Retailers, banks under fire over consumer spending

UNDER FIRE: The DPE has said banks and retail outlets are partly responsible for soaring consumer spending in the UAE. Picture for illustrative purposes only. (Getty Images)

Abu Dhabi's government has hit out at irresponsible retail outlets and banks for fuelling runaway consumer spending that is hurting the UAE economy.

In its weekly report, the Department of Planning and Economy (DPE) warned that this culture of consumerism could seriously dent the country's future economic growth if the current trend continued.

"The combination of easy loans in addition to advertising and media propaganda have all combined to plunge consumers into a quagmire of spending spree," the report said.

The DPE said consumer spending had surged 122 percent during the last five years, jumping 17.7 percent to 320 billion dirhams ($87.1 billion) last year - almost half the UAE's gross domestic product (GDP).

The department said daily per capita consumer spending in the UAE stood at $27, more than seven times higher than the average daily spending in the rest of the Arab world.

It said massive consumer spending was seeing a large amount of liquidity diverted away from production and investment.

It said this was particularly concerning as 85 percent of consumer goods were imported from abroad.

"This alarming consumption rate could, in the future, constitute a big hurdle in the face of any plans to transform the country from a consuming to producing nation," the report said.

The DPE called for "stringent measures" to be introduced limiting how much money banks could lend and for the media to play a "more positive role in changing the culture of spending".

Loans to individuals surged almost 40 percent in 2007 and rose a further 11.4 percent during the first quarter of this year to touch 48.41 billion dirhams, according to the central bank.

Consumer loans have almost doubled over the last four years on the back of soaring economic growth spurred by revenues from record oil prices, which have jumped seven-fold since 2002.

Growth in consumer spending has also been blamed for fuelling inflation in the UAE, which jumped to a 20-year high of 11.1 percent in 2007.

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READERS' COMMENTS

BLAME SHIFTING
Posted by MOHAMMED KALEEMULLAH, DUBAI, U.A.E. on Sunday 29 June 2008 at 17:18 UAE time

Now blame is being shifted from higher rent, cost of living, currency pegging, to only consumer spending for fuelling inflation in the UAE. Of course this is part of it and banks are for sure responsible for free flow of easy loans, adding to existing inflation, and making the locals as well as expats to live like as if there is no tomorrow and no need to save anything for any purpose. There is hopelessness and not happiness in these unnecessary spendings because many are unable to make ends meet and just find some solace in shopping (which is contagious - thanks to offers, discounts, sales). So, the solace & peace of mind is hence temporary and away from reality. There is another factor more important to address the psychological effects and general depression prevailing in our society.

Consumer spending - Beating around the bush
Posted by Sanjay, Abu Dhabi, UAE on Sunday 29 June 2008 at 16:28 UAE time


Its good to know that finally someone is looking at the causes of inflation rate. The study suggest the banks to re-look at the way individual or personal loans have been granted. I beg to differ on this point. As an individual i too have taken quite a lot of loan. But for what. Yes the study comes out with the fact that 40% of the income is going in for rentals. This is a very conservative figure. There are many cases where people like us are paying 50-55% of our salary for the rentals only. This huge amount cannot be paid at one go. So we are forced to look at loans provided by these banks. We then finally repay monthly and also the bonus we receive.

In-short if the rental issue is sorted out then the 40% or the actual 50-55% comes down and so as the amount of people taking personal loans.

Oil companies who are reaping benefits from the ever surging price has no social commitement to people of uae. Then how are these banks expected to have a very humane approach ? If the state owned oil companies had built their own buildings to house thier employees then half of the buildings become available for the rest of the crowd in the non-oil sector. Then even the rentals would drop. Friends when we will we have a serious approach ??

banks...
Posted by steph, dubai on Sunday 29 June 2008 at 12:13 UAE time


I would like to know the % of people taking a personnal loan in order to pay their rents. UAE is the only place in the world where you have to pay 1 year in advance. Nowadays 100k aed would be a minimum to pay to the landlord and not everybody can afford it. Instead of blaming the banks we should look for alternatives. but of course we all agree that we all spend a lot here in other stuff..

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