Transparency key to surviving downturn

The recession is coming to Dubai and the UAE. The danger is that it could be far more serious than it has to be if rumour and fear are allowed to flourish without accurate facts to dispel the gloom-mongers, reassure those companies and individuals hanging on for an upturn.

What answer is available for the young professional who has just lost his sales job in the property sector? What assumptions does the individual entrepreneur make when planning a 2009 budget? What does the regional marketing director of a multinational tell his head office when looking ahead?

The probable answer is a downturn of up to six months, which will certainly affect the property sector more than any other sector, and in particular those projects which have not yet started but are heavily financed. Across the economy, companies and individuals which are over-borrowed and unable to finance their situation from their own funds, will face problems and some may go bust.

The UAE has been living through an extraordinary real estate boom and it now appears that the boom might stop, which might well only mean a modest fall, although it could drift into a much more serious and more dramatic crash unless action is taken to make the facts clear, and to restore business and public confidence to survive the bad times ahead.

A lot of the answers lie in what the UAE governments have already done: the federal government has made money available to increase the liquidity of the banking system, and several emirate governments have announced increased infrastructure spending to keep the economy moving ahead. But these moves have not stopped the very emotional UAE stock market from continuing to fall. Businesses are still very worried about their prospects and the public is becoming more and more worried.

The rest of the answer is in widespread and transparent determination to survive the fall. As the private sector prepares to handle this crisis, companies should not be ashamed of admitting their steps to cope: stopping projects, cutting costs by firing people, admitting to heavy debts and seeking refinancing. This is all part of managing an economic downturn and although it is language that UAE has not heard for over ten years, it happens to all economies at some stage and the UAE is well placed to come out on the other side in good shape.

Obviously, some companies with too many loans will fail. Their shareholders will lose their money, and their employees will have to look for new work. This is a normal part of any economy, although the social impact is tough. While the government may look at easing that social impact, even some companies failing does not mean a crash is happening.