pulled out until the market
stabilizes and more sound companies become available.
COMMENT: After six months of steady decline and loosing
roughly half its value, distrust of the market is firmly
ingrained in the population. Even if the authorities
successfully stabilize and widen the market, it could take a
long time for a chastened public to regain its confidence in
the stock exchange. END COMMENT.

WHEN TRANSPARENCY COMES WHAT WILL THE ROYALS DO?


3. (C) Pol/Econ Chief also had an opportunity to speak with
American financial consultant, Kamal M. Quadir, who has been
advising Saudi companies on how to compete in the global
environment. He has been particularly concerned with
transparency and corporate governance. That morning the
conversation turned, with some amusement, to speculating on
the consequences transparency may have for the Saudi Royal
Family at large. Throughout its relatively brief history, a
connection to the Saudi Royal Family has been virtually
mandatory for major business enterprises seeking a helpful
government. Many Royals sit on corporate boards, some are
silent partners in lucrative businesses, and others are
commission agents of one sort or another, collecting large,
and largely unearned, fees.

EQUITY HOLDERS WILL BE PUBLIC RECORD


4. (C) Under recently promulgated regulations, all board
members and those with more than 3% equity in a company will
be identified for the public record. This will present both
Royals and companies with a dilemma. While a number of
Royals are experienced, competent businessmen, and would be a
worthy addition to any corporate board, many more, especially
the peripheral minor Royals, hold their seats as sinecures.
Additionally, it could be embarrassing to the Royal Family if
the public learned how much commercial wealth was actually
controlled by it.

COMPANIES UNCERTAIN WHAT COURSE TO TAKE


5. (C) Surprisingly, some of the companies have expressed
ambivalence about the prospect of being shorn of their royal
partners. Royal connections are a long-standing tradition in
the Arab world, and a number of companies have indicated that
they are reluctant to loose the prestige and status that
comes from an association with the Royal Family (and more
usefully, that immediate channel of access to the seat of
power.)

WHAT WILL THE LONG-RANGE EFFECTS BE?


6. (C) COMMENT: The publication of corporate equity holders
could have a marked effect on the Royal Family and its public

JEDDAH 00000451 002 OF 002


image. Will the public be outraged to discover that the
Saudi Royals have a finger in every economic pie, while the
children of the average Saudi cannot get a job even with a
college degree? Will minor Royals denied financial
subventions through corporate benefices form a new group of
disaffected but influential people with no place in an open,
competitive Saudi Arabia? Only time will tell. END COMMENT.
Gfoeller