Not paying bills

I posted back at the beginning of the month about the biggest factor of the economic crisis which companies here are facing.

It's not the much talked about lack of credit available to them from banks but the much simpler and more basic problem that they are not being paid.

As I said at the beginning of the month: "Talking to people over the past few weeks it's obvious that the biggest problem companies are facing is the non payment of invoices by their clients, especially our largest organisations."

In Dubai the companies placing the biggest orders are what are known as 'government linked' and they have placed orders worth billions. If they don't pay their bills on times the effect on so many other companies is disastrous, with predictable ripple effects throughout the economy.

If they do pay their bills on time all those billions flow through all the other companies to their subcontractors and suppliers, to their staff in salary and wages, through them into the wider retail and service economy. This means the good ripples spread naturally through the whole economy.

It's all blindingly obvious, simple, basic stuff, there's nothing difficult about it.

At the same time as I wrote my post the UK Financial Times ran an article on the situation, which included:

Over the next two weeks, the emirate will start disbursing emergency loans to distressed government-linked companies, encouraging them to use the funds to pay local invoices and give the economy a significant fillip.

Then a week later the FT ran another article about the visit to the UAE by Lord Mandelson, the UK Secretary of State for Business:

"Lord Mandelson has raised concerns about the failure of developers in the United Arab Emirates to pay British contractors, and has sought reassurances from local rulers that financial commitments will be honoured."

Now in this week's edition of the UK's Institution of Civil Engineers' magazine 'New Civil Engineer' there's a story headlined "Consultants fight Dubai clients for unpaid fees."

They report: Analysts claim state backed property developer owes UK engineering firms £200M.

Thanks to KippReport by the way, which is where I found the story.

New Civil Engineer names Nakheel as being the tardy payer to UK firms, the amount being more than a billion dirhams. In the local market too, their accounts payable department doesn't have a reputation for prompt payment of invoices.

Given the opportunity to deny the claims or to give the company's side of the story Nakheel was true to Dubai PR culture and declined to comment.

An anonymous comment left on my original post complained about governments bailing out private companies, especially financial institutions/banks.

In response I said: I'm not talking about banks or financial institutions. The point is that, as the FT article points out, the majors are government linked companies, or government owned. They're the companies which have given out the big contracts.

If their lack of cash is causing the blockage, as anecdotally it is, then surely putting more working capital into them (called 'loans' in the FT article) makes more sense than putting bail-out money into privately owned companies and banks.

If these organisations paid their invoices their suppliers & sub-contractors wouldn't need to apply to banks for overdrafts.

That really is my point, why not go straight to the heart of the problem to solve it quickly.

If a company needs more working capital then putting that working capital directly into the company is a one-step solution. To me it makes far more sense to do that as a priority rather than making government 'bail-out' money available to banks who in turn can loan it to companies. That just delays the flow of the money into and through the economy.

What's happening is bad for the economy, bad for individual companies, bad for confidence in doing business with and in Dubai, bad for Brand Dubai.


New Civil Engineer story.