Mid East business faces a slowdown

While the business community in most of the industrialised world has been facing the prospect of a recession for some months, few people in the Middle East had been anticipating a slump in business before the tragic events of September 11.

Indeed, most Middle East businessmen felt somewhat immune to the decline now evident in most world markets, with the continuation of high oil revenues as a barrier to entering the slowdown. But now businesses in the region find themselves caught up in the world wide down turn, and right in the midst of a potential war zone.

The first casualty has been the hospitality sector, with hotel cancellations running at 70-80% across the Middle East. Aviation, tours, car hire, restaurants and everything allied to tourism have also been hit. And there is the inevitable crossover into the commercial conference and trade show sector, with many multinational companies now fearful of travelling into a region carrying high insurance risk for their staff.

Also in the firing line is consumer confidence in the region. Spending in the malls and souks of the Middle East will doubtless be affected, particularly when lay-offs start in the sectors most affected by the crisis. This clearly impacts on general retailing and entertainment as well as crucial areas such as car sales. And in turn this reduces lending opportunities for the financial sector as consumers will reign in their purchases and be less likely to borrow money.

But how long will this sudden down turn last? Gulf War business veterans say that they have seen it all before. They say that the slump in business may not last for long in many parts of the Middle East. But that all depends on what military action follows the terrorist attacks on the United States, and its timing. And that remains uncertain.

The most optimistic scenario is that the 'prime suspect' Osama bin Laden is handed over to the United States, after concerted diplomatic pressure by NATO and its regional allies. Then there would be no military action in the region, and business could gradually get back to normal, with lost orders quickly being made up.

A second possibility is that the US will undertake a series of raids against Afghanistan and terrorist cells in the region. This may be a long-term action and result in severe dislocation of the hospitality sector for some time, and damage the region as a centre for the conduct of normal international trade and business. Again Gulf War veterans offer some consolation, and recall that US troops were then customers of the hospitality sector and that business life went on, albeit in a different pattern.

The third scenario of a badly bungled US operation in the Middle East and the likely public response does not really bare thinking about. However, it remains by far the least likely outcome, not just because the US is sensitive to regional opinion, but because there is an enormous vested interest in maintaining oil supplies from this region.

Businessmen hate uncertainty. It makes planning difficult, and risk difficult to assess. And if you are deep in debt, right now you clearly have a serious problem. For until the current emergency clears, the Middle East faces an economic down turn just like the rest of the world. Business in the region will have to batten down the hatches and prepare for difficult times.