Drying Arab cash cow hits Western corporations
The biennial Dubai Airshow this year is not seeing any of its grand galas, which the event has come to be known over years.
The five-day show opened its doors Sunday without any major purchasing deals announced, a further sign that the “cash cow” oil industry in the Arab sheikhdoms is hard hit by plunging oil prices.
At the last airshow two years ago, deals worth more than $140 billion for new Boeing and Airbus planes were clinched by the four main airlines in the region.
The Dubai Airshow this year includes 1,100 exhibitors from around the world with 150 from the US. The event is expected to draw around 65,000 visitors and includes a flying display by fighter jets such as the Rafale, Typhoon, F-16 and F-22.
But reading from the opening day of the show, the US and European companies are set to leave empty-handed.
On Sunday, International Monetary Fund chief Christine Lagarde warned Persian Gulf Arab countries to adjust their budgets because global energy prices could remain low for years.
Lagarde warned that the countries could no longer rely on revenues from oil and gas as she addressed ministers and officials from the six-nation GCC Arab group in Doha, Qatar.
According to IMF projections, growth across GCC countries will fall from 3.2% this year to 2.7% in 2016 and export revenues will be $275 billion lower this year than in 2014, Lagarde said.
The Arab states in the Persian Gulf should apply “firm control” on spending, particularly on public sector wages, and encourage private sector growth, she said.
The countries have a habit of lavish spending but some of them have also got involved in a destructive military adventure in Yemen and elsewhere, which is weighing heavily on their finances.
The lead country in the military campaign, Saudi Arabia, is burning through its foreign reserves at an alarming pace.
Apart from the Yemen fiasco, the kingdom’s big gamble that it could put US shale oil out of business through flooding the market with excess oil has backfired.
According to the IMF, the kingdom’s fiscal deficit could rise to around $140 billion or 20% of GDP this year, with spending forecast to reach more than $270 billion.