News
UAE Not To Feel Investment Pinch
Posted on 11/03/08
The UAE will continue to attract investment despite the global financial crisis, say business council leaders quizzed by Emirates Business about the current state of the national and regional economies.
"The UAE has been affected to a small extent by the financial woes but government intervention will prevent any major effects," said Mark Beer, Chairman and CEO of the British Business Group.
"Undoubtedly we have seen stock market volatility like we've never seen before, but the government has done a lot to resolve the issue, such as injecting liquidity. Early on the UAE Central Bank announced measures to secure interbank lending and deposits. More investment is set to come to the Middle East, in particular the real estate market, despite the crisis. There are still a lot of opportunities for investment in real estate."
Beer said the market was flat at the moment because people around the world were evaluating their positions. "But when people think, 'What shall I do with my money, where shall I invest it?' they will look to the Middle East because it is the only region that is still continuing to grow, and they will look for an asset class that outstrips bank deposits," he added.
"It's yet to be seen whether the global difficulties will have an impact on day-to-day business for us. But investment in the market is safe and retention of capital in the market is safe. Inflation will keep profits high. In any market where inflation significantly outpaces bank deposit rates you expect investment in an asset class other than the bank. All we do know is that there's no better place in the world to be than here. I think this place is protected more than anywhere else in the world," he said.
Bilal Sabouni, Vice-President, Programmes, of the American Business Council, said the UAE would attract funds from organizations already active in the region.
"I think the global financial crisis has resulted in major multinational organizations looking at safe zones in other regions and other markets in the world where they can buffer their losses or their slower growth.
"There is more of a focus on the Middle East and major organizations here will wish to close the gap in terms of global profits and revenue. I think the money is going to stay in the region. Lending here will be tightened - there are going to be more controls on who gets money, who lends money and who borrows it. But in terms of a loss of investment to this region, not yet, I think we are still in a safe zone."
Richard Seguin, Trade Commissioner at the Canadian Consulate, said: "We have not seen any signs of Canadian businesses here in the UAE being affected by the international credit crisis."
But Jerome Thorson, an independent consultant and member of the American Business Council, said the turmoil had affected the region but government action could minimize the impact. "The answer is absolutely yes, the region is affected, every time interest rates drop there is an effect. When there is a financial crisis in banks there will be an effect because all banks are interconnected these days, it doesn't matter where they are. So at the end of the day when there is a financial crisis in one country, especially in the United States, you are going to feel it here. However the advantage here is that unilateral action can be taken by the government whereas the US government takes months to get things done," he said.
Thorson said real estate investors had not been put off by the crisis, adding: "Right now I think it's steady, the economy is robust enough here, at least in the real estate sector. People are not put off by the US crisis because the UAE is a bright spot in the world economy. I think that as long as the government keeps things on track and is not afraid to do what it has to do before it has to do it, then it'll work.
"There is so much money coming here in the form of cash that any slight leveling off in the property market may occur only in the short term. But the large increases seen in the past will slow down as more supply comes on to the market." Thorson said there would never be a real estate oversupply in the country because the government would control the release of units, something that the US and Europe could not do as easily because their markets are totally free.
"Abu Dhabi has already declared that it will never let supply exceed demand, they don't want to have too few houses but they'll control it, as will Dubai. I think there's enough cash and enough liquidity out there and the Emirates will be pretty much immune from the crisis. I think the leaders are prudent enough and people in this region are conservative enough to not go overboard," he said.
Joseph Nahra, president of the Lebanese Business Council, said: "The international turmoil will have a limited impact on the UAE's economy. After the current volatility in the financial market stabilizes we expect activity to pick up again. After all, the fundamentals are there and demand for what the UAE offers, in terms of stability and growth, is still unchanged."
Abbas Ali Mirza, president of the Indian Business and Professional Council in Dubai, said what is happening in the market now is just a temporary glitch, after a period of continued success.
"Investor confidence is still robust. I suppose when winning becomes a habit, glitches along the route - which do upset investors momentarily - do not mean much in the long run since a strong positive attitude takes charge. While the financial world is replete with bad news of the meltdown of stock markets abroad and fears of recessions in major economies, there is still optimism in the UAE and that is mainly due to the strong leadership of the country and able stewardship of the economy.
"I believe, the UAE, just as other emerging economies of the world, may not be completely insulated from the after shocks of the economic slowdown globally, but it will definitely survive the ripple effects and will emerge even stronger," he said.