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July 18, 2007 / lazybug

Strong Rupee = Bad News for the Gulf

Strange but true.

My knowledge about the effects of a strong rupee against dollar never went beyond the benefits it would bring to people who would import stuff and pay in $$$s and the negative effect it would have on the exporters. Of course, the strong rupee affecting the profits of Infosys this year did make some news. But I was surprised when I read this news on a Dubai-based website. Due to the strong rupee over the last few months, it says, the construction industry in Dubai is mighty scared! Most of the workers are Indians they were happy as long as one dirham fetched around 12 rupees. But now, it fetches less than 11 rupees.

This is because the currency in Dubai is pegged to the dollar. Its value varies along with the value of the Dollar. The effect of the strong rupee has been accentuated by the high inflation in the UAE and of course the booming Indian economy. The construction boom in the Indian economy is driving wages up and is likely to attract the huge Indian working population back to their motherland. To understand what this means to countries like Dubai read the following quote from the website linked above:

“Migrant Indian workers have been the driving force, the engine room and the foundation of the economic miracle in lower Gulf countries.”

This is especially bad news for the construction companies who are now facing a labour shortage!

Strange are the ways of global economics!

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8 Comments

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  1. Apoorv / Jul 18 2007 11:54 pm

    he he he ,far stranger than we would have thought … funny the way our life is impacted due to some remote happening on the other side of the world … the UK terror plot is case in the point …. and glad to see you in full groove on ur blog !!

  2. lazybug / Jul 19 2007 4:19 am

    thanks footie. will try to keep the regularity. 🙂

  3. Chittaranjan / Jul 19 2007 6:28 am

    One-off-piece-of-sensationalist-news methinks. The Construction boom may be there in India but the ‘skilled’ and ‘semi-skilled’ laborers who have been working in the Emirates would find it difficult back here! Only the migrant unskilled labor may be affected.

  4. lazybug / Jul 19 2007 7:21 am

    UAE’s problems are multi fold. The inflation at 11% is just too high. Remember the asian financial crisis of 1997? the currencies of malaysia and indonesia were pegged to the dollar…and they suffered big time!

  5. Ramesh Natarajan / Jul 23 2007 8:14 am

    Hi,

    The real inflation in Dubai would be much more than 11%.

    The rents have gone up recently more than 50%. Dubai, being relying on imports for everything, the Eurpean products have become more expensive due to the falling Dollar and strong Euro.

    The construction boom is still on fast pace in Dubai due to the availability of cheap labour from the Sub-Continent. The oil revenue in Saudi Arabia, Kuwait, Abudhabi fuels the growth of the reality sector in Dubai, as the other gulf investors find Dubai more investor friendly.

    The Ruler of Dubai clearly ruled out the unpegging of the Dollar with UAE Dirham. This is in a way attracts the UK investors to invest in the real estate in Dubai..

    From Dubai… Ramesh Natarajan
    Global Indian

  6. lazybug / Jul 23 2007 8:37 am

    Thanks for the informative post, Ramesh. 🙂

  7. Chittaranjan / Jul 23 2007 10:45 am

    I just read yesterday about the Burj Dubai and Al Burj! (Tallest buildings to come up soon)

    The Construction Industry shows no signs of letting up tho 😐

  8. lazybug / Jul 23 2007 10:58 am

    Yeah. I too read that article…but what’s important is that big projects are not the only drivers…we don’t know much about the other smaller ones. they’ll surely be affected…they might end up being acquired by the big companies.

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