Identifier
Created
Classification
Origin
08DUBAI464
2008-12-15 09:01:00
CONFIDENTIAL//NOFORN
Consulate Dubai
Cable title:  

MORE THAN MEETS THE EYE - DUBAI'S MONEY PROBLEMS, AND ITS

Tags:  EFIN ECON EINV PREL PGOV AE 
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VZCZCXRO6085
OO RUEHDIR
DE RUEHDE #0464/01 3500901
ZNY CCCCC ZZH
O P 150901Z DEC 08
FM AMCONSUL DUBAI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6305
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 3332
RUEHDE/AMCONSUL DUBAI PRIORITY 9525
C O N F I D E N T I A L SECTION 01 OF 02 DUBAI 000464 

NOFORN

DEPARTMENT FOR NEA/FO, NEA/ARP (MASILKO) AND EEB
STATE PLEASE PASS TO USTR (BUNTIN)
SIPDIS

E.O. 12958: DECL: 12/15/2018
TAGS: EFIN ECON EINV PREL PGOV AE
SUBJECT: MORE THAN MEETS THE EYE - DUBAI'S MONEY PROBLEMS, AND ITS
RESPONSE TO THEM

REF: A. A. DUBAI 391

B. B. ABU DHABI 1385

C. C. ABU DHABI 1360

D. D. DUBAI 417

DUBAI 00000464 001.2 OF 002


CLASSIFIED BY: Paul Sutphin, Consul General, Consulate General
Dubai, UAE.
REASON: 1.4 (b),(d)



Classified by Consul General Paul Sutphin, reasons 1.4 (b) and
(d).

C O N F I D E N T I A L SECTION 01 OF 02 DUBAI 000464

NOFORN

DEPARTMENT FOR NEA/FO, NEA/ARP (MASILKO) AND EEB
STATE PLEASE PASS TO USTR (BUNTIN)
SIPDIS

E.O. 12958: DECL: 12/15/2018
TAGS: EFIN ECON EINV PREL PGOV AE
SUBJECT: MORE THAN MEETS THE EYE - DUBAI'S MONEY PROBLEMS, AND ITS
RESPONSE TO THEM

REF: A. A. DUBAI 391

B. B. ABU DHABI 1385

C. C. ABU DHABI 1360

D. D. DUBAI 417

DUBAI 00000464 001.2 OF 002


CLASSIFIED BY: Paul Sutphin, Consul General, Consulate General
Dubai, UAE.
REASON: 1.4 (b),(d)



Classified by Consul General Paul Sutphin, reasons 1.4 (b) and
(d).


1. (C/NF) Summary. Through the fog of Dubai's image management
machine, there are signs of economic vulnerability. From
official upset regarding an analysis critical of Dubai's
finances, to (unconfirmed) reports of substantially decreased
passenger loads on Emirates Airlines and murmurings of even
steeper declines in the housing market, the Dubai rumor mill is
increasingly pessimistic. This stands in marked contrast to
Dubai officials' assurances that all under control. While the
emirate is well known for its compulsive image control, the
underlying question is whether senior officials in both the
government and Dubai's large parastatal corporations actually
are making the decisions necessary to come to grip with the
looming potential crisis. There are few obvious signs this is
happening, but senior sources indicate a wide ranging, but to
date very quiet, reduction/contraction of many major projects is
underway. End Summary.

Citibank scolded for highlighting Dubai's vulnerabilities

-------------- --------------


2. (C/NF) During a 23 November meeting and in subsequent
conversations, senior Middle East Citibank officials disclosed
that bank management was recently dressed down by Dubai Ruler's
Court officials over a 17 November report outlining challenges
facing the GCC. While our contacts (and Post's Pol/Econ
officers) view the report as on target and relatively benign,
statements noting that Dubai faces significant risks in real
estate and debt refinancing triggered substantial ire, with the

Dubai government objecting to both the report's timing and tone
(as well as local press coverage that overlooked Citi's caveats
indicating Dubai could weather the financial crisis). Implied
by authorities was also a sense of betrayal, since merely one
year ago the Abu Dhabi Investment Authority (ADIA) came to the
US based banking giant's aid with a 7.5 billion USD cash
infusion. The report's author Mushtaq Khan, a respected
economist, is reportedly at risk of losing his position.

