DUBAI WOES REVERBERATE IN MOROCCO

C O N F I D E N T I A L CASABLANCA 000009 SIPDIS STATE FOR NEA AND NEA/MAG E.O. 12958: DECL: 01/20/2020 TAGS: EINV EFIN ECON PGOV PREL AE MO SUBJECT: DUBAI WOES REVERBERATE IN MOROCCO REF: 09 CASABLANCA 166 (NOTAL) Classified By: Consul General Millard for reasons 1.4 (b) and (d) ¶1. (C) SUMMARY: The net value of United Arab Emirates (UAE) foreign direct investment in Morocco reached USD 606 million in 2008, a staggering increase from the USD 15 million invested in 2002. To fuel this expansion, the UAE employed a calculated strategy, which entailed pursuing long-term investment contracts with some of Morocco's key institutions and forming joint ventures with influential and strategic partners like the King's financial holding group. Nevertheless, according to the preliminary data from Morocco's trade office, UAE's investment in Morocco decreased by more than 80 percent from the previous year to USD 74 million. Some Dubai and Abu Dhabi real estate development plans have been postponed indefinitely, while others have been cancelled outright. The Emirati withdrawal has angered the Palace and put future partnerships in jeopardy, said a close confidant of the King. End Summary. -------------- The Golden Years -------------- ¶2. (SBU) From 2002 to 2008, Morocco and the United Arab Emirates (UAE) enjoyed a robust investment partnership. The net value of UAE foreign direct investment (FDI) to Morocco totaled USD 15 million in 2002. Six years later, net FDI had reached USD 606 million, second only to France. During this time, Emirati investment in Morocco was characterized by a set of high value real estate and tourism development projects. Companies such as Emaar Properties, Dubai Holding Group, and the Abu Dhabi based Al Qudra, signed dozens of memoranda of understanding with quasi-public and private Moroccan companies to develop golf and ski facilities and Riviera-style residential and touristic resorts stretching from the Atlas mountains to the Atlantic Coast. "UAE investment was a dependable and long-term source of growth for Morocco, injecting capital, expanding market access, and contributing to mutual prosperity", said Driss Alaoui Mdaghri, the President of Morocco's Economic Intelligence Unit. -------------- The Emirati Strategy -------------- ¶3. (C) To fuel its expansion in Morocco, the UAE employed a dual strategy. First, it pursued long-term contracts with some key Moroccan institutions. For example, Dubai Crown Prince and UAE Defense Minister Mohammed bin Rashid Al Maktoum signed a 10-year agreement with the Tangier-Mediterranean Special Agency (TMSA) relating to the operations and commercialization of the Tangier Mediterranean Port in the north of Morocco. In addition, Al Qudra entered into a five-year agreement with Addoha Group, the country's largest real estate development group, to help Addoha meet Morocco's social housing demand. (Reftel) ¶4. (C) Second, the UAE formed joint ventures with influential partners such as Omnium Nord Africaine (ONA), the King's financial holding company, and the Caisse de Depot et Gestion (CDG),which manages Morocco's pension fund. The collaboration with the palace-affiliated ONA group, in particular, paid dividends for Emirati investors such as Emaar Properties and Dubai Holding. Indeed, such partnerships often resulted in mutual benefits. Ahmed Laaboudi of the Moroccan Center for Economic Analysis told EconOff that Gulf investors seek out partnerships with ONA as they believe such a relationship will help them circumvent Morocco's bureaucratic red tape and also secure their investment. As for ONA, partnering with a world-renowned real estate development firm like Emaar Properties means collaborating with a highly experienced business partner, said Abdelmjid Tazlaoui, the Vice President of ONA's real estate arm and a close confidant of the King. ¶5. (C) Nonetheless, Emirati business ties to the Palace have drawn criticism. Some complain that the relationship has been used unfairly to exclude competitors in Morocco's real estate sector. These critics argue that the relationship is too close for comfort, often resulting in nontransparent tender processes. Baha Eddine Shanableh, a successful real estate developer, cites discounted property rates and illegal rezoning of agricultural land as examples of how Emirati firms have grossly benefited from their proximity to the Palace. -------------- Tough Times Ahead -------------- ¶6. (C) According to preliminary data from Morocco's trade office, the net value of UAE foreign direct investment in Morocco dropped to USD 74 million in 2009, a decrease of 83 percent from the previous year. During the past year, the partnership between Dubai companies impacted by the global financial crisis, such as Emaar Properties and Dubai Holding, with Morocco's ONA and CDG, have become strained. Some real estate development projects have not moved past the initial phase, while others have been cancelled outright. For example, Sama Dubai, a subsidiary of Dubai Holding Group and a 50 percent stakeholder in the USD 250 million AMWAJ development project near Rabat, recently announced that it could no longer finance the project. Dubai Holding has also withdrawn its investment from the Casablanca Marina development and is expected to cancel its plans to build Rabat's pedestrian coastline. Moreover, Emaar Properties has put its plan to build a USD 10 million ski resort in Morocco's Atlas Mountains on hold indefinitely. -------------- A Not-So-Happy King -------------- ¶7. (C) As Dubai investors withdrew from a host of development projects slated for 2009 and 2010, Morocco's quasi-public and private companies were placed in an awkward financial predicament as they struggled to find alternative financing. Tazlaoui confided that "UAE withdrawal will be very costly both financially and politically". The King was annoyed by the abrupt manner in which UAE firms handled their financial capital exodus from Morocco, he added. -------------- Comment -------------- ¶8. (C) Despite these recent setbacks, which gave rise to speculation that the golden era of UAE investment in Morocco was drawing to a close, we believe Morocco's involvement with the UAE is likely to resume growth in the future. However, partners such as ONA will become more vigilant in ensuring that they can get a fair deal from these joint ventures. In the view of ONA and other major players, both Morocco and the UAE have much to gain from continued cooperation. MILLARD