| Editor’s
Desk
Build Confidence
When the global financial tsunami hit the shores of USA,
even India thought that it was insulated as its share of the
global trade was miniscule. However, the ripple effect has
made an impact enough to make the corporate leaders urge the
government to act swiftly in tackling the crisis and the government
is keeping a close watch on the unfolding crisis by the day.
Similarly, if experts would have felt or feel that the Gulf
will be insulated, then they are mistaken too. Most of the
developing world which is notching high economic growth rates
is linked to the global financial world. In fact as per a
report released by Bahrain-based Gulf Finance House, lower
crude oil prices, the drying up of foreign capital flows and
declining demand for the region’s energy-intensive industrial
and building materials will slow down the growth of the Gulf
Cooperation Council (GCC) states. What will help mitigate
the impact of the crisis, according to the report, is the
governments of the region continuing their robust spending
and the price of Brent crude oil remaining above $60 a barrel.
The liquidity crisis triggered off by the redemptions at
banks due to the failure of Lehman Brothers, Merrill Lynch,
Fannie Mae, Freddie Mac etc has seen a sizable withdrawal
of capital from equities. Dubai equities alone saw a cumulative
outflow of around $7 billion or about three per cent of its
gross domestic product (GDP), from January this year till
the middle of last month. The fall in demand for building
material and commodities amidst a very competitive supply
situation has a positive and a negative side. The negative
side is the impact on current stock holders who will be badly
hit amidst falling prices and slowing demand. But going forward,
projects which are yet to start are the ones that are on the
drawing board or those which have been struggling with supplies
and facing project delays and could enjoy better deals and
availabilities.
The stock markets have already indicated that business is
reeling under the financial crisis. The real challenge therefore
is for the government to keep the confidence in the economy
intact.
The government needs to rethink its strategy in investing
in western assets and focus on sturdier cash flow investments
which may be in the form of infrastructure projects in India
and China. It should work closely with India and other SAARC
nations on building a trade corridor which can be strengthened
during this period. The Abu Dhabi officials seem to be preparing
accordingly as Salah bin Omeir Al Shamsi, Chairman of the
Abu Dhabi Chamber of Commerce and Industry confirmed that
all construction projects in the capital were proceeding despite
the global financial crisis and the companies executing them
had not reported any liquidity problems.
“The Abu Dhabi Government is ready to intervene immediately
and has a huge
construction plan that is being implemented at the moment,”
he said. “The pace of work is increasing in a way that
was not expected by many foreign investors,” he further
commented.
A major inspection is needed across all under execution projects
being undertaken by private developers as they could endanger
the confidence if they are unable to cope with the liquidity
issues. Banks may be advised to offer relief under proper
conditions. Another major step could be to take the benefit
of lower prices and cool down the inflation in the Gulf especially
the UAE. This would help enhance faith and confidence in the
system.
Liquidity crisis is the trigger; it is time to tackle the
crisis of confidence.
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