US embassy cable - 03ABUDHABI1603

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001603 
 
SIPDIS 
 
DEPT FOR IRAQ TASK FORCE, NEA/RA, NEA/ARP, EB/CBA 
 
E.O. 12958: DECL 04/02/08 
TAGS: BEXP, BBSR, ECON, ETRD, EINV, TC 
SUBJECT:  TFIZ01: SOME GOOD EFFECTS, SOME BAD, BUT MOSTLY 
JUST WAITING -- UAE BUSINESS FEELS THE IMPACT OF WAR 
 
 
1.  (U) Classified by DCM Richard A. Albright for reasons 
1.5 (B) and (D). 
 
2.  (C) Summary and Comment:  Continued high oil prices have 
largely immunized the UAE economy from any major fall-out 
from the ongoing Iraq war.  On a micro level, Kuwaiti 
traders are said to be placing large orders for commodities 
in local markets (particularly Dubai, from whence 20 to 30 
trucks per day leave for Kuwait), and local construction 
companies have begun raising their fees in anticipation of a 
post-war run on building supplies.  More significantly, 
hotel occupancy and travel are down sharply.  Even UAE 
residents are spending more time at home watching the war on 
television than in the many restaurants and shopping malls 
here.  Other negative impacts include increased shipping 
costs because of higher insurance premiums and higher 
overland transportation charges because of a shortage of 
heavy trucks.  But the overall sense is more one of drift 
than actual loss.  Small and medium-sized businesses here 
report that orders (especially those for non-oil activities) 
are in a slump, volume on the UAE's stock exchanges is at 
best a trickle, and most local investment is on hold until 
the situation in Iraq is resolved.  Our business contacts 
say the war is clearly depressing the local economy, but 
hope that -- as long as it doesn't drag out too long -- the 
benefits of trade with a liberated Iraq will more than 
offset the current losses.  End summary and comment. 
 
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Trading Becomes More Expensive 
------------------------------ 
 
3.  (C) The UAE, as a major logistics and transportation 
hub, is suffering from higher war-induced insurance 
premiums.  The insurance premium on shipments by sea and air 
has increased in recent weeks from 0.0275 percent of the 
total value of the shipment to 0.095 percent  an increase 
of 71 percent.  The war risk on road transportation 
insurance premiums, likewise, has increased approximately 22 
percent since the onset of hostilities in Iraq. 
 
4.  (U) Local newspapers report that the wholesale prices of 
sugar, oil, medicines, readymade garments, and flour have 
increased in Dubai by 25 percent in the last two weeks, due 
to the increase in the demand of these goods by traders in 
Kuwait.  The National Committee for Supply and Shipping in 
Dubai estimates 20 to 30 trucks each day travel from Dubai 
to Kuwait, in addition to the many sea vessels carrying 
consumer goods.  According to the same article, a prominent 
businessman in Dubai said that traders in the construction 
sector have increased prices of building materials, and 
expect an increase in demand for these goods for the 
reconstruction of Iraq.  The construction of a 4,000 square 
foot villa usually costs 420,000 dirhams, but has increased 
in recent weeks by 26 percent to 530,000 dirhams. 
 
5.  (C) A prominent local businessman and owner of a chain 
of retail clothing stores, Mohan Jashanmal, said that his 
business had already suffered from the global recession. 
The war with Iraq - nd fear of attacks from Iraqi and 
other terrorists in the UAE - owever, had devastated 
business.  He noted to Econoff on 3/31 that people are now 
afraid to go to the malls, and prefer to stay home to watch 
events in Iraq unfold on television.  (Note: Embassy 
personnel have heard frequent false rumors of bomb threats 
at Abu Dhabi malls since the onset of hostilities with Iraq. 
It is not surprising that Jashanmal reports that local mall 
attendance is down.  End note.) 
 
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Local Investors Wary 
-------------------- 
 
6.  (C) Deputy Director General of the Abu Dhabi Stock 
Exchange told Econoff 3/29 that the volume of trading on the 
Abu Dhabi Stock Market fell from 141 million dirhams to 55 
million dirhams the first week of the war, but has since 
rebounded somewhat.  He perceives that local investors are 
leery of new investments, and are waiting to see how the war 
bears out. 
 
7.  (C) UAE Ministry of Oil, Director of Economic Affairs 
(and private businessman/ local investor) Hamdan Al-Akbari 
told Econoff on 3/31 that, although the local economy seemed 
unaffected by the war, he had decided to divest certain 
holdings and delay plans for new investments.  Al-Akbari 
said that he was aware of a number of minor oilfield 
services and construction contracts that had been put on 
hold recently.  He felt that he should wait until the 
political environment in the region stabilized before 
pursuing new investments. 
 
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Tourism Is Down 
--------------- 
 
8.  (C) A sales associate from the Intercontinental Hotel 
recently told Econoff that the local hospitality industry is 
suffering through a difficult time because of the war.  She 
estimated that Dubai hotels are at 40 percent occupancy 
rates and Abu Dhabi, slightly less. (Note:  Dubai hotels 
target both tourists and business people while Abu Dhabi 
attracts business people.  End note.)  Sales targets for 
March are off considerably from earlier this year, and the 
sales associate already knows she won't make her April 
quota.  She forecasts tough times through the summer, 
fearing that people will avoid the region even after the 
conclusion of hostilities because of the threat of terrorism 
and continuing fiscal restraint by companies regionally as 
well as globally. 
 
--------------------------------------------- ------ 
American Businessmen Fear Longer-Term Repercussions 
--------------------------------------------- ------ 
 
9.  (C) An Arab-American and long-time importer of American 
products in Abu Dhabi told Econoff on 3/26 that U.S. 
businesses were hurting only one week after the onset of 
hostilities in Iraq.  One of his major projects  outfitting ADNOC gas 
stations with American lube equipment 
and state-of-the-art car washes  was put on hold 
indefinitely within the last week by ADNOC, and without 
justification.  He heard that ADNOC Distribution was talking 
to a European firm to do the same work. 
 
10.  (C) The American businessman also noted that the slogan 
"Made in the USA" once was a marketing tool that increased 
sales of certain products.  Within the last week, local 
retail outlets had requested the slogan be removed; it's 
perceived that the "made in the USA" slogan will deter sales 
given events in the region. 
 
11.  (C) Another American businessman told Econoff 3/28 that 
a quick resolution to the war will be better for U.S. 
businesses here in the short-term, but the USG will have to 
do a lot of work to improve its image and that of U.S. 
companies in the long-term.  Rumors of secret contracts 
awarded to American firms (especially Halliburton) 
perpetuated the theory that this war is only about money, 
and U.S. business ultimately pay the price.  "They [Arabs] 
think we're all mercenaries," said the American businessman. 
To counter this perception, the businessman donated loading 
equipment valued at $62,000 USD to the UAE Red Crescent 
Authority to load humanitarian supplies at Mina Zayid. 
 
Wahba