The story of expatriates trapped in Gulf countries by a rising tide of debt and lost job opportunities became apocryphal during the course of the financial crisis. As the GCC states dropped gears — some more than others — foreign workers found themselves heading for the airports.
Last year, Arabian Business devoted an entire issue to the subject of personal debt, finding that GCC residents had splurged out on an astonishing $155bn spending spree by 2008. And while Gulf countries are now largely back on track, with restructuring of many major companies now complete, the issue has still not gone away. Earlier this year, international media made much of expatriates trapped in Bahrain by personal debt, despite the local unrest in the country.
But it’s not just expats who are feeling the pinch. In a recent survey by Asda’a Burson-Marsteller, the rising cost of living is the number one concern for youth across the Middle East and Africa, rated as more important than domestic instability, unrest and access to clean water. Nearly half (47 percent) of respondents to that survey said that they were “very concerned” about personal debt, up from 30 percent the year before.
This year, Arabian Business has published its first ever debt survey, which gives the inside track on how much Gulf residents owe and their concerns over being detained. One of the more astonishing results of our survey showed that almost a quarter (22.5 percent) of respondents don’t even know exactly how much cash they owe their banks.
Perhaps worse, just over a quarter (26.5 percent) owed AED250,000 or more in personal loans, car loans and credit cards. That is over $68,000. This clearly shows that the debt hangover suffered during the boom period has not yet cleared for many GCC residents, who are still working to pay off huge credit overhangs.
However, while that tranche of debt still remains, what certainly has changed is consumer spending habits, which are a fraction of what they once were. According to a report issued earlier this year by Nielsen, concerns over job security and worries over the current health of the economy have led to customers tightening their purse-strings.
“Consumer spending is still nowhere near its pre-recession levels in the UAE, with many opting to allocate any remaining income, after covering essential living expenses, to savings (46 percent) and paying off debt (30 percent),” said Sevil Ermin, Nielsen’s UAE managing director. “UAE consumers continued their pragmatic behaviour with coping strategies that combine both essential and discretionary spending.”
On the other side of the coin, fully 30 percent of respondents said that they had either no debt, or less than AED10,000 ($2,733). Two percent fell into the AED200,000-250,000 bracket, with 5.5 percent in the AED150,000-200,000 category. Around fifteen percent said that they owed between AED10,000-50,000. Taken in total, some 70 percent of respondents said that they had debts worth over AED10,000 — and all this in a region where expatriates come to work in order to save money, rather than spending it, and where local residents are supported extensively by their national governments.
Still, local authorities have certainly made some changes in the last year. In a slew of announcements made this year, the UAE central bank capped personal loans at 20 times the salary or monthly income of borrowers and banned cold calling from banks trying to sell credit cards. Some banks have argued that the move has restricted their ability to garner greater revenues, but the decision hopefully points towards a future in which lending is infinitely more responsible.