UAE MEGA PROJECTS: UNCERTAIN SOCIO-ECONOMIC IMPLICATIONS

C O N F I D E N T I A L SECTION 01 OF 05 ABU DHABI 001011

SIPDIS

STATE FOR NEA/ARP BMASILKO, NEA/PI
ALSO FOR OES, EEB

E.O. 12958: DECL 09/08/2018
TAGS: ECON EINV SENV PGOV SOCI PHUM AE US
SUBJECT: UAE MEGA PROJECTS: UNCERTAIN SOCIO-ECONOMIC IMPLICATIONS

REF: A) ABU DHABI 975 (MEGA PROJECTS: DEVELOPERS)
B) ABU DHABI 945 (MEGA PROJECTS: MASDAR)
C) ABU DHABI 943 (MEGA PROJECTS: LISTING)
D) ABU DHABI 920 (MEGA PROJECTS: OVERVIEW)
E) ABU DHABI 917 (CLOSURE OF AERONATIC SCHOOL)
F) DUBAI 329 (LABOR ACCOMMODATIONS)
G) ABU DHABI 889 (HAZARDOUS WASTE PLANS)
H) DUBAI 271 (DUBAI MEGA PROJECTS: INLAND)
I) DUBAI 272 (DEBAI MEGA PROJECTS: COASTAL)
J) ABU DHABI 791 (ABU DHABI NUCLEAR POWER PLANS)
K) DUBAI 287 (REAL ESTATE LEGAL FRAMEWORK)
L) DUBAI 286 (DUBAI INDUSTRIAL CITY)

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M) DUBAI 229 (POWER ISSUES IN RAS AL KHAIMAH)
N) DUBAI 166 (RAS AL KHAIMAH DEVELOPMENT)
0) DUBAI 101 (POWER SHORTAGES)

Classified by Charge d'Affaires Martin Quinn, Reasons 1.4 (b,d).

Summary and Introduction
--------------


1. (C) The leadership of the Emirate of Abu Dhabi is using its vast
wealth to build international name recognition, play "catch-up" with
Dubai, and secure a prosperous future for its citizens. The numerous
mega projects underway in Abu Dhabi (refs A, B, C and D) and Dubai
(refs H and I) represent in large measure the UAE's vision of its
place in the future. The leadership wants a prosperous citizenry
prepared for the post-oil era; a global image attractive to
fast-track professionals, well-heeled residents, investors,
researchers, and tourists; and global respect (first and foremost for
itself, but also for the Middle East, the Arab World, and Islam).


2. (C) That the UAE has chosen the vehicle of over-the-top
development schemes to strike a pose the world cannot ignore presents
a number of contradictions. Huge edifices in one of the world's less
hospitable climates create environmental and resource concerns (air
conditioning and desalination alone put tremendous pressure on
utilities, compounded by the desire for elaborate landscaping -- and
more golf courses -- on the desert sand). The demographic dilemma of
only 15 to 20% of the resident population holding local citizenship
is exacerbated by each new building that goes up (crying for foreign
labor to build it and foreign occupants to make it profitable).
Moreover, the grand nature of development schemes presents the world
with an image of excess -- attractive as a novelty for the wealthy
yet offering little sense of where the UAE wants to go with its Las
Vegas looks leading it away from traditional Arab roots.


3. (SBU) This cable will explore briefly the viability of the mega
projects -- some clearly have more enduring utility than others --
and review some of the associated social and demographic dilemmas, as
a small but growing number of Emirati nationals are, quietly,
beginning to question the "vision" in progress.


4. (C) Our overall assessment is that a lack of strategic planning
and inter-project (and inter-emirate) coordination will slow the
realization of the leadership's dreams (although the massive funds
available allow for a measure of inefficiency). Glossy plans,
elaborate websites, and deep pockets are devoted to projects whose
contribution to the economy is unsure. With completion of many of
the projects years away, and economies in many countries slowing
down, some of these projects may face new obstacles as time moves on.
Growing concerns in the UAE regarding the social implications of
mega development, focused on the increase in resident foreigners and
attempts to maintain a sense of national identity, may cause a
backlash as the traffic, cost of living, expatriate cultures, and
perceived western "vices" (alcohol, male-female antics, and dress
codes) continue to intensify. This final cable is the Mission's
attempt to offer a candid view of where the UAE's vision may be
heading. End summary and introduction.

Building from the sand up -- where to start?
--------------


5. (C) With a citizen base of under 900,000 UAE nationals
manipulating vast wealth in a country populated by well over 5
million, the Emirati leadership is building towards the future.
Having invested extensively -- but not necessarily enough -- in the
basic infrastructure of homes, hospitals, highways, mosques, and
schools to establish a reasonable quality of life for its own
citizens, the leadership is looking to consolidate a position of
enduring prosperity and establish its credentials as a place to be
reckoned with. (International image-building is much more focused on
creating a distinct name for Dubai, and another for Abu Dhabi, than
on promoting the UAE as a federal entity.)


