Gulf region could hold key to FM growth

12 January 2012

by Graeme Davies


When the US and EU were showing signs of anaemic growth during the early months of 2011, much hope was pinned on the go-go economies of the emerging markets to continue to support the ambitions of global companies, which felt comforted in the belief that their diversification would save them.

But now, the economic problems in the EU have become so entrenched that a recession across Europe is effectively nailed on. The shockwaves from the eurozone’s flirtation with disaster are being felt worldwide, particularly in the emerging markets where growth is slowing down rapidly.

As with the global recession that followed the credit crunch in 2008, slowing growth in the emerging markets proves once again that the once-touted ‘decoupling’ of emerging economies from the developed world has simply not happened. For now, it seems that both sides of the global economy remain inextricably linked.
So the companies that have made the move into emerging economies in a bid to boost their growth prospects and diversify their risk (witness Serco’s acquisition of Indian business processing outsourcer, Intelenet, in mid-2011), may suddenly find themselves running into slower growth than they expected when they made those acquisitions, after recent GDP figures suggested a slowdown in India.

This may yet take a few months to work its way through in terms of company results. Recent results from London-listed Indian companies operating in this space, such as iEnergizer and Mortice, suggested they have enjoyed strong growth rates in recent months.

Nonetheless, the so-called BRIC countries (Brazil, Russia, India and China), which are at the vanguard of emerging market development, are having a bumpy ride. Indian growth fell below seven per cent for the first time in two years in the last quarter and its latest industrial production figures showed a 5.1 per cent fall.

In Brazil, growth slowed to zero in the quarter to September and Russia is at risk of stagnating and struggling for growth unless the prices of its biggest assets, natural resources such as oil and gold, surge again.

Russia is threatened by political turmoil with open dissent against Vladimir Putin on the streets, while India is often hampered by its democratic political system. Indeed, the opposition of junior coalition partners in the government recently forced a u-turn in plans to open up its retail sector to foreign direct investment, something that 
could have proved a boom 
to FM companies, both domestic and international.

China is also becoming a particular concern to some. The property bubble that was allowed to build up within China is deflating fast. The government’s tightening up of credit may actually result in a particularly hard landing for the property sector, which could cause 
waves across other areas of 
the domestic economy.

But one area where there may be a glimmer of hope after several years of turmoil could be in the Gulf region. The credit crunch hit the area hard, in particular in the United Arab Emirates, with Dubai leading the way.

But there are signs that activity is picking up, with Qatar showing the clearest signs of recovery. Indeed, recent contract awards for the likes of Atkins and Carillion suggest a period of huge investment in infrastructure is underway in the tiny gulf state and with Dubai attempting to refinance some of its whopping debt pile, there could be a revival in development in the region which is typically followed by growth in FM business.


Graeme Davies writes for Investors Chronicle