Latest News

  • Home
  • Global
  • Dubai's Recipe For Economic Success Looks Stale As Markets Slump
Dubai's Recipe For Economic Success Looks Stale As Markets Slump
Monday, July 23, 2018 IST
Dubai

For over two decades, Dubai prospered as one of the world's most international cities, attracting people and capital from across the globe.

 
 

DUBAI: In Dubai's posh Jumeirah Beach Residence district, luxury apartment rents are down about 15 percent from a year ago - a sign, some fear, that the wealthy emirate's recipe for economic success is getting stale.
 
For over two decades, Dubai prospered as one of the world's most international cities, attracting people and capital from across the globe.
 
Nine years ago, it needed a $20 billion bailout from oil-rich Abu Dhabi to escape a debt crisis caused by collapsing property prices. Dubai's economy roared back and has grown by a third since then, buoyed by foreign trade, tourism and its status as the main regional hub for business services.
 
Now, however, Dubai is hitting another rough patch. Residential property prices have dropped by more than 15 percent since late 2014 and are still falling. The stock market is down 13 percent this year, the worst performance in the region.
 
Dubai issued 4,722 new business licences in the second quarter of 2018, down 26 percent from the same period in 2016, the year when new licences peaked.
 
 
The falls may be temporary, the result of an economic slowdown in the Gulf caused by low oil prices. But other figures suggest some of Dubai's traditional growth engines are losing steam, which could mean a long-term slump.
 
Growth in passenger traffic through Dubai's international airport has fallen to near zero this year, after 15 years of strong increases. Increasingly long-range aircraft may loosen Dubai's dominance as a travel hub connecting Asia and Europe.
 
Official data shows Dubai's population continuing to expand, by 3.5 percent to 3.08 million in the first half of 2018. But most growth in recent years has been in lower-paid construction and services jobs, not in higher-paid white-collar posts.
 
"Perhaps the era when one could move to Dubai to make one's wealth is passing," said Hasnain Malik, Dubai-based global head of equity research and strategy at Exotix Capital.
 
He said the city was increasingly attractive as a base for rich people from around the world who wished to enjoy their wealth.
 
 
But it is not clear that Dubai's transport industries and business zones can continue growing fast enough to attract, and retain, the number of foreign white-collar workers needed to support demand in its real estate market, Malik said.
 
STRUCTURAL CHALLENGES
 
Economists see little risk of another financial crisis; after restructuring billions of dollars of debt, Dubai's state-linked companies are less leveraged than they were a decade ago.
 
Nor has headline economic growth slowed greatly. International Monetary Fund officials have estimated gross domestic product will expand over 3 percent this year.
 
"The emirate continues to attract businesses and investors as a competitive hub for sustainable business development," Dubai's Department of Economic Development said in a statement this week, adding that licensing figures showed "continued investment in all vital economic sectors in Dubai".
 
But much of this year's growth is due to a big rise in state spending as Dubai builds infrastructure to host the Expo 2020 world's fair; its 2018 budget soared 19.5 percent from 2017 to a record 56.6 billion dirhams ($15.4 billion). The government cannot keep boosting spending at that speed indefinitely.
 
Jim Krane, energy fellow at Rice University in Texas and author of "City of Gold: Dubai and the Dream of Capitalism", said the emirate faced structural challenges including an increasingly tough geopolitical environment.
 
In the past, Dubai thrived by keeping cordial relations with every country in the region, accepting trade and investment from all of them.
 
That has become impossible. Last year, the United Arab Emirates, Saudi Arabia and other countries cut diplomatic and transport ties with Qatar, ending Dubai's role as a base for business with the small but super-rich country.
 
 

 
 

Goods that were once shipped to Qatar via Dubai now move via other countries, such as Oman or India; multinational firms use their European or U.S. offices, not their Dubai operations, to handle business with Qatar.
 
Meanwhile, the United States and Gulf allies, including the UAE, are trying to squeeze Iran's economy by reducing its financial and trade ties. The effort is more aggressive than Washington's previous attempt to isolate Iran several years ago, diplomats in the region say.
 
That matters because the UAE's exports and re-exports to Iran, the vast majority via Dubai, totalled $19.9 billion in 2017.
 
The chief executive of a foreign financial firm in Dubai said the emirate faced unprecedented competition from neighbouring countries for capital, as low oil prices forced those countries to develop their own non-oil industries.
 
Portfolio funds are already flowing from Dubai's stock market to Saudi Arabia's bourse. In coming years, direct investment may follow; U.S. oilfield services firm McDermott International has said it expects to move business slowly from Dubai's Jebel Ali Port to a new Saudi facility by the mid-2020s.
 
