28 October 2015 By Northern Lights
I’ve spent the last week between Dubai and Abu Dhabi with clients, at events and a number of coffees.
A lot of UK clients have been asking me whether the UAE has been affected by oil prices, so here I give a snapshot of the coffee conversations. While everyone I meet is senior, I rate them all and they are respected in their fields, these are not ‘expert views’ and please don’t make investment decisions based on this information alone! I’m happy to put you in touch with people such as Joe Hepworth of the British Business Centre or Jenny Hunt of the Gateway Group who can give you more details based on your own business.
I spoke to three senior bankers in Dubai and Abu Dhabi and they all gave variations of the same story. Bank liquidity is challenging. With oil prices falling in a year from US$103 per barrel to this week’s $47 per barrel, bank deposits have fallen dramatically. Sovereign funds have been withdrawn to cover expenditure, especially infrastructure; there aren’t oil surpluses being deposited in banks; and several bankers confirmed ‘liquidity is our biggest challenge’.
The conversations reminded me of the UK over the last few years –not a sense of crisis, just extremely difficult and everyone is rethinking their products and services and business plans.
One banker who deals with high net worth individuals said their clients are looking to protect capital, not for growth and they are now creating new products to service this. They said ‘speculation has disappeared’. But they also said that one client had just bought several luxury properties because prices had dropped and they didn’t think property would go down much further.
Last year the sponsorship and advertising market was extremely buoyant. Recently I’ve heard stories that even the big, global brands – from airlines to insurance – are now cutting back on discretionary spend, including sponsorship of some events and business activities.
Several people commented that retail spending is down. I couldn’t gauge by how much but this report by Jones Lang LaSalle says that Russians are no longer spending as they did and this is having a significant impact.
The good thing about the stories I heard is that businesses are anticipating a difficult year ahead and preparing for it now. Budgets have been slashed – one organisation said their HR had been cut by 50% – and businesses are looking hard at costs.
We have seen this ourselves. Contracts that clients really want to place are taking even longer to be confirmed. I spoke to one client this morning and he said that they are on track for orders this year but revenue will be down because contracts are taking longer to be confirmed than in their budget.
The UAE is becoming expensive to live in. One couple said they had just moved house so they could afford to stay. I heard of one director who said he is seriously looking at whether he can afford to stay – and reckons he could now make more money and have a better standard of living in the UK.
There are a lot of organisations in Dubai and Abu Dhabi with services to help start-up businesses get a licence, find offices and sort out labour cards and residency visas. In the summer, we were offered extraordinary value deals for all this and I sensed this is a challenging market at the moment.
Another client said this weekend “No-one has a really clear sense of what next year is going to look like. Provided we maintain turnover and make a small profit, our business owners are happy.”
The Economist predicts real GDP growth of 3.6% between 2015 and 2019 in the UAE. With the US just having revised its growth to 3.9% between April and June this year and the Office for National Statistics recently revising the UK’s growth down to 2.6%, most people would say this is still a strong economy.
There is no doubt that the UAE is bracing itself for 2016 but I felt most businesses are still optimistic beyond this, towards Expo 2020. Someone said that the second quarter 2017 and beyond will be the UAE’s ‘golden years’.
We are still committed to doing business in the UAE and wish our clients and friends success in the coming months.