Taking stock of the credit crunch

There is growing speculation about the regional impact of the economic turmoil affecting most Western markets.

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By  Roger Field Published  October 5, 2008

With a number of gloomy predictions about Gulf property markets – particularly Dubai’s – and with Gulf stock markets in retreat, there is growing speculation about the extent to which the region will feel the effects of the economic turmoil affecting most Western markets.

And while visible signs of the credit crunch in the region might remain scarce, recent headlines have shattered the illusion that the Gulf is somehow immune to wider economic trends.

Indeed, the UAE central bank said just last week that it would make some AED50 billion ($13.6 billion) available to pump into the country’s banking sector. Kuwait’s government also signaled that it would intervene in the event of liquidity drying up.

And while telecoms may be viewed as a necessity by most businesses and individuals, it is also clear that telecom companies are unlikely to be immune, as both groups may look to cut costs should pessimism about the economy grow.

Individuals concerned about the safety of their jobs may, for example, be more inclined to hold on to their old handset and hold back from upgrading their internet package. Businesses meanwhile might be tempted to review all but the most important telecoms investments.

This is a pattern that is already playing out in the US and Europe, and is most visible in the stock prices of telecom companies. Last month, shares in handset maker Nokia fell by 10% after the company warned that its market share would shrink in the third quarter of the year. And Nokia was not alone. Sony Ericsson has issued two profit warnings in recent months as its European sales fell short of targets – a trend mainly attributed to the economic downturn.

Meanwhile, US telecom operator AT&T recently admitted it was forced to rely on ultra-short-term financing for day-to-day operations owing to a shortage of liquidity.

While opinions on how much the Gulf and wider Middle East will be affected by the global economic downturn vary, companies involved in the region’s ICT sector may be well advised to look at their European and US counterparts when drawing up contingency plans, should the global economy continue to deteriorate.

Roger Field is the editor of Communications Middle East & Africa.

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