It was hardly five years ago when Dubai made a shocking announcement that it wouldn’t be able to make timely repayments for the debt availed by government-owned entity Dubai World. The situation got worse with time and the emirate had to seek help from Abu Dhabi to avoid a default. This bailout package from an oil-rich emirate came as a breather, and time has shown that the policymakers in Dubai have learnt hard lessons from this imbroglio. This was the time when cheap credit had given a tremendous boost to the real estate sector in Dubai. It was, no doubt, the best investment opportunity for people coming from all over the world. Investors would feel safe while investing in real estate projects and booking offices or residential apartments in under-construction buildings. It was a general impression that the investment would bring 100 per cent profit within a period of two years.
The boom in Dubai’s economy at that time could be attributed primarily to the robust growth of real estate sector. Though contribution of other sectors of economy was also significant but they were not performing as well as the real estate sector.
What happened soon afterwards was imminent. Dubai’s real estate bubble burst with slowing down of the global economy and the financial crisis that engulfed business centres all over the world. The property prices plummeted and outstanding debts reached alarming levels. For once, it appeared it would take Dubai ages to come out of this quagmire.
But years down the road, the situation on ground is far more encouraging than one would have expected. While huge economies of the US, the EU and other regions are still struggling to make a comeback, Dubai seems to be back on track. The current economic indicators show Dubai is in process of its revival and if the projected targets are achieved, its economy will grow at one of the fastest rates in the world.
So, the questions how did Dubai manage this recovery against all odds, and what are going to be the major engines of its growth in the near future? Has the emirate introduced any safeguards to avoid a crisis like that faced in 2008-2009? How does the government plan to attract foreign investment and change the perception of investors deterred by the economic crisis in the recent past?
For many, the real booster is ‘The Dubai Expo 2020’ which is a six-month long exhibition of trade, innovative products, industrial machinery etc. coming from all over the world. The exhibition, which will be held in 2020 at a proposed 438-hectare site in Dubai, means a lot to the inhabitants of this region.
In fact, the conferment of the right to hold the Expo 2020 is an expression of world’s confidence in Dubai being a vibrating and promising business hub of the world. No doubt, Dubai’s recent economic progress and reforms were under the watch of the observers and they approved Dubai as they venue of Expo 2020 only once they were convinced it deserved the honour.
The positive indicators of Dubai’s economy and the far-sighted policies and corrective measures of the government are discussed in the later part of this write-up.
When Dubai won the right to host the Expo 2020 on November 27, 2013, there were fireworks at the world’s tallest building Burj Al-Khalifa and a national holiday was declared for all educational institutions across the country. The Dubai ruler Sheikh Muhammad bin Rashid promised to ‘astonish the world’ in 2020.
Coming to the existing scenario, encouraging news is that according to Dubai Real Estate Market Overview Q1 2014 report, Dubai’s residential market maintained its momentum with average prices increasing 33 per cent year-on-year, with average rents improving 23 per cent.
And the best part is that the bank finance has a limited role to play in this recovery. The banks in the region have been asked to limit their lending for real estate to around 20 per cent of their total of their deposits and increase financing for the Small and Medium Enterprise (SME) sector which is the main provider of jobs.
According to estimates, SMEs represent almost 92 per cent of the total number of companies in the UAE and provide more than 86 per cent of private-sector jobs. Dubai government plans to facilitate this sector the most and announced special incentives for Emirati-owned SMEs.
There is no second opinion that Dubai is a tourism, trade and logistics hub of the world and aptly called the ‘gateway between the east and the west.’ One gets amazed to know that Dubai International handled 66.4 million passengers in 2013 making it the world’s second busiest airport for international passenger traffic after London’s Heathrow.
Besides, the number of tourists who visit Dubai, stay there in hotels and spend big amounts on shopping is not less than 10 million a year. Dubai is cashing on on this segment and has announced plans to build a brand new city named after its ruler Mohammed bin Rashid. The new city will house a hundred hotels and a Universal Studios entertainment center. It would be an added attraction for tourists and businessmen who want to mix work with pleasure. This is one major reason why Dubai is always a preferred choice to hold international conferences, exhibitions and symposia.
It is expected that there would be marked increase in the number of tourist on the run to Expo 2020 but there are fears as well. For example how will Dubai the over-supply of hotel rooms, office space and transport infrastructure once Expo 2020 is over.
Another landmark decision taken by Dubai government is to set up a new body to pursue the goal of making the emirate global hub of growing Islamic economy. The purpose of this body will be to provide legal and other services for the Islamic financial industry. The example of Malaysia is there which introduced Islamic and Shariah-compliant financial instruments and emerged as a hub of Islamic banking. This is another step to diversify the engines of economic growth and decrease dependence on just one or two sectors as happened in 2008-2009.
The government has come up with strict regulations including those which put certain restrictions on government related entities who intend to borrow. Now they do not have the freedom to borrow spontaneously anymore, without the oversight and approval of the concerned government departments. This measure is aimed at making the departments efficient and discouraging t he habit of acquiring loans to cover up losses faced due to financial mismanagement and wrong administrative decisions.
Turbulences in several Muslim countries due to Arab Spring have made Dubai a safe place to live for people of these countries. Unlike the tourists and business delegates, they want to stay here for good or at least for a considerably long period of time. This has created a demand for housing units in Dubai and given a demand-driven boost to its real estate sector. The number is increasing as more and more people want to move here which means there would be further pressure on Dubai’s real estate sector.
The state facilitation of private sector and investors is another key to increased economic activity in Dubai. While many countries of the world have increased taxes and introduced strict regulations, the governments in UAE are facilitating businesses. There are no taxes and procedures related to setting up and running of businesses have been simplified.
Today, one can actually register or renew his or her business license with the help of a smartphone application. E-governance has been introduced in almost every department to facilitate to the maximum.
Last but not least, the strategic position of Dubai as a hub of transportation, tourism and international business due to its proximity to different geographical regions of the world has a lot to do with its economic growth. Forecasting further growth in economy and inflow of international passengers, Dubai will soon be embarking on ambitious plan to increase the capacity of its airport so that it can take the load of additional international flights.