6. (C) Although it is easy to argue that better quality hospitals,
more affordable housing for the majority expatriate population, and a

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credible industrial base should be the higher priority, both Dubai
and Abu Dhabi have clearly staked a claim on attention-grabbing
projects. Enticing travelers to stop in Dubai for the novelty of
"seven star" opulence, a ski slope in the desert, or another
"Atlantis" resort on a man-made palm island, has so far been an
economic winner for that emirate. Abu Dhabi wants a piece of the
action with a Louvre, a Guggenheim, and Formula One. The vision is
thus established and the construction cranes put in motion.
Widespread stories that "all units are sold" in many of the new
developments engender optimism and new ideas for even more novel
approaches -- when in fact units sold to a speculating investor (who
might "flip" the units for profit multiple times before construction
is even complete) do not necessarily translate into units occupied by
a paying tenant. And a theme park or museum built with great fanfare
does not necessarily translate into a ticket-buying clientele.


7. (C) The number of stories regarding the collapse of non-viable
projects is growing as idea-men bite off more than they can chew.
Ref E notes the closure of a Dubai Aerospace University whose high
hopes fell prey to economic reality, for example. Refs M and O cite
power shortages constraining ambitions in the northern emirates. An
official of Yas Island (ref C) acknowledged that amidst the hurried
development of multiple theme parks, residences, and recreation areas
envisioned where only sand had survived before, he was not aware of
any demographic research to validate the viability of the enterprises
under construction. The current boom thrives on an optimism that may
be tested over the long term. A serious security incident, or
developments in neighboring countries (including labor source
countries),could change the equation quickly. In short, the
long-term economic viability of many of these projects depends upon
the UAE maintaining its reputation as a stable and secure
environment; continued optimism in the economy generally (and
sustained petroleum profits more specifically); more careful
planning; and a healthy dose of luck.

Money well spent? One Masdar View
--------------


8. (C) To assess whether a mega project is money well spent, one
must first assess whether the "vision" is well planned. Ref B, for
example, explained the goals of the Masdar "sustainable energy" city
on the outskirts of Abu Dhabi. But just how sustainable is the
concept? How careful is the planning? Although it is very difficult
to get individuals involved in these ambitious projects to discuss
them candidly, some key officials have divulged doubts. In a
mid-August meeting with PolOffs, one Masdar-affiliated Office
Director (non-UAE national) acknowledged that the numerous mega
projects are competing with each other for both building materials
and managerial expertise and that an uncoordinated "shotgun approach"
prevails. He suggested that adding more projects will mean lower
probability of success for each. (Others might say a rising tide
lifts all boats as projects gain synergy from one another -- which
begs the question of coordinated planning.)


9. (C) The Director expressed general concerns with government
interference at Masdar-affiliated entities and questioned whether the
Abu Dhabi leadership had been given a realistic economic picture of
the projects' potential. He pointed out that the Masdar Institute of
Science and Technology (MIST),for example, is declared as a private
not-for-profit entity while almost all of its funds come from the Abu
Dhabi government (via Mubadala). With the government as primary
financier and decision-maker, the economic viability of the project
may never be tested until it is too late to reengineer it. Masdar
could require subsidies indefinitely. (In a culture in which one
only relays positive messages to the boss, briefings may have misled
leaders with greater optimism than reality warrants. Additionally,
many advisors in the mega projects have a financial stake in them and
are naturally prone to emphasize the best estimates.)


10. (C) Masdar's party line that 20% of MIST students will initially
be Emirati, rising to 30% over time, is contradicted by officials who
feel that 2% Emirati (and perhaps 10% Arab) is more realistic.
Enforcing "MIT admissions standards" puts the threshold high and begs
the question of what percentage of Emiratis (from among a population
of under a million) would in normal circumstances qualify for MIT.
MIST will likely be forced to dilute the standards for locals to meet
the admissions goal, compromising the integrity of the overall
project. The Director also asserted that basic research (typical of
large American research universities) is a foreign idea in the Arab
world, bringing into question how long the Emirati leadership would
support a strategic research institute with no clear (and immediate)
commercial application. The Abu Dhabi leadership may have been
misled to believe that MIST would be quickly profitable due to
intellectual property (IP) revenues, yet the Director (with a career
in the field) said very little of the income of top research
institutes comes from IP. Additional concerns are raised about UAE
enforcement of IP contracts in a world where most rules are relative

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-- the sheikh always having the upper hand. The legal infrastructure
of due process needs development along with the physical construction
boom.


