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The current crisis in Asian financial markets that has effected so many of the emerging economies of the Far East is likely to spill-over into the economies of our region.
Despite excellent results from the country's banking sector, the UAE economy will not be able to insulate itself from the effects of the crisis unless proper financial discipline is maintained whenever lending and investment decisions are made.
The Middle East currently ships fifty per cent of its exports, worth around US$200 billion, to Asia. This reliance on Asian markets is enough to ensure a slowdown in demand throughout the region, which will adversely affect the regions economies. Should Japan's economy also buckle under the stain of weak domestic demand and bank defaults in its secretive financial system, the effect of the crisis will be that much greater on the Middle East, as Japan accounts for nineteen per cent of total Middle East exports.
There are signs that the turmoil in Asia is starting to have an effect here in the UAE. Already some local companies are looking for other markets to re-direct their exports to. Dubal, Dubai's aluminium maker which exports seventy per cent of its products to Asia has decided to re-direct twenty five per cent of its Asian exports to Europe and the United States. A shrinking Asian Market and a rush for increased exports to Europe will only intensify competition among exporters and will lead to reduced margins. But a change in the current export pattern may be hard to achieve, as between 1990 and 1996 trade with North America and Europe declined, while over the same period exports to the Far East grew by almost fifteen per cent. So a change of direction will take time.
Another worrying aspect is the price of oil, the major export earner of the UAE and the GCC countries, has fallen in price over the last few months through over production, a slowdown in demand and the effects of the Asian crisis. This might restrain government spending on major infrastructural projects, which would hurt expansion plans in the private sector and lead to employment levels dropping which will affect retail business as well.
It is up to us therefore to ensure that everything is done to see that these evolving economic realities do as little harm as possible to our businesses and economy. This will require prudence and tight management of available financial resources. It is essential for trade and the financial industry in the Emirates to understand that the best way to serve the country and to insulate from the consequences of a debt and confidence crisis is to be realistic when planning expansion and investing to create growth at a time when the world economy is slowing down.
Khalaf Al Habtoor
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Chairman's Message