Oil price revival sparks talk of recovery in UAE

Nicholas Thompson, chief executive of architect Aukett Fitzroy Robinson, was unflinchingly bullish when asked how business was in the UAE last week.

Despite the £1.2m loss the company posted in 2008, in part thanks to the region’s economic malaise, he is convinced the UAE is finally seeing an upturn.

“The enquiries have started to come in again. What we had was a very short, sharp jolt to the system but in the last month we have entered recovery mode.”

Although not all of his peers are as effusive, many have at least softened their tone. Two months ago, Keith Clark, chief executive of Atkins, said late payments in the Middle East had climbed to £25m in a gloomy trading update. Last week he acknowledged “liquidity is returning”.

Nick Taylor, chief executive of consulting engineer Waterman, agrees, but thinks it will be another three months before the first definite signs emerge. “The future is good but there will only be selected development work after the summer break and the end of Ramadan in September.”

The big cause of the shift in confidence is the recent increase in the price of oil (see graph). After falling from a peak of $147 last July to a low of $32 in December, the price has climbed steadily to $70.

Combined with the global liquidity crisis, the drop caused the financial apparatus in the UAE to seize up. Taylor recalls: “The real dip was in December, just after the opening of the Atlantis Hotel [above] in Dubai. Several months of extreme uncertainty followed.”

With today’s oil prices, Thompson says schemes have become more feasible. “Projects assessed at $45 a barrel have gone from borderline viable to viable.”

Some in the region believe the $20bn raised by the UAE central bank in Abu Dhabi has started to take effect. At the time, John McDonough, chief executive of Carillion, said the fund-raising had prompted a “collective sigh of relief in the region” and Thompson says the cash is “beginning to find its way through”.

Not that many will get carried away as the market picks up in the region. As Mark Prior, head of EC Harris in the Middle East, says: “There is a sense that the worst is over but will we ever get back to the heady days of the boom? Absolutely not.”

He says last December’s crash forced the region to “shape up”, particularly Dubai. He says: “You are seeing a much more measured model emerge. Decisions are taking longer to get the go-ahead as people think with more business-focused minds. It’s probably a good thing.”

Sean Hearn, sales manager with Middle East construction market intelligence group ProLeads, agrees and says the pick-up will be patchy: “It will vary from emirate to emirate, sector to sector and project to project. For example, if 30% of construction costs have been spent, it’s not viable to leave an empty shell.”

Whatever the coming year holds, most agree it is too early to talks about the green shoots of recovery. The climate, however, has recently become a whole lot more nurturing.