LACK OF TRANSPARENCY HINDERS UAE ECONOMY

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

SIPDIS

DEPARTMENT FOR NEA/ARP (BMASILKO)

E.O. 12958: DECL: 05/05/2019
TAGS: ECON EFIN EINV PGOV AE
SUBJECT: LACK OF TRANSPARENCY HINDERS UAE ECONOMY

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CLASSIFIED BY CDA DOUG GREENE FOR REASONS 1.4 (B AND D).

REFS: A) ABU DHABI 361
B) ABU DHABI 189
C) ABU DHABI 11


1. (C) Summary. Despite strong medium-term fundamentals, many are
concerned about the short-term health of the UAE economy. Contacts
argue that the continued lack of economic transparency -- and a clear
recovery plan -- is weighing heavily on the economy. While the
federal government has taken some public steps, Abu Dhabi and Dubai
still have different arguments and approaches, and business and
financial officials say more needs to be done. Nationwide, few know
who is making key decisions, statistics are out-of-date, financial
markets are immature for the size of the economy, and the media face
restrictions on what can be reported. Although some key officials
are pressing for greater transparency, it is unclear that senior
decision makers agree. End Summary.

TRANSPARENCY AVERSE
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2. (C) Economic transparency is always a challenge in the monarchies
of the Gulf, but few in the UAE were concerned when investments were
earning double digit returns. Today, many business and financial
contacts are complaining that the lack of economic and financial
transparency is delaying the UAE's economic recovery. The problem is
not new. In 2008, international ratings agencies Fitch and Standard
and Poors both cited economic transparency in Abu Dhabi as a major
weakness in its sovereign ratings. Consumer and investor confidence
would rise, say many, if the value of Abu Dhabi's income and
investments was disclosed. More broadly, the extent of Abu Dhabi's
willingness to offer financial support to Dubai remains unclear.


3. (C) Abu Dhabi Chamber of Commerce General Manager Mohammed Al
Hameli told EconOff that while the debate continues, senior Abu Dhabi
officials are divided about the importance of such transparency. Al
Hameli said he was among those who argue that revealing Abu Dhabi's
financial position would reassure local and foreign investors.
However, other influential officials, such as Chairman of the Abu
Dhabi Department of Economic Development Nasser Al Suwaidi, believe
publicizing the Emirate's financial information is unnecessary and
even detrimental, if nationals then demand more financial support.
Yet there are indications that a calculated move toward greater
transparency is beginning. State-owned investment company Mubadala
issued its first annual report on April 23, revealing a $3 billion
loss in 2008. Mubadala and other investment bodies have obtained
credit ratings, which have also helped improve transparency in a
limited way.


4. (C) Dubai seems to have decided to begin to confront its bad news
more directly, if not to the full satisfaction of many businesspeople
in the emirate. While initially reluctant to admit the serious
impact of the global slowdown on its economy, senior officials
favoring a somewhat more direct approach to discussing the bad
economic news, and how it is being addressed, seem to have prevailed
in recent weeks. A triumvirate of senior officials was appointed in
a "Supreme Financial Council" to respond to the crisis. One member,
Dubai Department of Finance head Nasser Al Sheikh, has made a number
of public comments about the disbursal of the $10 billion bond and
the intention of Dubai parastatals to pay all contractor debt. On
April 18, UAE Prime Minister and Ruler of Dubai Sheikh Mohammed bin
Rashid al Maktoum (MbR) issued a rare statement that addressed the
economic downturn, noting "the worst is behind us." While some
dismissed his comments as more spin than substance, it is clear Dubai
is actively trying to shore up its image, with MbR a much more
visible presence than in the first months of the crisis. Doubts
remain, however, about Dubai's ability to finance its parastatal
debt, usually estimated between $80 and $120 B. Standard and Poors
recently issued a negative credit watch for several "Dubai Inc."
firms after troubled parastatal property development giant Nakheel
(the Palm Islands, the World etc.) began talking about
"restructuring" (i.e. renegotiating the terms of) a $3.5b sukook
(Islamic bond) coming due later this year rather than paying it off
under the original terms.

GOVERNMENT TRYING BUT...
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5. (C) At the federal level, Ministry of Foreign Trade Director
General (deputy minister-equivalent) Abdulla Al Saleh told EconOff
that the UAEG hears the calls for transparency and has actively
worked to be open about its responses to the economic crisis.
However, while some steps have been transparent (reftels),questions
remain about the fundamental health of the economy. The downturn has
exacerbated long-standing complaints that economic and financial
statistics are often contradictory and rarely timely. The chief
operating officer of a major construction firm said the government's
lack oftransparency is the number one economic challenge -- to her

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business and the country. In one prime example, the local press
reported in mid-April that the Cabinet had decided to "postpone" a
Federal National Council request to discuss the economic crisis with
government officials.

FUNDAMENTAL PROBLEM REMAINS
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6. (C) Critics argue that some government steps announced months ago
are still pending, such as the troubled merger of bankrupt Dubai
mortgage giants Amlak and Tamweel. Investors note that the lack of
financial market transparency is another indication the UAE's
recovery may be slower than expected. Capital market regulations and
supervision are weak, bond, mortgage and foreclosure markets not well
developed, and property market regulation is non-existent in many
parts of the UAE. Commercial law is underdeveloped and untested, and
"credit culture" is not deeply rooted. Financial experts report that
while the UAE remains attractive to investors, many choose off-shore
investments, such as the Dubai International Financial Center (DIFC),
where regulations are more transparent and dispute-settlement
mechanisms are in place.


7. (C) While such comments are regularly heard in private
conversations, little public criticism is heard. Local media report
senior officials' statements, government initiatives and the broader
regional downturn, but the local impact of the global crisis is
minimized to avoid diminishing the UAE's positive public image.
Media and other private sector contacts report negative economic news
is stifled. A draft media law announced in April seeks to introduce
"content based restrictions" on information that could "harm" the
local economy and (to the concern of journalists) is sufficiently
vague that it could be interpreted to apply to general economic
reporting.


8. (C) Comment. Many hope that the current slowdown will give the
UAE the time and incentive to develop much-needed economic policies
and regulations. There is a cadre of (usually) younger business
people and officials -- such as Dubai Chamber Director General Hamad
al Buamim -- who continue to push for a more transparent approach to
the economy in general and managing the current crisis in particular.
However, it is unclear that most senior officials are prepared to
take necessary steps to improve transparency. Some still appear more
focused on finding short term fixes and protecting emirate and/or
federal reputations and (private) equities. End Comment.
GREENE