VZCZCXRO6985
RR RUEHDH
DE RUEHAN #0356/01 1381331
ZNR UUUUU ZZH
R 181331Z MAY 09
FM AMEMBASSY ANTANANARIVO
TO RUEHC/SECSTATE WASHDC 2437
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRH/AMEMBASSY RIYADH 0006
RUEHDH/AMCONSUL DHAHRAN 0001

UNCLAS SECTION 01 OF 02 ANTANANARIVO 000356 
 
DEPARTMENT FOR AF/E - MBEYZEROV 
DOC FOR BERKUL 
TREASURY FOR FBOYE 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON PREL MA SA
SUBJECT: MADAGASCAR RECEIVES QUESTIONABLE SAUDI INVESTORS 
 
¶1. (SBU) SUMMARY: A group of questionable Saudi investors has signed 
an agreement with Madagascar's High Transitional Authority (HAT) 
allegedly to invest 2 billion dollars (over 20% of GDP) in 
Madagascar.  To further sweeten the deal, the Saudi investors plan 
to export large quantities of staple commodities to Madagascar, 
which the HAT asserts will lower prices by 40% - and put them in 
direct competition with local producers and existing importers, 
increasing pressure on the foreign exchange market unless the 
promised FDI inflows offset the resulting increased demand for 
foreign currency.  The deals have aroused considerable suspicion 
despite HAT-encouraged positive media coverage, both for their 
questionable economic sense and for their new engagement with 
historically distant Saudi Arabia.  The whole thing sounds bogus to 
us, amounting to little more than a PR effort to portray the 
isolated, illegitimate HAT as not entirely without foreign friends - 
or hope.  END SUMMARY. 
 
MASSIVE INVESTMENT PLAN LACKS DETAIL 
------------------------------------ 
¶2. (SBU) A delegation of three Saudi investors visited Madagascar 
from May 2 to 7, and were personally welcomed on arrival by HAT 
Minister of Foreign Affairs Ny Hasina Andriamanjato.  The group 
consisted of Sheikh Nasser Abdullah Al Mushaeghay, President of the 
Union of Saudi Investors; Najee Khalil (a Sudanese National), 
Vice-President of the same organization; and Ayman Suliman, Chief 
Executive of Click Holding.  They announced their intention to 
invest in hotels, communications, energy, cement, agro-business, and 
oil refining, with projects totaling up to USD 2 billion.  HAT Prime 
Minister Roindefo Monja signed a partnership agreement with the 
investors on May 6, declaring that the deal does not break any 
current agreements or obligations, and will instead compliment other 
efforts to develop the country.  A Malagasy-Saudi Chamber of 
Commerce reportedly will soon be created to promote the partnership 
between the two countries. 
 
¶3. (SBU) If delivered, A USD 2 billion investment in these sectors 
would have a significant impact on Madagascar's balance of payments 
since it represents over 20 percent of GDP.  The highest rate of FDI 
inflows previously seen in Madagascar was in 2007, at around 10 
percent of GDP, in connection with large foreign-operated mining 
projects.  As happened in 2007 and 2008, this influx of foreign 
currency would cause the ariary to appreciate, and drive down 
inflation - but it would not overcome the Malagasy economy's low 
absorption capacity in terms of labor and capital goods.  As a 
result, much of the investment would lead to increased imports of 
capital goods, further widening the current account deficit. 
 
LOW-COST STAPLE GOODS 
--------------------- 
¶4. (SBU) While details remain suspiciously sketchy on the investment 
front, a near-term plan to import large amounts of low-cost staple 
goods appears to be moving forward.  The Saudis plan to begin 
exports to Madagascar by May 20, starting with 25,000 tons each of 
Saudi Arabian cement, Egyptian cooking oil, Brazilian sugar, and 
Turkish flour.  These large imports of staple commodities will, in 
some cases, dramatically increase the supply on the local market and 
result in lower prices; the HAT Government predicts a 40% drop. 
These suspiciously round figures represent a 5-fold increase in 
imports of flour over 2008, a 55 percent increase in cooking oil, a 
21 percent increase in sugar, and a 6 percent increase in cement. 
To ensure that these imports will actually impact local prices, the 
Saudi investors have also requested a tax exemption from the HAT 
Government. 
 
¶5. (SBU) If these quantities of imports do materialize, local 
producers and local importers will not be able to compete, 
particularly if the imports benefit from a tax exemption.  As a 
result, local businesses will likely be driven out of these markets, 
and the politically volatile former TIKO monopoly (of former 
President Marc Ravalomanana) will simply be replaced by a de facto 
foreign monopoly.  In addition, the receipts of the sales will need 
to be repatriated to Saudi Arabia, typically within 90 days after 
the delivery.  There will thus be increased demand for foreign 
currency and pressure on the foreign exchange market, leading to a 
further depreciation of the already-falling ariary (it has lost 21.6 
percent of its value against the US dollar in the last year alone). 
If the current account deficit caused by the increased imports is 
offset by the promised investment inflows, there will be less threat 
of depreciation, but the two elements of this deal (the USD 2 
billion investment and the staple goods imports) do not yet appear 
to be firmly linked. 
 
A HEALTHY DOSE OF SKEPTICISM 
---------------------------- 
¶7. (SBU) COMMENT: Skepticism is further heightened by the fact that 
 
ANTANANARI 00000356  002 OF 002 
 
 
these three investors, and their respective organizations, are 
complete unknowns in Madagascar.  They travelled on commercial air, 
do not appear anywhere on the Internet, and were unable to convince 
even the most pro-HAT newspaper that their offer was truly 
legitimate; in a country that is already suspicious of the Arab 
world's intentions, there have even been allegations (as yet 
unsubstantiated) of ulterior motives including money laundering or 
other illicit financial activities.  PM Monja responded to these 
rumors publicly, denying that the investments had any connection 
with money laundering, but Post shares public skepticism pending the 
appearance of the promised goods and investment.  In addition, for 
these goods to lower prices in the domestic market by the promised 
40 percent, they will likely have to be sold at a significant loss - 
making it probably that they are intended as a show of good faith to 
buy support for the as yet unknown terms of any future FDI. In the 
end, if there is anything more to this deal than a ham-handed PR 
stunt by the isolated HAT, we will be surprised.  END COMMENT. 
 
MARQUARDT