Middle East liquidity dries up

Kaka right.jpg

In the soccer world, the UAE has been making headlines this week. It is proposing to fund the first-ever £100m ($150m) transfer – of the Brazilian player, Kaka, to Manchester City. But behind the scenes, the collapse of the oil price has been playing havoc with the economies of the Gulf countries (GCC).

HSBC, for example, is warning that the region faces its most severe downturn in 20 years. It expects only the UAE and Kuwait to balance their budgets this year. Other countries will have to use their reserves to finance spending plans. And even the UAE is exposed to the major downturn now underway in Dubai.

Patrick Townsend of Instrata Capital tells the blog that “the mood in the GCC has become more despondent and redundancies are a fact of life – but not much reported. There are not many banks in the Middle East that have any lending appetite, and there is a large overhang of projects (especially power projects) waiting to get financed.”

Current petchem projects in the Region are already financed, but as Patrick notes, future projects will only go ahead once the lending backlog has cleared. He also adds that clients now expect “to achieve meaningful cost savings” from their engineering contractors, and “are delaying orders” until these have been achieved.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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