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ClimateNE & Climate Change Schools Project support the move to a low-carbon, resilient economy and help businesses avoid risk and realise commercial opportunities. Posts by Jen Atkinson, Krista McKinzey and Harriet Thew » When speaking to people back in the UK, or when colleagues or friends who come across to the UAE to visit, it is clear that there are a great number of people in the UK and elsewhere who think that the current global crisis has bypassed the oil and gas rich states of the Gulf. I can assure you this is not the case.
The same issues which are affecting banks, businesses, workers and their families in the West are also being seen in the Middle East. The scale of the problems might not be of quite the same magnitude, nevertheless there are significant difficulties being faced here.
Let's look at banks first, which is where the current crisis started and where its impact is most acutely felt right now.
The same liquidity issues have brought financial activity here to a halt. The message from banks across the UAE and the region is one of extreme caution. No new lending just yet. Global markets have dried up, banks are simply not lending to each other. That means no funding for customers.
A similar cash injection package to those in the UK and the USA was implemented by the federal government here to try and keep the banks lending. AED 120bn (approximately ã24bn at today's exchange rate) of government money was pumped into the banking system in September and October. It is a huge amount of money relative to the size of the UAE.
No new funding then has a knock on effect on key economic areas such as corporate activity and property development.
Stock markets are performing just as bad as the big established markets. There are no flotations , and merger / takeover activity is minimal.
The large property developers have cut their workforces dramatically. They have also made public announcements as to slowing down the speed of developments, focussing on key projects and putting others on hold.
There are a number of rumours circulating here at the moment as to the financial health of Abu Dhabi's neighbouring emirate, Dubai. Certainly Dubai does not have the natural resources to fall back upon, nor the cash in the bank, that Abu Dhabi has. It had to diversify into areas such as tourism and financial services - both severely hit by the crunch.
I was in Dubai earlier this week for a meeting and there was noticeably less traffic on the road in the morning rush hour. Indeed one of the Dubai rumours is that police found over 1,000 cars abandoned at the airport over the past month, keys in the ignition. Their owners, made redundant, have left the country. This is a part of the world where missing a payment or bouncing a cheque can carry quite harsh criminal penalties.
Current immigration laws only allow 30 days from redundancy before a worker's residence visa is cancelled. New rules are proposed to extend this period to 60 or even 90 days, such is the scale of things.
There are some region specific factors at play. The oil price peaked at almost $150 per barrel in late July 2008. Less than five months later and it was less than $40 per barrel. Even with OPEC production cuts, at the time of writing the price had only risen to $45 per barrel. With oil exports by far the main earner of Abu Dhabi, it is not hard to imagine what kind of effect this has had on revenue streams into the emirate.
Look at it also in context of the many overseas investments made by sovereign wealth funds, not just in Abu Dhabi but also by the likes of Saudi Arabia, Kuwait and Qatar. Property prices and stock markets worldwide have crashed. Serious amounts of Arab money have been invested in recent years. It adds to the caution and the pessimism.
The property market here is in its infancy. People have made a lot of money in paper trading properties - buying off plan and selling at a premium before they are even built. Now though, bank funding has dried up, 90% loan to value is not available to borrowers. The pace of developments have slowed down. People are worried about their jobs, many people no longer even have jobs. The bubble that was the UAE property market has now burst.
This in turn brings us back to the banks, whose high real estate exposure now has them looking with great concern at their balance sheets. It is such a vicious circle.
So is it all doom and gloom then? Let us hope not at the very least.
Media coverage, at times extremely sensationalised, has undoubtedly played some part in spreading panic and pessimism. The rapid speed and efficiency of telecommunications, and the 21st century global marketplace, has seen us plunge from unprecedented highs to unprecedented lows in a staggeringly short space of time.
It is therefore not unreasonable to expect that, when the global economy does start to show some signs of picking up, that each piece of good news is seized upon in a similar way by the media and a message of positivity will snowball. Perhaps confidence will rush back and we can then come out of recession in a similarly short timeframe?
Given Abu Dhabi's natural resources and its healthy fighting fund, it is as well placed as anywhere to first emerge from the storm. Hopefully the beautiful, bright blue skies of the Gulf can soon start spreading some sunshine around the rest of the world.
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