UAE firms should prepare for long inflationary spell

Dubai: Companies in the UAE should prepare themselves for a long spell of inflation because the problem "is here to stay," prom-inent businessman Shaikh Khalid Bin Zayed Bin Saqr Al Nahyan has said.

Shaikh Khalid, chairman of home finance provider Tamweel and head of the Bin Zayed Group of Companies, said cost escalation is "dangerous" for local businesses, but "you should know how to adjust to this" in order to survive in the inflationary environment.

The UAE government has tried to control inflation through price controls of essential commodities. Dubai has removed import duties on steel and cement, the two commodities vital for the booming construction sector.

"Inflation is one of the worst enemies of growth," Shaikh Khalid said, but conceded that the government cannot do a lot to control inflation and it is up to businesses to learn to reduce their costs.

The UAE will continue to feel the impact of rising global commodity prices due to high demand for materials and goods in countries such as India and China, he told a gathering of the Dubai-based Indian Business and Professional Council (IBPC).

"This is going to be lasting. India and China are bringing up hundreds of millions of people [out of poverty] to the middle class [level]. There will be huge demand for so many essential items," Shaikh Khalid said.

Dollar peg

Economists have pointed out that the UAE dirham's peg to the declining dollar is contributing to domestic inflation because the country has to pay more for its imports.

Several published analyses have also warned that inflation could harm the competitiveness of the diversifying UAE economy.