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) ABU DHABI 00001011 001.2 OF 005 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 ABU DHABI 00001011 002.2 OF 005 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 ABU DHABI 00001011 003.2 OF 005 -- 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 ABU DHABI 00001011 004.2 OF 005 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 ABU DHABI 00001011 005.2 OF 005 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