All companies must pay their bills on time

The global economic slowdown is already affecting the UAE, and will hit harder in 2009, but the government has taken a wide range of steps to allow companies and banks to weather the period of slow business. It is important that UAE authorities are as open as possible about what is going on so that businessmen can base their judgments on facts, rather than rumour and speculation.

The government has already made available Dh120 billion to the banking system, which Obaid Al Tayer, Minister of State for Financial Affairs, told the FNC was the right amount to deal with the crisis, and that more is available if it is needed. The federal government has announced a firmly reflationary budget, and several emirate governments have announced enlarged spending plans in order to keep business moving.

Nonetheless, the downturn will hit the UAE. Companies will find new projects fading away, being delayed and in several cases not happening. Many companies are already finding it hard to get paid for work already done. This all adds up to a dangerous atmosphere for business in which fear breeds more fear, and a vicious cycle of insecurity drives the economy down.

A major developer will not pay its bills, so the suppliers cannot pay their bills. The financing on a new property does not add up in the new market conditions, so the developer asks the buyers to put in more, regardless of the terms of their contracts.

Everyone wants to grab cash, and when they have it they want to sit on it to avoid getting caught short. As a result, cash vanishes from the market, and credit becomes rare or very expensive (since the banks are doing the same thing).

One way the government could supplement its positive macro-economic actions, is to require all companies to pay their bills on time, and to introduce serious penalties for late payments, which already exist for bouncing cheques.