UAE Poised for Abrupt Economic Slowdown

Although the United Arab Emirates (UAE) has one of the fastest growing economies in the world, it is poised for a more abrupt slowdown in economic growth, as the tremors of the current global recession are being felt in this part of the world.

Published: Sat 20 Dec 2008, 1:06 AM

Last updated: Sun 5 Apr 2015, 11:28 AM

CNN’s John Defterios (JD), had a candid interview with Abdul Aziz Al Ghurair, Speaker of the Federal National Council (FNC) & Chairman of Mashreq Group, on the imperative solution to the global credit crunch and its repercussions to an otherwise vibrant economy.

AAAG: I think UAE, Abu Dhabi, Dubai, have enjoyed phenomenal growth. And we have really taken the advantage of this and we have built our infrastructure so now the UAE is known in Europe, in the US, in Japan, as really a business hub. So now the fundamentals of business have been built. Now we can afford to reconsider where we’re going next, be it slowing down our growth, be it postponing some of our projects. That’s OK, we have to adjust to the new environment today, and those people who have come here to UAE to set up business, they have to adjust themselves.

JD: Does it not concern you that Dubai, for example, runs a debt to GDP of greater than 100 per cent. What does that mean going forward if you pause with that sort of a debt level?

AAAG: I think Dubai has always depended on fundamentals, the right fundamentals and the right business and most of our projects and investment has gone for actual profit-making. So these companies have a cash flow and these companies have the ability to repay their loans. So people still believe that if the fundamentals are right, if the cash flow is there, and if the track record is there, people will still lend you money.

JD: If I could follow up here, the role of the federal government, to lend assistance to the different Emirates that make up the UAE, if Dubai needed to have capital to get through what could be a credit crunch in the next six months to a year, is the money available?

AAAG: UAE has over $600 billion in foreign currency reserves and sovereign fund investment abroad. Now, this money will have to be put into use. Now, we have seen it when the government have pumped in liquidity into the banking system, they have committed over $30 billion of liquidity into the banking system just to keep the economy going. So I think the commitment is there to support the economy of the entire country, and that has been demonstrated just recently.

JD: But it sounds like there is an emergency budget if necessary?

AAAG: It’s there, and I think that’s when the money will be used if there is a need for it.

JD: What are the implications then for cooperation and if I can say, Emirati sovereignty, for Dubai or Abu Dhabi, and the rest, is this an extraordinary time that requires extraordinary measures and cooperation?

AAAG: I think the understanding, the dialogue, is there, and for example, we’re getting our gas from Abu Dhabi to come to Dubai for our energy and that kind of understanding is there between each Emirate. Of course, there is a state budget and there is a federal budget, and everyone’s supposed to be disciplined within their own control.

JD: Most have not experienced a recession in the UAE or in Dubai for that matter. You have, but it’s going back some thirty years. Are the people ready for a slowdown from very high growth levels?

AAAG: Well if you talked last year, nobody says we will have to get ready for a slowdown because they’re all seeing growth. But, I think this challenge will put people under some stress and only people who have built their business on proper, correct fundamentals of business, they will succeed.

JD: Along with the economic cooperation, you recently had a dialogue in the meeting or an audience with Pope Benedict at the Vatican. This is religious dialogue, but also a much greater scale of dialogue for the UAE with the Vatican here. What is the motivation here?

AAAG: I think that we, from the UAE, we value the relationship we have with the Vatican. The UAE have taken the steps to open an embassy, and the Vatican will open an embassy in the UAE. And I think we believe there is a call for greater dialogue between countries and between religions. And that’s the dialogue I had with his holiness the Pope.