EYES ON THE MARKET, EMIRATIS PUT ON THEIR GAME FACES

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001079

SIPDIS

DEPARTMENT FOR NEA/ARP (BMASILKO

E.O. 12958: DECL: 09/22/2018
TAGS: EFIN ECON EINV PGOV AE
SUBJECT: EYES ON THE MARKET, EMIRATIS PUT ON THEIR GAME FACES

REF: ABU DHABI 950

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Classified by Charge d'Affaires Douglas Greene, Reasons 1.4 (b,d).


1. (C) Summary. With extensive investments in the US and around the
world, Emiratis are carefully following the turmoil in the world
economy and local markets. While most are publicly saying recent
developments in the US economy will not have a significant impact
here, both public and private investors have likely lost millions in
world markets. At the same time, local stock indexes in Abu Dhabi
and Dubai continue to decline. Most officials, however, remain
confident that strong local growth will continue, even in the face of
declining oil prices and liquidity. End summary.


2. (SBU) Although local and international economic woes have been
above-the-fold stories in the local press for weeks, publicly
officials remain optimistic. In a September 17 interview, Minister
of Economy Sultan al-Mansouri claimed the UAE economy is "immune from
crises." UAE Central Bank Governor Sultan Nasser al-Sowaidi was
quoted as saying that the UAE is not posed with any systemic risk.
Yet, on September 17, the Central Bank asked all banks to report
their exposure to Lehman Brothers. Lehman had an office in Dubai
International Financial Center, now reported closed by the Dubai
Financial Services Authority, and is thought to have had as much as
$50 million holdings in local markets. DIFC Governor Dr. Omar bin
Suliaman, however, told the Consul General that the Lehman staff will
be allowed to remain in the UAE and seek other employment.


3. (C) While some losses are blatantly obvious, such as the rapid
decline of Abu Dhabi Investment Authority's Citibank holdings, it is
not clear how significantly public accounts have been impacted. At
least one Abu Dhabi-owned investment fund has already announced it
will stay on the sidelines: Mubadala Operations CEO Walid al-Mehairi
publicly said this is not the time for investment. Private
investments abroad have clearly declined in value, but the extent of
the losses and the impact on the local economy remains to be seen.
Some contacts report that private exposure to US markets is limited,
but some Emirati businessmen admit to significant holdings in
troubled US institutions.


4. (C) Local stocks continue to tumble, in part due to the impact of
US markets on local sentiments (reftel). Recent corruption
investigations in the local real estate development industry have
also played a part. However, the markets are small and subject to
significant speculation. Financial experts note that strong economic
growth has presented Emiratis with many investment alternatives and
limited liquidity. Some, like Ministry of Foreign Trade
Undersecretary Abdullah al-Saleh, view the local and international
downturn as an investment opportunity. While some speculation
exists, the cautious majority has adopted a wait and see attitude.
Recently appointed Dubai Department of Economic Development head Sami
al Qemzi told the Consul General that the turmoil and diminished
liquidity would have two effects - one salutary, lessening the
rampant speculation in the Dubai property market; and one less
positive, squeezing prime developers with little cash on hand and
likely slowing development in the Emirate - and potentially killing
some projects. In a separate conversation, Dubai-based Algebra
Capital head Iyad Duwaji broadly concurred with these conclusions.


5. (C) More broadly, Abu Dhabi Department of Finance Undersecretary
Hamad al-Hurr al-Suwaidi told Econoff on September 15 that the
slowdown in the world economy would have little impact on the Emirate
of Abu Dhabi. Al-Suwaidi predicted that, as international liquidity
declines, the government will inject liquidity into the market to
keep growth steady. On September 22, the Central Bank announced the
establishment of an AED 50 billion (USD 13.6 billion) fund for local
banks designed to ease liquidity constraints (further details to be
reported septel). Despite the fact that this may fuel already high
inflation, several Emirati officials have opined that inflation are
of little concern to nationals who continue to benefit from strong
growth.


6. (C) Similarly, officials seem unfazed by declining oil prices.
The Central Bank Governor has said the UAE economy would remain in
good shape even if oil prices fell to $60/barrel. Undersecretary
al-Suwaidi confirmed that the Abu Dhabi's growth would continue, as
its sovereign wealth funds insulate the local economy from oil price
fluctuations. (Comment: It is, of course, these very funds that may
have significant exposure to the current instability in global
markets. End Comment.) Abu Dhabi National Oil Company (ADNOC) Deputy
CEO Abdalla Nasser al-Suwaidi told EconChief on September 4 that
$80/barrel was probably a fair oil price and that ADNOC would not be
concerned unless prices fell below $60/barrel.


7. (C) Comment. Clearly, public and private investors are watching
the local and international downturn with concern. No one invests
to lose money, but most investors seem cautiously optimistic. So
far, most Emiratis remain confident that their economic future is
bright, although future liquidity problems seem likely to impact the

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Dubai development boom to some degree. End Comment.