Stating the obvious

In the Gulf, we have a strange habit of dancing around subjects. For some reason, we seem to avoid stating the obvious.

This ‘disease' affects even the Western expatriate community after they stay here for a while.

I quickly emphasise the Western expatriate community because they try to promote an air of bluntness that, after a period of living here, is scattered in the wind.

Eastern expatriates are, simply, just like us. If I was to take this argument one step further, I would say that we make it an art in the way we handle ‘making a statement' without making a statement. There are many issues that I could touch upon to explain the statement but I will stick to just one.

This one issue, I think that you will agree with me, is perhaps one of the most important issues that any person will face in his or her lifetime - taxes.

It is said that there are only two things that are definite in life: death and taxes, and I am not sure about the former. Everyone living in the Gulf has got used to the idea of no taxation.

We have no taxes but we get fee-ed to death. Municipal fees, licence fees, school fees, toll road fees, land fees, registration fees and so on and so forth. But the word tax is never used. Why? Because we want people to get the impression that life can be tax-free. But that is the story for another article.

In this issue, I want to bring to your attention a certain hidden tax that has hit us like a tsunami slamming into an atoll. You read about the calm that happens before the tsunami batters the shore.

You hear of the massive pull back of the water and curious people start to wonder what is happening here. Well, we have been hit by a hidden tsunami in the form of a currency tax that has not been the making of any of the regional governments. This tax is that of the currency exchange tax.

Since the beginning of the oil boom, our regional governments pegged its currency to the US dollar. At the time, and some can argue even today, that was the right thing to do considering that our main export is crude oil. Today, as ever, the only currency that crude oil is bought and sold in is the US dollar.

Thus, to peg out currency to the currency that our main commodity is traded in makes perfect sense. However, as the saying goes, we have to pay the piper.

I did a quick calculation on the effect the weakening of the US dollar had over 10 years versus the euro, as a standard, and it appears that over the years the euro has nearly doubled in strength. In layman's terms, what you could have bought in 1997 for US$1, you need to pay nearly double that today.

So if in 1997 you bought a car from Europe and it cost you 50,000 euros (in 1997, US$44,000) today if you paid 50,000 euros for that same product, it would equal to US$68,000. Since our currency is pegged to the dollar, that means that as the dollar lost its strength to the euro, so did we.

NBD reported in 2005 that inflation was running at 15-20%. Standard Chartered stated that in 2006, Abu Dhabi's inflation was running at 36% and Dubai's at 16%. And the most stunning of them all was the remarkable statement by the UAE Central Bank which said that inflation in 2006 was running at 8%, but was to "decline to 4%" by the end of the year.

Anyone living over here would tell you that a figure of 20%+ sounds much more like it.

It is obvious that we have a serious issue on inflation that is not talked about. It is obvious that we are losing value in our currency every day. It is obvious that our financial structure needs deeper strategic thought. It is obvious we will never do that because, as I said in the beginning, we are the masters of not stating the obvious.

Mishal Kanoo is the deputy chairman of the Kanoo Group. It is one of the largest family owned companies in the Gulf. The Kanoo family is the 11th richest in the Arab world with a fortune of US$6.1bn.

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USER COMMENTS (2 COMMENTS)

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Congratulations!
Posted by Nishanth, Dubai, UAE on 24 March 2008 at 09:11 UAE time


Finally... finally... after a long time I read a well written, well thought article by someone from the region itself. Congratulations Sir, I only hope that more and more people like you turn up to 'up the ante'. Yes, Eastern expats (that include me) always harboured a 'fear' which prevented them from reacting. It is very difficult to imagine that Keralites (or Malayalees) are probably the most vocal and revolting set of people, but only in Kerala! In the Gulf, where they know how difficult it is to maintain a livelihood without being thrown out, they completely shut up and go about doing their jobs. Please do write freely like this. It is like a breath of fresh air.

Brilliant Article
Posted by Clyde, Dubai, United Arab Emirates on 23 March 2008 at 21:07 UAE time

OMG! you hit it spot on with this article. I could'nt add any thing more (except of course you missed out on the "knowledge" fee). What's with the knowledge fee that big departments stick onto any paper work? ... that aside, another well written article!

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