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C O N F I D E N T I A L SECTION 01 OF 02 JEDDAH 000420 
 
SIPDIS 
 
DEPT FOR NEA/ARP, EEB 
 
E.O. 12958: DECL: 10/27/2014 
TAGS: ECON EFIN EIND EPET PREL SA
SUBJECT: SAUDI BUSINESS LEADERS: WE'RE IN AN "L" CURVE 
 
REF: A. JEDDAH 0147 
     ¶B. RIYADH 1392 
     ¶C. JEDDAH 0288 
 
JEDDAH 00000420  001.2 OF 002 
 
 
Classified By: CG Martin R. Quinn for reasons 1.4 (b) and (d) 
 
¶1. (U) Summary:  At an October 27 roundtable lunch of the 
American Business Group of Jeddah (ABJ), hosted by the 
Consulate,  eleven Jeddah business leaders described the 
current economic environment in KSA as the bottom of an "L" 
Curve -- the steep decline experienced 6 months ago has 
stopped, though significant improvement is not yet noticeable 
(ref A).  The private sector is struggling and the government 
is dipping further into oil profits.  Government spending on 
infrastructure has increased, but consumer confidence remains 
low, banks are still unwilling to lend, and real estate 
investments have been hampered by bureaucracy.  The group 
also discussed H1N1's mixed effect on tourism.  Attending the 
roundtable were the CG and two Pol/EconOffs.  End Summary. 
 
 
Government increases spending, private financial 
--------------------------------------------- --- 
sector struggles 
---------------- 
 
¶2. (C) While banks are still wary of lending, Anees Moumina, 
Regional General Manager of Samba Financial Group, struck a 
much more optimistic tone compared to 6 months ago, even 
using the word "bullish."  However, bank lending has been 
restricted only to the highest-credit borrowers with more 
restrictive terms.  The group also mentioned the 
unwillingness of foreign banks to lend to Saudi companies due 
to the commercial dispute between two prominent families, 
Al-Sanea and the Gosaibis (ref B).  Private funding has dried 
up, forcing possible government intervention in projects such 
as the King Abdullah Economic City (ref C).  Notably, the 
government's increased investments have been in 
infrastructure rather than defense, as Raytheon has yet to 
win a new contract in KSA in the last few years. 
 
 
Consumer spending down 20%, GM's good practices 
--------------------------------------------- -- 
 
¶3. (C) The group agreed that consumer spending was down 
significantly, around 20% on average, and that car and luxury 
markets were hit harder than consumer staples.  Businesses 
are scaling back by reducing advertising and spending only on 
special occasions.  Most forecasted that 2010 would be 
better.  Mr. Moumina pointed out that GM did a good job of 
addressing its bankruptcy by visiting its distributors and 
lending institutions in Jeddah to ease fears. 
 
 
Real estate prices increase but bureaucracy stifles mortgages 
--------------------------------------------- ---------------- 
 
¶4. (C) Mohammed Abudawood, influential business leader and 
member of the Jeddah City Council, has seen housing prices 
rise in recent months, which is in line with recent 
forecasts, e.g., Egyptian investment bank EFG Hermes. 
However, the group discussed the difficulties with investment 
properties in KSA.  The eviction of renters is difficult to 
enforce due to onerous legal standards: notary publics will 
not sign deeds over from individuals to banks due to Islamic 
concerns about "usury," no foreclosure laws exist, and 
lenders need to "grease the system" in order to repossess 
property (including cars). The "re-po" industry is alive and 
well in Jeddah.  Additionally, the private mortgage market is 
not widely accessible.  The growth of such a market will 
depend on Saudi authorities who are currently debating a 
proposed mortgage law for "Sharia compliance" and 
establishing rules for evictions, repossession and 
liquidation. 
 
 
Swine flu made Mekkah a "ghost town," little effect on 
aviation 
--------------------------------------------- ----------------- 
 
¶5. (C) Due to swine flu, Ramzi Ali, of Saudi conglomerate 
 
JEDDAH 00000420  002.2 OF 002 
 
 
Nesma, has seen a 40% drop in occupancy for cruises and 
hotels and Mr. Abudawood noticed the "ghost town" atmosphere 
in Mekkah, with hotel occupancy rates markedly down. 
Combined with some countries canceling Hajj, e.g., Tunisia, 
attendance at this year's pilgrimage is expected to be lower, 
although the Kingdom has tried to compensate for the drop by 
increasing other countries' Hajj quotas.  However, the Hajj 
situation contrasts with the aviation sector experience of 
William Roe from the Binladin Group, who has seen aircraft 
utilization rates hold constant for all ranges of the price 
spectrum. 
 
 
Not all gloom 
------------- 
 
¶6. (U) The "L" Curve notwithstanding, there exists some 
optimism in the marketplace.  Morgan Stanley recently 
forecast KSA's real output to grow by 4% each year for the 
next two years.  Real estate prices are appreciating and if 
the mortgage law is passed, it may open up a multi-billion 
dollar industry and extend home ownership to lower and 
middle-income Saudis. 
 
¶7. (U) Comment:  The Kingdom has been in the bottom of the 
"L" Curve for a few months now, and people here are anxious 
to re-start business.  With increased government support for 
private projects and the establishment of a mortgage market, 
Saudi Arabia should begin to show signs of a slow growth over 
the next year.  End comment. 
QUINN