Business

Worst of the financial crisis is behind us, majority believes

Confidence remains fragile, but workforce is quietly optimistic.

Gregor Stuart Hunter

August 16, 2010

The survey paints a picture of a workforce that, while cautious, believes the economy is on track towards recovery. Of those polled, 31 per cent say the Emirates is among the countries that has handled the recession best, while 47 per cent feel the economy is on the mend. Just 9 per cent say the country has already recovered, while only 2 per cent believe the UAE had escaped recession completely.

Javed Ahmed Abbasi, 57, a Pakistani businessman who runs a small advertising agency in Abu Dhabi, is confident the worst is over. "Yes, things are getting better because the government is improving policies - there are good laws here, everything is going well," he said. "Everywhere we go, there are people listening to our comments very carefully and solving our problems as soon as possible." Sultan Nasser is just as confident. The Emirati, 21, works for a local dealership selling cars and is optimistic about the future.

"Before, it was harder to keep my job," he said. "Things are getting better, salaries are moving up and my job isn't as hard." But others in the workforce, particularly those who have seen colleagues laid off and the cost of living creep higher, are not so upbeat. Wimal Chanbana, 32, from Sri Lanka, is a waiter for a five-star hotel in Dubai, and has seen colleagues leave during the slowdown. "I work in a hotel and almost 250 people lost their jobs in the first three months of the financial crisis, and the hotel also reduced our benefits and is controlling our overtime more," he said, declining to name the hotel. "Things have since got better and the hope is that after Ramadan things will improve again.

"The economy is still not good and I find that day-to-day costs are increasing. Travelling by bus is more expensive than it used to be." While 40 per cent of businesses surveyed expect to hire new staff, confidence is still fragile for many small company owners. Badee Rahhal, 44, from Jordan, owns a small dealership in the Abu Dhabi car souq, and has felt the effects of the downturn. "Business is coming down," said Mr Rahhal, who has worked in the country for more than 20 years. "It's not stable. During the past two years, things have been as bad as they have ever been since I came here.

"But I think the situation is the same all over the world at the moment."

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”