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Energy Insights: Energy News: UAE well placed to capitalise on lower GCC oil price

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UAE well placed to capitalise on lower GCC oil price


06-04-2015

Naser Ali

Naser Ali is head of corporate banking at HSBC Bank Middle East, UAE 

Thereís no doubt that in the GCC, the fall in the price of oil is affecting the market.

While it has to have an impact on spending, we need to remember, though, that the UAE government has already set and approved its budget with a 6.5 per cent (Dh3.1 billion) increase over last year. The continuing programme of major infrastructure projects has been allocated spending of Dh1.63bn.

The government remains in a resilient position and could tolerate an even lower price. Add that to the suggestion that oil will come bouncing back strongly in the next couple of years, and, for the country as a whole, there seems to be little concern.

Thatís a sentiment not necessarily reflected among businesses right now. Thereís a feeling that they need to keep an eye on the economic position before acting. However, lower prices also mean lower costs for many, and that could be the springboard to expansion or greater efficiency.

Oil is only one part of the picture. Iíve seen many companies here benefit from the economic challenges elsewhere in the world.

For example, I met one manufacturer who was able to buy the equipment the company needed at 30 per cent off the quoted price. Countries that are struggling are keen to give good deals to robust buyers in the UAE.

This could, then, be the right time to invest in business infrastructure. But itís also the right time to stand back and take a look at the balance sheet position and expenses. Lower costs take the pressure off a little and give businesses the chance to find more efficiencies for the future. In that way, they can be ready for any upturn in the cost of oil.

The UAE also has some significant advantages for corporate businesses, and this is why so many companies come here to establish regional offices. They come for the business-friendly environment, favourable taxation, and most of all for the logistics infrastructure.

We have seen manufacturers working on one side of the United States send their consignments via the UAE to reach the other side of the US. Itís a cheaper option for some, and itís enhanced by the massive development of the airports and ports. According to industry data, Dubaiís airport was busier than Heathrow last year Ė with nearly 69 million passengers in the year to September 2014.

While the oil and gas industry comes under pressure, one of the strengths of the UAE is that the economy is increasingly diversifying, with trade and services, aviation, banking and finance, manufacturing and real estate becoming growth sectors. Abu Dhabi has growing significance as a regional business centre and the Abu Dhabi sovereign fund (Adia) has one of the worldís largest portfolios. Another source of strength is the political stability.

Tourism continues to be an important growth area, despite fewer visitors from Russia. The number of Indian tourists to Abu Dhabi reportedly grew by 32 per cent last year compared to 2013, and the number of Chinese visitors to Dubai increased by 25 per cent. Industry research shows that tourism receipts for the UAE as a whole increased 12.4 per cent between 2004 and 2013 and the share of the total GCC receipts increased from 30.2 per cent to 41.4 per cent over the same period. According to the World Travel & Tourism Council, the UAE will remain a regional tourism leader, with the sector valued at US$31.8bn by the end of 2018.

Tourists from China and India are finding it more affordable to come to the UAE and, providing companies can adapt to new needs, there are real opportunities in this sector.

Thereís a watch-and-see attitude in the UAE, but also a feeling that the situation is well under control and able to withstand oil price fluctuations. The priority now is for businesses to maximise the opportunities created by cheaper costs and a robust economy.

www.thenational.ae/

 

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