VZCZCXRO8882
RR RUEHDE RUEHDIR
DE RUEHAD #1173/01 2930350
ZNR UUUUU ZZH
R 190350Z OCT 08
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC 1587
INFO RUEHDE/AMCONSUL DUBAI 7989
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE

UNCLAS SECTION 01 OF 02 ABU DHABI 001173 
 
SENSITIVE 
SIPDIS 
 
FOR USTR AMBASSADOR SCHWAB FROM AMBASSADOR OLSON 
STATE FOR NEA/ARP (BMASILKO) 
STATE PLEASE PASS USTR (MOWREY, BUNTIN) 
 
E.O. 12958: N/A 
TAGS: ETRD EFIN ECON PGOV AE
SUBJECT:  SCENESETTER FOR THE VISIT OF USTR SCHWAB TO THE UAE 
 
ABU DHABI 00001173  001.2 OF 002 
 
 
¶1. (SBU) On behalf of the US Mission, I warmly welcome your October 
21-24 visit to the United Arab Emirates.  Public and private sector 
officials look forward to the opportunity to discuss bilateral trade 
and investment issues, particularly at this sensitive time for the 
world economy. 
 
------------------------------------- 
TODAY'S UAE ECONOMY - TOO BIG TO FAIL 
------------------------------------- 
 
¶2. (SBU) Despite its resource wealth and exponential growth, the UAE 
has not been immune to the international economic downturn.  Stocks 
have been battered, liquidity is tight and consumer confidence has 
declined.  This month, the UAEG took a number of steps to restore 
confidence: insuring bank deposits, creating a bank liquidity fund, 
and reassuring the public that the government was ready and willing 
to support the economy.  Despite these steps, investors remain 
concerned about local market conditions, particularly Dubai's 
financial situation and the possibility of a sharp correction in 
Dubai's large, overheated real estate sector. 
 
--------------- 
ABU DHABI BOOMS 
--------------- 
 
¶3. (SBU) There is much to suggest that the UAE will escape the worst 
of the international downturn, and that Abu Dhabi will fare the best 
of the UAE's seven emirates.  With Abu Dhabi emirate controlling all 
hydrocarbon resources in its territory (93 percent of the UAE's 
oil), high, or at least relatively high, oil prices and a large 
budget surplus will keep many optimistic in Abu Dhabi.  A new 
generation of officials has shepherded in an era of development, 
with the related bevy of high-cost and high-profile investments and 
megaprojects.   While Abu Dhabi has undoubtedly lost billions in 
recent weeks, the world economic downturn has yet to slow the rapid 
pace of development, including the October establishment of a media 
park (including partnerships with CNN and National Geographic), the 
awarding of a billion dollar nuclear power contract to CH2MHILL, and 
an expanded partnership with Advanced Micro Devices (valued at 
almost $3 billion).  The highest profile investments continue to be 
driven by wholly or partly state-owned entities, with the weaker 
private sector largely benefiting from the government's largesse. 
 
------------------------ 
DUBAI BRACES FOR IMPACT 
------------------------ 
 
¶4. (SBU) Dubai is less insulated from the global financial shock, as 
much of its economy is dependent on trade, foreign tourism and 
property investment, all of which are already contracting to some 
degree.  Many of the big real estate projects are believed to be 
highly leveraged and have attracted a lot of short-term speculators. 
There will certainly be needed rationalization in the overheated 
real estate market, with unsustainable price growth rates (47% in 
the first 6 months of 2008 for new property) dropping significantly 
and speculators leaving the market.  Many believe a number of the 
weaker developers (particularly those without solid ties to banks or 
government development schemes) and their projects are likely to 
fail.  Nonetheless, as in Abu Dhabi, most of the highest profile 
projects are backed by government-affiliated companies and are 
likely to go forward, if perhaps in scaled-back form.  Dubai 
continues to benefit from the region's most transparent and 
business-friendly regulatory environment, its highly developed free 
zones, and its region-leading port and airport.  It also continues 
to profit from its historical trade relations with Iran -- although 
those particular ties are attracting increasingly negative 
international attention.   While it is unlikely the Dubai experiment 
will fail, the impact of the tight international credit situation 
and the unfolding of several significant financial scandals in the 
emirate are injecting a sobering reality into the Emirate's grand 
plans. 
 
-------------------------------- 
TRADE AND INVESTMENT STILL KINGS 
-------------------------------- 
 
¶5. (SBU) Most here remain optimistic about the UAE's economic 
future, as well as the strength of the US economy.  Public and 
private sector officials will want to discuss how to promote 
bilateral trade and investment.  While few may admit it, negative 
press from the failed DP World ports deal continues to impact public 
views on the dependability of the United States as an economic 
partner, particularly with regard to high profile issues like a Free 
Trade Agreement.  But however cautious and low-profile UAEG 
officials may wish to be as a result, they still view the United 
States as a fundamental component of their growth strategy. 
Officials will be interested in how the TIFA Plus framework can be 
 
ABU DHABI 00001173  002.2 OF 002 
 
 
reinvigorated to advance US-UAE economic ties. 
 
---------------------------- 
BILATERAL TIES REMAIN STRONG 
---------------------------- 
 
¶6. (SBU) Our relations with the UAE remain broad, deep and enduring. 
 The UAE is a key partner, intent on cooperating with us to create a 
stable economic, political, and security environment in a troubled 
region.  Concerned about regional proliferation, the UAE has been 
responsive on export control issues.  Abu Dhabi Crown Prince 
Mohammed bin Zayed recently visited Iraq to reinforce UAE support 
for the Iraqi government; in July, the UAE forgave Iraqi debt and 
named an ambassador to Baghdad.  The UAE will co-host the BMENA 
Forum for the Future on October 18-19.  Your visit will be taken as 
another sign of our shared commitment to deepening all aspects of 
the relationship. 
OLSON