Mixed effect of dollar decline for small businesses in UAE
Small businesses that import goods priced in foreign currencies fear they will suffer if the dollar declines sharply.
Those that export goods, meanwhile, may benefit from the market instability, says Vishnu Deuskar, the managing director of Salvus Strategic Advisors in Dubai.
"Those importing in Japanese yen will have to pay more, but those exporting in Japanese yen will be better off," he says.
Sea Safety Engineering Services, based in Abu Dhabi, imports materials from countries including Germany and the UK and has already been squeezed over the past few months. "The euro region has gone up almost 10 per cent from last year, which cuts into the profit margin," says Lakshmanan Raghu, the company's managing director.
Volatile markets also make it harder for the company to bid for tenders because the exchange rates vary so much.
"There shouldn't be too much of an effect on a small business that sells bread or runs a local hypermarket because they are catering to the local industry," says Satyajeet Roy, the head of Citi's commercial bank for UAE and Bahrain.
"And as long as the local industry remains viable they won't have a problem."
Small businesses that deal or invest in gold could also gain.
"When large markets and currencies like the US go down people put more money in other asset classes like gold. And the UAE has a very big market for gold, so small businesses selling gold or businesses which invest in gold will benefit," says Mr Roy. And if the slide develops into a second downturn, the cost of borrowing is unlikely to rise.
"Typically many central banks intervene to make the cost of borrowing lower in recessionary times," says Mr Deuskar.
"[Banks] might charge [customers] less, not more, to make sure businesses don't go under," says Mr Roy. "We have not altered our pricing. We continue to monitor the situation and are working closely with our clients to ensure their financial services needs are met."
Mr Roy says he does not expect the US credit rating downgrade to result in a systemic market disruption.
"We don't expect liquidity to be a critical issue for companies," he says.
"Furthermore, we do not expect the knock-on effects of a lower US sovereign rating [to "AA plus"] to lead to additional downgrades immediately in the financial services industry."
Published: August 9, 2011 04:00 AM