11. (C) Plans to have MIST run on renewable energy produced in
Masdar City also raise questions about the reliability of utilities
-- a world class research facility is energy-intensive and cannot
attract top level personnel without reliable resources. Setting
unrealistic goals (zero carbon emissions and zero waste for a
large-scale city) also places technological difficulties in the path
of the grand thinkers. No amount of money can force technological
developments -- especially without carefully-planned pilot projects
to assess viability. Toning down the goal ("less emissions and less
waste") would certainly lose appeal for financiers pouring $22
billion into the dream, although some find irony in a "zero waste"
city being built in a consumer-focused culture with very limited
waste management experience (ref G) and a fledgling sense of
environmental and social responsibility. (Will UAE residents
tolerate lower a/c settings for the good of the community or the
success of the project?)

"The World" challenged
--------------


12. (C) Masdar is only one example of an ambitious concept whose
goals were announced while its viability may still be in question.
Many of the comments made above could apply to other mega projects,
and the failure of one can taint the optimism associated with others
("failure" defined as either the collapse of a project of the
significant toning down of original claims).


13. (C) Another example is Dubai parastatal Nakheel's "the World," a
group of artificial islands in the shape of a world map. Original
plans for independent utilities and sewage treatment for each island
have been scaled back considerably as it becomes apparent that a
power and water grid will be required to make the project viable.
While no one should count the project out as a viable attention
getter -- with celebrity investors staking their claims on one of the
island "nations" and for a piece of Dubai's allure -- it has
certainly been significantly delayed as reality of the complex scheme
sinks in. The learning curve will continue to be steep as each
project approaches maturity.

What Emirati identity?
--------------


14. (C) A recent theme in Emirati discourse is the "national
identity" and what defines "Emirati culture." The mega projects
define "who we are" for some of those directly involved, but those
projects also raise the percentage of foreigners -- and lower the
ratio of locals -- in the population. Many nationals already suffer
the self-inflicted wound of being a minority in their own households,
in which domestic helpers (of a foreign language, culture, and
religion) cook the food, clean the house, and raise the children.
Each new project raises the prospects of an increasing foreign
majority; the more successful the projects, the more foreigners will
be needed to occupy, maintain, and frequent them. Recent public
discourse suggests that the UAE is torn between preserving its
culture and creating a new one in which Arab and Islamic traditions
are diluted. Visitors to the UAE may never taste the local cuisine
or even hear the local dialect of Arabic. Emiratis, on the other
hand, cannot get through their day without stepping into the
linguistic and cultural zones defined by foreign employees. (You
can't order a pizza if the cashier cannot understand you.)


15. (C) The identity issue has caught the attention of the
leadership; President Sheikh Khalifa bin Zayed declared 2008 "UAE
national identity year." A federal strategy to reinforce national
identity has generated debate as to what constitutes that identity
with so few of the population actually "Emirati." Foreign Minister
Sheikh Abdullah bin Zayed said at a conference earlier this year that
the Emirati identity evolves with economic progress, suggesting (in
the setting of the luxurious Emirates Palace) that the "good life"
many now enjoy defines the nation. He countered the view voiced by
the Dubai police chief that an increased foreign population posed an
inherent threat to local culture, traditions and security. Arab
traditions and Islam certainly live on in that increasingly
comfortable UAE paradigm, but do not necessarily gain strength, nor
necessarily transmit to the next generation. (Comment: Since
Emiratis identify as both Arab and Muslim, even many successful
longer-term expatriates -- often Indians, Pakistanis and Brits --
have little chance of gaining "local" status and remain dependent on
short-term residence visas from local "sponsors.")


16. (C) Reluctant to grant citizenship (or even long-term residence)
to foreigners to expand the "local" population base, the UAE will for
the foreseeable future try to maintain the benefits of the booming

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economy for its own nationals, seeking to ensure their survival (at
least in financial terms). Whether it can create a more egalitarian
society in which the human spirit inspires all, however, is yet
another question highlighted as the mega projects take center stage.

Will enough tourists flock to the sands?
--------------


17. (C) While plans for theme parks, malls, and golf courses
superficially appear to be solid undertakings, the tourism base in
the UAE may not be able to support the numbers of visitors needed to
ensure profitability. The overall climate in the UAE is far from
hospitable for at least five months of the year and the expense is
beyond the reach of casual tourists. In press reports, Abu Dhabi
Tourism Authority Chairman Sheikh Sultan bin Tahnoun Al Nahyan states
that Abu Dhabi is focused on attracting "five-star travelers" and
would not target the mass tourism market, which begs the question of
how many hotel rooms one can fill with elite travelers only, and how
many tourist attractions can turn a profit.