Mass Layoffs begin and Projects Stall

--------------


3. (C/NF) Just days after hosting an estimated 20 million USD
opening party with S. African hotel developer Kerzner for its
new Atlantis hotel on Palm Jumeirah Island, major Dubai
parastatal developer Nakheel announced a 15 percent cut in its
3,500 workforce and a review of ongoing and planned
projects.(Note: A senior official from Nakheel parent Dubai
World told Consul General the opening had been planned and paid
for so long ago that it would have cost nearly as much to cancel
it at the 11th hour, so the decision was made to go ahead; the
official admitted this was a "bad call.") Nakheel also quietly
announced an indeterminate hold on Palm Jumeirah's other iconic
hotel, the much-ballyhooed Trump Towers. Other firms, including
private real estate developers Damac and Omniyat, land-rich
parastatal Dubai Properties, and local brokerage Better Homes
are preparQg to cut significant percentages of their own
workforces. Meanwhile, new parastatal developer Meras
announced plans to put on hold the vast majority of its
multibillion dollar Jumeirah Garden City development, which was
only launched a couple of months ago [ref A].


4. (SBU) Layoffs are extending beyond the real estate sector,
not unexpectedly into finance and banking. Financial powerhouse
Morgan Stanley has announced cuts in their Dubai International
Financial Center (DIFC) office, while MENA Citigroup expects to
absorb some of the expected 75,000 corporate worldwide
downsizing, and rumors persist of more to come from the
international banking houses located in the DIFC. Other
financial sources predict a new round of local and regional bank
mergers is likely in the near future, with accompanying lay offs.

Anecdotal tales of declining travel and tourism

DUBAI 00000464 002.2 OF 002



-------------- --------------


5. (C/NF) Post sources, one a senior pilot for Emirates
Airlines, have related anecdotal tales of decreased loads on the
emirate's crown jewel airline. Emirates' aggressive
hiring/training programs have reportedly been put on hold;
overtime for flight staff has been substantially curtailed; and
passenger loads on international routes, most notably the new
US/UAE routes, have fallen dramatically. Over the past week,
Pol/Econoff has had conversations with local business people
commenting on the uncommon ease of obtaining last minute First
and Business class seats for the upcoming holidays, a time that
historically has required months advanced bookings to guarantee
any passage on the carrier. (Comment: Emirates management team
has been in place since 1985, and emphasizes the "long view"
that growth must continue despite difficult years; for example,
Emirates inaugurated nonstop service to San Francisco December
15, despite the current market problems.)

Cosmetic or real show of financial strength

--------------


6. (C) On 2 December, in a highly publicized move, DIFC
Investments repaid a 500 million USD loan several days before
maturity. After initially pursing refinancing via a syndicated
loan led by Goldman Sachs, DIFC announced that the cost of
capital for the refinancing was too high, opting instead to
repay the loan from internal resources. While praised in the
local press as a sign that Dubai maintains the capital resources
to meet its financial obligations, some cynics view the early
repayment as a public relations move to offset increasing rumors
of the emirate's financial instability.

Would an Abu Dhabi bailout solve Dubai's cash woes?

-------------- --------------


7. (C/NF)_While many local economists project a relatively soft
landing for the UAE, a number of contacts speculate the likely
cash bailout of Dubai from Abu Dhabi would not come cheap,
costing Dubai stakes in some of its prime assets (such as port
operator DPWorld and Emirates Airlines). From publicly
available information, it is not at all clear that needed tough
decisions, such as a significant scaling back or cancellation of
some scheduled and ongoing projects, dropping prices on
existing, government/parastatal owned housing units, and
regulatory changes enabling small businesses to thrive, are
beinQmade. At least one key Dubai economist envisions a
situation where the emirate could easily burn through a cash
infusion with little or nothing to show, resulting in a deep,
long-term economic slump.

Comment

--------------


8. (C) Dubai's growth plans target six key sectors: construction
and real estate, financial services, travel and tourism,
professional services, transportation and logistics, and trade
and storage. Already, real estate and construction, key drivers
of Dubai's economy, have taken a significant downturn which will
have ripple effects; this has been exacerbated by the lack of
capital, which is also causing contraction in the financial
sectors. As a global recession expands, logic suggests tourism
(as well as transshipment of goods and demand for services) will
also decrease. What is unclear is how accurately the Dubai
government views the situation, and what it is doing about it.
While the public line has transmogrified of late from "all is
well" to "there are challenges, but they are well in hand",
several Emirati senior contacts have told us that a quiet but
wide-ranging review of Dubai's prestige (and pricey) projects is
underway, with a view toward completing those that will make
money or those deemed too high profile to fail (e.g. Dubai's
metro or Healthcare City),scaling back others, and eliminating
some completely - particularly those on which little physical
work has started (e.g. the 70 km "Arabian Canal"). The bottom
line is depth and length of a potential Dubai recession depends
on how well senior management comes to terms with a hard reality
and pursues difficult decisions necessary to Dubai's long term
financial health - and how well these decisions are communicated
to increasingly cautious regional and global business partners
and investors.
SUTPHIN