The economies of the Gulf, and in particular the UAE's, have proven to be robust and able to withstand the financial storm sweeping the world. In addition, the Sovereign Wealth Funds of the region have played a critical role in supporting economic stability.
That is the view of Sultan bin Saeed al Mansouri, the Minister of Economy, who was speaking yesterday at a forum on the business environment in the Arab world organised by the Arab Monetary Fund and the International Monetary Fund. "We can confidently say that the Arab World has largely not been affected by the crisis," he said. "The GCC countries, especially, have proven the strength of their economies, as well as the efficiency of the back-up plans that they have prepared to encounter any implication on their economic systems."
His confidence was not matched by stock market investors, who failed to catch the euphoric mood of markets elsewhere in the world yesterday, buoyed by China's announcement of a US$587 billion (Dh2.15 trillion) spending programme. Heavy selling saw Dubai's share index fall by 3.96 per cent while Abu Dhabi's followed suit to drop by 1.98 per cent. Ali Khan, the executive director at Arqaam Capital in Dubai, said the "ferocity of the selling" had been a surprise but that the markets were now preoccupied with their own problems.
"The UAE is more concerned about the mortgage market and the level of debt that Dubai has to contend with," said Mr Khan. "Local markets are looking for a major domestic catalyst, such as how Abu Dhabi and Dubai are working together to solve the debt problem." Emaar Properties, the region's largest listed property developer, slumped 6.5 per cent to a four-year low, after the chairman Mohammed Alabbar said a "high-level committee" was exploring ways to boost confidence in the property market.
However, Mr Mansouri insisted that the open-market policy adopted by the country had been a key trigger for economic growth and stability. "Our oil-independent economic activities and the trends set by GCC governments to leverage these activities contributing to 35 per cent of the total GDP have substantially helped in attracting foreign investment and leveraging the investment environment."
Some foreign investors and credit rating agencies have become increasingly concerned about the rising levels of Dubai's debt, and its ability to roll these over in a climate when lending is scarce. "More and more people are talking about the risks of the real estate market, and equities are finally starting to price that in an aggressive way," said Luis Costa, an emerging markets strategist at Commerzbank in London.
"There are fears companies are struggling to finance their positions and this can only get worse with any further deterioration in credit markets, because Dubai doesn't have the liquidity to meet obligations." Mr Mansouri said that the UAE had taken steps to protect its financial sector, including the Central Bank injecting "about Dh120bn" into the country's banks, as well as taking a "courageous initiative to guarantee bank deposits for three years".
In particular, he highlighted the role of Sovereign Wealth Funds. "The financial crisis has changed all principles and methods," he said. "Two strategic reports have been issued in the United States that underpin the impact of the Arab Sovereign Wealth Funds on the economies of the United States and western countries and also highlight the possibility of shifting the political helm to serve the good of the Arab countries."
Some of the region's wealth funds have stepped in to try to support their countries' stock markets. Both Kuwait and Qatar have tried to buoy their stock markets by buying shares - with Kuwait spending a reported 1.5bn Kuwaiti dinars (Dh20.4bn) - without any marked success. Yesterday, the markets of the GCC all closed down except for Muscat, which ended 0.1 per cent up. The Saudi Tadawul fell 1.2 per cent, with Doha shedding 3.65 per cent; Kuwait and Bahrain were down 1.57 and 0.79 per cent respectively.
Despite the concerns of the stock markets, authorities in Abu Dhabi and Dubai said on Sunday that while many infrastructure projects would go ahead, some ambitious plans might be postponed or shelved. These were likely to be harder to finance, particularly as foreign funds were less available. Foreign investors have withdrawn an estimated 90 per cent of funds from banks in the country, according to figures from the Central Bank. Many were banking on a revaluation of the dirham, which is pegged to the dollar. When that did not happen, and faced with calls on the money elsewhere, the funds were recalled.
"The Arab countries own huge potential to create a strategic investment environment, and the big challenge is how to manage these potentials in a way that attracts investments and huge capital from all over the world," said Mr Mansouri. "This requires serious initiatives that aim to encourage the concept of the Arab common work and enhance economic partnerships and increase bilateral trade relations between the Arab countries, in order to further strengthen the Arab investments and the Arab economies."
The Government was also in the process of issuing a new credit law for banks, said Mr Mansouri. The Ministry of Finance has drafted the legislation, which has been referred to the Federal Cabinet for consideration after being revised by the ministerial committee for legislations, the state news agency WAM reported. The ministry had also finalised a new draft company law and expected it to be officially released next year.
These two pieces of legislation, along with other measures including e-government, would contribute to improving the investment environment in the country. rwright@thenational.ae * additional reporting by Andrew Foxwell and agencies