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Weak dollar 'adds to labour costs and hurts family businesses' in UAE
Gulf News speaks to Saeed Abdul Jalil Al Fahim, chairman of the Al Fahim Group, to get his views on the impact of the dirham's weakness and inflation on local businesses.
- By Ahmed A. Elewa, Senior Reporter
- Published: 13:30 April 5, 2008
- Saeed Abdul Jalil Al Fahim, chairman of the Al Fahim Group, says the inflation rate in the UAE is higher than 20 per cent.
- Image Credit: Ravindranath/Gulf News
Abu Dhabi: Family businesses account for the majority of economic activities in the UAE and the wider Gulf region. With increasing inflationary pressures and the continuation of the dirham's peg to the declining dollar, many of these businesses are incurring losses and are seeking a way out of the problem.
Gulf News spoke to Saeed Abdul Jalil Al Fahim, chairman of the Al Fahim Group, to get his views on the impact of the dirham's weakness and inflation on local businesses.
Gulf News: How does the peg to the US dollar affect the investment environment in the UAE?
Abdul Jalil Al Fahim: Many voices now are calling for pegging the dirham to a basket of currencies. I totally agree with them. There can be political aspects involved here, but away from the politics, we are better off without that costly peg. This is one of our biggest disasters.
Foreign labour's interest in working here is diminishing day after day. We see now demonstrations and discontent because the real value of what they get has fallen by 20 to 30 per cent. Many decided to return to their home countries where they get a similar income in real terms, especially in Asia.
If a business needs to negotiate an employment contract with someone from Europe, the value in dirham terms will be far higher than the reality. All this adds to the cost of labour and accordingly the cost of doing business in the UAE. This can hurt the flow of foreign direct investments into the country.
We do not have experienced professionals in many fields, hence we need to import skilled labour to serve our needs and ongoing mega developments.
The government must find a solution soon to throw away this barren foreign exchange regime, as our trade and business relations are mostly focused with Europe and Asia, where most of our oil is exported.
What can be done to tackle inflation?
I think the inflation rate in the UAE is higher than 20 per cent. This indicates that something is wrong and the government needs to address the problem more seriously.
With due respect to the decision that cooperative societies must sell goods at cost prices, this is unrealistic, as cooperatives lease space for merchants who are paying higher prices for the space and are required to sell at cost.
The government has a leading role to play in this respect.
What is needed is directing investments into the agricultural sector in Sudan, for instance, where resources are abundant and capital is scarce. As a result, we will not only end up in getting food at more affordable prices, but this will also contribute to the economic welfare of our country and Sudan as well.
What role do family businesses play in the UAE, and how far have they advanced in terms of corporate structures?
Family businesses represent the backbone of the economy not only in the UAE, but in the GCC [Gulf Cooperation Council] region as a whole. These companies account for about 80 per cent of the business activity in the region, standing on a long history of experience and tradition.
However, today the one-man-show concept that used to be associated with this type of business is almost disappearing.
We seldom find someone in control of all aspects of the business from technical to financial, administrative, or marketing, because of huge developments in corporate structuring and technology worldwide.
Most of these companies are related to international players, and the changes were necessary to keep pace with the business requirements. Of course a stranger cannot be allowed to take full control of a family business, but specialisation necessitated employing the right people for the right tasks.
The government is planning to introduce a new companies law. Will this help increasing the scale of Al Fahim's business and provide for a financial option?
Most family businesses are adjusting to the needs of listing or establishing partnerships or joint-ventures. It requires applying professional standards, transparency, and efficient corporate structures, and this is taking place now.
The state can have its own ideas, but in reality family businesses are more aware of the circumstances they face.
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