“If we go off the fiscal cliff, it impacts the Gulf, it impacts China, it impacts the world — because of the integration of the various economies, we’re globalised. And therefore what happens in the United States will have a major impact elsewhere. The price of oil, if that goes down, what does that do for revenues for the region? ” William Cohen, a former Republican senator who crossed party lines to become Bill Clinton’s secretary of defence during the latter’s second term
Meanwhile Moody’s report on outlook for the banking system of the UAE remains negative with Dubai-based banks in particular facing asset quality challenges,
The International Monetary Fund (IMF) warned the Gulf economies to reduce government spending to prevent their budgets from falling into deficit within the next five years or so. In that note, the IMF noted that the outlook for the oil was “extremely uncertain”.
The UAE’s dependence on oil, as well as core sectors of trade, services, global logistics and tourism, continue to make the local economy sensitive to macro risks of weakened growth, global recession and low oil prices.
“The fiscal cliff specifically is one of the major ways in which the slow recovery that we have could be completely derailed,” Hard landing in China. Euro collapsing. Problems in the Middle East. And fiscal cliff is probably paramount in that area. We just met with a dozen of the largest high-tech company CEOs in the country. Not only are they hoarding cash — all their customers, all their suppliers are. They’re scared to death we’re going to go over this cliff and it could be a catastrophe.”Lloyd Blankfein, the CEO of investment banking Goldman Sachs. In an interview with CNBC,
The pessimist will see that Banks are tightening asset quality and liquidity, companies are sitting on $1tr++ of cash, so investment is not happening. The risk of collapse in Europe, especially Greece seem to increase daily.. Italy Spain and Portugal are close behind and even Germany is seeing a downturn. The western world has an aging population, China with a one child policy has an even bigger aging challenge. Some estimates suggest that if Greece left the euro then the value of its currency would halve and that the impact on the European economy would see oil prices go the same way
Regional tension with Libya, Syria, Iraq, and Iran,and Afghanistan have contributed to higher oil prices than might be expected in a global recession – but for how long? New oil supplies from Venezuela , and Africa, and shale oil from USA and Canada will reduce the need for Gulf imports. the withdrawal of US and UK forces may destabilise the region, and reduce the work for defence logistic companies.
So where is the scope for optimism. The region has long identified the need for diversification. Investment in infrastructure e.g, new ports, railways and airports across the region will provide new opportunites, for example for export into Africa which is fast expanding. Most gloabl companies have shed excess costs and are now much leaner and more cost competitive. At some point companies will want to spend that cash and earn some reward. Major technology changes have driven growth in new sectors e.g tablets, and notepads. The cloud and SOA may be the next game changer. New tools and concepts like ‘Big Data’, pervasive BI, cross platform workflow tools, more ingenious use of RFID, social media tools, and a greater awareness that CRM is about relationships and not just about sales transactions, are all changing the way business is done and creating new opportunities. This region has a modern IT infrastructure and a high adoption of new technology. E government and its future extension across the Gulf will further streamline business operations and cut costs. Gul Governments have generally shown great prudence in balancing budgets and in ensuring high standards are met by all businesses. The debt problems may have been restructured but they have not gone away. High oil prices will not last for ever, but they have provided a nest egg to underpin infrastructure investment.
The world had a long boom and it may have an equally long recession and many problems will not get resolved overnight. Synergy has seen 5 major wars in the region since its formation and that does not include any of the Arab spring disturbances. The region is better placed than most to weather the ongoing recession. As Dubai matures with enhanced facilities and lifestyle it becomes easier to attract toutists, and more important to attract and retain high high quality staff. That emphasis and awareness of the importance of human capital will increase competitiveness here while it reduces it for those countries that cannot offer the same opportunities at home.
In an increasingly competitive world we believe there will still be a need for lean operations, automated systems, powerful analysis tools, and high quality consulting and support.
