Crude price slump forces Gulf governments to cut spending and delay projects
A large GMC 4×4 sits with deflated tyres. Like the Range Rovers and Camaro GT parked nearby, it is covered in a thick layer of sandy dust — one of more than 30 apparently abandoned cars lining the bays of a floor of a multistorey car park at Dubai airport.
The vehicles are testament to the rising number of “skips” afflicting Dubai — indebted expatriates who have left the city state rather than face debtors’ prison as an economic downturn squeezes the business and finance hub.
Throughout the oil-rich Gulf, the slump in crude prices is forcing governments to slash spending and delay projects, while private companies shed staff and, in some cases, shut down.
“There is a material slowdown under way, and it still has some way to run,” said Simon Williams, chief Middle East economist at HSBC. “Low oil prices are part of the problem. Dubai may not be an oil producer, but it exports its services to the rest of the Gulf where demand is weakening.”
Abandoned vehicles were a totemic image of Dubai’s last crisis in 2009, when the emirate was forced to turn to its oil-rich brother emirate Abu Dhabi, capital of the United Arab Emirates, for a $20bn bailout.
This year’s slowdown has not reached the crisis-levels of that recession, and Dubai is less affected than other oil-dependent peers, such as Qatar or Abu Dhabi. But the emirate is still burdened with debts of around 140 per cent of gross domestic product and faces loan and bond repayments of $22bn through 2018.
And the government’s problems are aggravating the woes of struggling private companies. Between the third quarter of 2015 and the first three months of this year, 237 small business owners left the UAE as increasingly late invoices forced firms to miss their debt repayments, according to Coface, a credit insurance firm that monitors the trade credit of 20,000 UAE companies.
One consequence is abandoned cars at the airport. Bouncing cheques and bankruptcy are treated as criminal offences in Dubai, causing many indebted expatriates to dump their vehicles and other possessions and jump on a flight out of the emirate rather than risk jail.
Cheeky graffiti scrawled on to the dusty windscreens of deluxe Range Rovers abandoned at the airport reflect the darker realities of modern day Dubai. “I don’t have money,” reads one message. “I do,” retorts another. “Sell the car and get money,” reads a third message.
“These runaway cases are triple … what we used to have,” said Massimo Falcioni, Middle East chief executive at Coface.
In metals and construction, the sectors hardest hit by the slowdown, companies are facing four-month delays in payments from clients, he said, meaning they have to wait eight months on average to receive their cash.
Mr Falcioni said the number of bankruptcies is stabilising as weaker companies have already folded, and he predicts better prospects ahead as the emirate gears up to spend on infrastructure in preparation for hosting the World Expo in 2020.
But families are still leaving the emirate as the high cost of living — including rent and schooling — makes life too difficult for many white-collar workers as the economy slows.
“New job creation has been stagnant as companies in the region are bracing for a slowdown and they are streamlining their operations,” said M.R. Raghu at Markaz, a Kuwaiti investment bank. “Inflation and cost of living are other concerns, coupled with stagnant salaries that have contributed to the exit of expatriates.”
MoveSouq.com, the UAE’s largest home services online platform, has seen the volume of requests for moves overseas doubling compared with the same time last year.
Bana Shomali, the company’s founder, said the increase was due in part to the natural growth of her young business. But she added: “We’ve noticed that international moving has grown much faster than other types of transactions.”
Job losses are being felt across some of Dubai’s most important sectors — banking, tourism, construction and oil services.
Property values have been on the slide, with values dropping by about a quarter since their most recent peak in 2014. Prices are still far above their 2011 trough, but could decline a further 15 per cent through 2017, according to real estate consultancy Phidar Advisory.
Jesse Downs, Phidar’s managing director, said the strong dollar — with the dihram pegged to the greenback — is adding to the emirate’s travails.
“Until, and unless, the US dollar weakens, liquidity improves, or some other unforeseen exogenous shock occurs, the market will remain weak,” she said.
Many in the emirate are waiting to measure whether autumn will bring an economic rebound.
However, teachers say newer, more expensive international schools set up during recent boom years are finding it hard to fill classes, suggesting higher-paid professionals are also being squeezed.
Innoventures Education, which runs established private schools in Dubai, says its numbers are holding up but cancellations for overseas relocations out of the emirate have risen by 10 per cent.
“We are also finding new applications coming in more slowly than last year,” said Poonam Bhojani, chief executive.