18. (C) In its Travel and Tourism Competitiveness Index (TTCI)
Report 2008, the World Economic Forum said the entire Gulf region was
less competitive in developing these industries than in the previous
year. The UAE suffered the most severe drop in its ranking, falling
to 40 this year from number 18 in 2007 (of 124 countries surveyed).
Abu Dhabi is still relatively unknown and the tourist numbers are
very low as compared to Dubai (Abu Dhabi at some 1.4 million per year
while Dubai tops seven million -- and aims for 10 million tourists by
2010). Abu Dhabi will have an uphill battle drawing tourists from an
already well-known neighbor.

And where is that quality of life?
--------------


19. (C) The current boom is predicated upon past successes, oil
wealth, and surging property prices, making many Emiratis wealthy and
leading to a general optimism the future only holds more of the same.
An estimated 75,000 of the 900,000 nationals are millionaires (in
dollar terms). They enjoy the good life, with long vacations,
upscale (and frequently updated) cars, and luxurious homes. Life, on
the surface, is good.


20. (C) On the other hand, the quality of life in the Emirates is
now increasingly coming into public question. Traffic, particularly
in Dubai, can be horrific as the population grows continuously and
ever-shifting construction constricts passage in many areas. Parking
garages are sorely insufficient. Apartment dwellers may walk long
distances in the heat due to lack of parking near home. Private
schools for the foreign population are in short supply. The boom is
outpacing the social infrastructure one would expect of an
up-and-coming "international" city. A small number of elite
hospitals offer high quality care, but in a limited number of medical
fields, while most hospitals (public and private) frequented by the
middle and lower class expatriate majority are often lacking in
facilities and personnel. Assuming that part of the boom will rely
on retirees (resident or tourist) to keep the cash registers busy,
much more will need to be invested in quality health care to sustain
the entire population. These concerns mingle with the increasingly
high cost of living to bring into question quality of life -- what
the UAE needs to sustain the international image it craves.


21. (C) An extensive treatise could be written about the
environmental implications of the mega project boom. The "green
intentions" of both Dubai and Abu Dhabi sound good at the rhetorical
level, but will the bottom line sustain the full range of costly
improvements needed to keep the environment healthy? Can extensive
remodeling of the coastline avoid damage to natural ecosystems? Does
not the very dream of attracting people from hospitable climates to a
desert run counter to wise environmental stewardship? (Almost
everything has to be imported into a climate in which air must be
cooled, water desalinated, and greenery coaxed out of the sand at
great expense. The very cost of making life tolerable is exorbitant,
making it truly pleasant requires a whole new level of resources
beyond that needed in more favorable climes.) The questions are
many. A similar treatise might ask the many questions associated
with human rights (especially given the extensive unskilled labor
population) and what measure of the "good life" will reach beyond the
elite minority.

Abu Dhabi -- or Abu Dubai?
--------------


22. (C) As Dubai consolidates its image globally, does the UAE need
-- or does Abu Dhabi want to become -- a twin city just over an
hour's drive away? Dubai is a legitimate hub of regional
transportation, commerce and finance, and has huge ambitions in
tourism that it is working to realize. But success comes with a

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cost: Dubai is also ahead of Abu Dhabi in bad traffic, environmental
degradation, crime (which remains very low by U.S. standards),and a
"decadent" nightlife that will only grow as more mega-projects come
on line. Abu Dhabi looks to its neighbor with a mixture of envy and
disdain, but is nonetheless working hard to catch up in some sectors
-- and exceed Dubai in others, such as culturally-focused tourism --
while avoiding what are viewed as Dubai's mistakes and excesses. Too
often, competition between the UAE's two leading emirates plays out
as a zero sum game, not necessarily to the country's benefit, as
project ideas and ambitions overlap. Does the UAE really need two
huge international air hubs or two massive seaports 80 miles apart,
or competing massive theme-park developments, or, for that matter,
two Zaha Hadid-designed opera houses? As a social matter, Emiratis
may increasingly question whether the UAE is building its future or
squandering its inheritance.


23. (C) Comment: This cable promised a candid view of the
implications of rampant development. It is not our intent to suggest
that projects will fail or the UAE lose its soul, but simply to point
out that the magnitude of the boom warrants somewhat more careful
planning to ensure economic viability and a greater measure of
dialogue about social implications. Dubai's former ruler, Sheikh
Rashid, proved his detractors wrong when they told him that a massive
port at Jebel Ali was foolish. Dubai now thrives from the spin-off
benefits of one of the most profitable port operations on earth.
Subsequent questions of whether Dubai had bitten off more than it
could chew have similarly been raised, but to date the optimism still
reigns. UAE founding President, the late Sheikh Zayed, focused on
societal infrastructure and was cautious about extensive development
projects in Abu Dhabi during his life time. Following his death in
2004, the flood gates burst open. As Abu Dhabi joins the competition
more aggressively, it is too early to call the final score. End
comment.

QUINN