Dubai is trying to shore up its competitive position. In the last few months the government has said it will reduce municipal fees, scrap some aviation charges, freeze school costs and take other steps to aid foreign firms and residents.
 
Potentially the most far-reaching reform was announced by the UAE cabinet, chaired by Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum. It promised to permit 100 percent foreign ownership of some UAE-based businesses, up from the current 49 percent limit, and grant long-term residency visas of up to 10 years to foreign investors and some professionals.
 
That could make foreign investment in Dubai more attractive and, by helping foreigners plan on long-term residence in the emirate, encourage them to buy homes.
 
But details of the new policy have not been released, and implementing it may be tricky. "Free zones" in Dubai already permit 100 percent foreign ownership; they could suffer if they no longer have that right exclusively. And many UAE citizens make money as silent partners with foreign businessmen.
 
"To some extent, the economy is based on people renting out their passports - disrupting that could cause economic pain among the local population," the financial executive said.

 
 
 
 
 

Related Topics

 
 
 

Trending News & Articles

 Article
'Worse than prison': A rare look inside China's detention camps to 'brainwash' Muslims

ALMATY: Hour upon hour, day upon day, Omir Bekali and other detainees in far western China's new indoctrination camps had to disavow the...

Recently posted . 191K views . 1 min read
 

 Article
What The Shape Of Your Belly Button Says About Your Health

If you have payed attention to the belly buttons of people on the beach or the members of your family, you have probably noticed that they have different shapes and...

Recently posted . 8K views . 2 min read
 

 Article
Top 10 Horrifying Acts of Chemical Warfare and Gas Attacks

In this age of terror, there might be nothing more terrifying than the thought of an attack carried out with chemical weapons. We’ve all heard the horrific ...

Recently posted . 3K views . 4 min read
 

 Article
Top 10 Best Gym Equipment Brands in India 2018

Body fitness is one thing that everyone wants to maintain irrespective of age. Going to the gym and doing some great exercise always helps to maintain your body fit...

Recently posted . 3K views . 2 min read
 

 
 

More in Global

 Article
Turkey’s Erdogan says West broke promises in Syria, supporting Islamic State

Turkish President Recep Tayyip Erdogan on Tuesday said the West was softening guarantees up Syria, blaming Ankara's accomplices for support "dread gatherin...

Recently posted. 799 views . 18 min read
 

 Article
Vikram Pandit: All large banks will embrace cryptocurrency in 3 years

• Vikram Pandit believes that all large Banks will embrace cryptocurrency in 1-3 years. •

Recently posted. 486 views . 1 min read
 

 Article
Rare Bottle of Scotch Whisky Sold for Over a Million Dollars, Sets World Record

Bonhams now holds the record for the three most valuable bottles of whisky ever sold at auction.  

Recently posted. 735 views . 0 min read
 

 Video
20 PRODUCTS THAT EXIST ONLY IN JAPAN



Recently posted . 734 views
 

 Reviews
The Best 5 Hiking Backpacks in India – Reviews & Buying Guide



Recently posted . 1K views . 140 min read
 

 Reviews
The Best 5 Camping Tents in India 2018 – Reviews & Buying Guide



Recently posted . 1K views . 99 min read
 

 Article
5 Things That Can Be Major Red Flags In A Relationship

If you're feeling the need to be a certain way to be liked or appreciated more by your partner, stop and think

Recently posted. 1K views . 0 min read
 

 Article
Woman Scribbles ‘It’s Real’ After Being ‘Dead’ for 27 Minutes

Tina was dead for a total 27 minutes.  

Recently posted. 739 views . 0 min read
 

 
 
 

   Prashnavali

  Thought of the Day

Put your heart, mind, and soul into even your smallest acts. This is the secret of success.
Swami Sivananda

Be the first one to comment on this story

Close
Post Comment
Shibu Chandran
2 hours ago

Serving political interests in another person's illness is the lowest form of human value. A 70+ y old lady has cancer.

November 28, 2016 05:00 IST
Shibu Chandran
2 hours ago

Serving political interests in another person's illness is the lowest form of human value. A 70+ y old lady has cancer.

November 28, 2016 05:00 IST
Shibu Chandran
2 hours ago

Serving political interests in another person's illness is the lowest form of human value. A 70+ y old lady has cancer.

November 28, 2016 05:00 IST
Shibu Chandran
2 hours ago

Serving political interests in another person's illness is the lowest form of human value. A 70+ y old lady has cancer.

November 28, 2016 05:00 IST


ads
Back To Top