How would you rate the year 2014 so far, in terms of stable growth, and what is your forecast for the rest of the year?
Dubai's economy grew at 4.6% in real terms in 2013, continuing on its healthy and vigorous growth path since 2012 despite the persistent volatility of the world economy and sluggish growth in some emerging economies. The beginning of 2014 has confirmed the strength and reinvigoration of Dubai's economy, as witnessed by strong performance across varied sectors. One revealing trend is rising international passenger traffic, which in 1Q2014 went up by more than 10% compared to 1Q2013. This will help Dubai's international airport to become the largest airport in the world in terms of passenger numbers, surpassing London Heathrow in 2014. This is corroborated by the more than 10% rise in duty free sales at the same airport. Cross-border goods transportation has also been showing encouraging signs, with port container traffic rising by more than 17% and air cargo by almost 4% YoY in 1Q2014. Domestically, economic activity is intensifying as witnessed by the substantial YoY increase in transportation. Furthermore, construction and real estate, which played a very large role till the global downturn period, have recovered since the beginning of 2013. The volume of real estate transactions has increased in 1Q2014 at the fastest pace since 2009. The latest Dubai Business Survey (1Q2014), conducted by the Department of Economic Development (DED) on a quarterly basis, points to a high degree of business confidence, as reflected in optimistic sales forecasts and hiring and investment intentions over the rest of the year. According to DED's own forecast, GDP will grow approximately at 4.7% in real terms in 2014, which would be a good growth performance, particularly when compared to the prospects for the world economy.
SMEs contribute over 40% of Dubai's GDP. Which specific initiatives are being pursued by Dubai DED in order to encourage and assist SMEs in Dubai?
While Dubai's development has been based on a very proactive government that has laid the foundations of a modern economy, the driver's seat should belong to the private sector, with SMEs counted on to play a larger role than in the past. Their contribution to economic activity is already significant, accounting for nearly 40% of total GDP, but it is still below the shares recorded in several advanced and emerging countries. We expect them to be more innovative and to raise their productivity and skills in order to meet the challenges of international competitiveness. To help them achieve these goals, the DED has developed a comprehensive program that includes the governance and management, training, and facilitation of access to finance that remains, as elsewhere, a major obstacle to start and grow. An innovative feature of this program is to entice SMEs to compete and emulate each other in seeking the various benefits that DED tailors to their needs. As a result, Dubai SME, which is an agency of DED, has provided consulting and development services to over 1,100 new SMEs in 2013, bringing the total cumulative number of SMEs that have benefited from government support close to 14,000. This support has taken a whole range of actions. Dubai SME helps member companies to bid for and obtain public procurement contracts. It also promotes start-ups and accompanies them in the launching and growth process. In addition, it provides specialized training in the management of specific activities, such as hospitality and retail trade and collaborates with education institutions to stimulate and instill interest in entrepreneurship early on among the youth. Dubai SME has stimulated competition among SMEs through annual contests to select the best-performing companies. It has also launched Dubai SME100, a ranking of the 100 top-performing SMEs, which are screened annually from more than 3,000 participating firms. The selected group benefits from extensive support in terms of finance, improvement of management skills, and facilitation of access to international markets.
Dubai is moving toward realizing the Smart City initiative, which will reinvent the way business is conducted. How do you see this initiative boosting the economy in the coming years?
Inspired by an enlightened leadership and in line with its aspirations, Dubai has indeed embarked on an ambitious Smart City initiative that will make it a leading city worldwide in terms of efficiency and friendliness of services, both public and private. DED has taken a series of measures to help achieve the initiative. It has introduced smartphone applications (apps) for various trade licensing processes, including the reservation of names, obtaining initial approval and license renewal, as well as receiving the license itself online. In addition, three types of services are provided online to consumers under an initiative called sallety or "my basket;" access to promotional offers from businesses, price information and, more importantly, filing of consumer complaints. Smartphones are also increasingly used in commercial inspections related to consumer protection and compliance with intellectual property regulation. Furthermore, DED is an active member of the network of government departments that allows unified electronic access to several government services. The benefits of the Smart City initiative to Dubai's economy are significant in many respects. First, it will enhance transparency in the provision of government services, as an increasing number of transactions and procedures as well as comprehensive information are easily accessible online. The risk of misinterpretation will be very much reduced as the system is developed further. Secondly, there will be a significant reduction in cost and time to business, which will result in lower transaction costs. Thirdly, as these benefits materialize, Dubai's international competitiveness will be boosted, which will be reflected in an improved position in international rankings such as in the World Bank's Doing Business annual report. Lastly, the initiative will have positive repercussions on the quality of life in the city in general, with smooth interaction between residents, government, and businesses.
What will be the impact of the coming World Expo 2020 for the economy and how do you plan on capitalizing from this event?
While Dubai is already recognized as an international hub for trade, investment, and transportation, hosting World Expo 2020 will strengthen this position in the eyes of the local business community and potential international investors. It has already sent a strong signal that Dubai has the capability and capacity to organize major undertakings as it has done for almost two decades. This psychological impact should not be overlooked. As for the direct effects, we expect higher public and private investment, especially in event-related infrastructure and other activities in the years preceding and during the Expo, to add at least 0.5-0.6 percentage points to GDP growth, which would also create more than 100,000 new jobs over the 2015-2021 period. As we expect the number of visitors to increase sharply during the event, sectors such as hospitality, restaurants, and retail trade will be major beneficiaries, in addition to transportation and logistics. On top of those significant effects that are expected for the years leading to World Expo 2020 and during the event, there will be a more lasting impact. As visitors and businesses will have a first-hand experience of staying or conducting business in Dubai, the city will get wider publicity and international focus during the six- to seven-month event, which is likely to enhance its attractiveness beyond the exhibition period.
The Islamic economy is growing and is set to become one of Dubai's pillars in the coming year. How do you see Islamic finance and the halal segment flourishing in the near future?
The vision for Dubai to become a global hub for the Islamic economy takes on a new dimension compared to earlier perceptions of the role of Islamic economics, which was confined mostly to Islamic banking and finance. While Islamic banking as an industry has made great strides in recent years and continues to grow at 10%-15% per annum on average, it remains only one type of activity where the potential for Islamic economics can be harnessed. In developing this new vision, the government is fully aware of the wider scope of Islamic economics and the large benefits that it can bring to the economy beyond its direct contribution to finance. Thus, this vision reflects a new approach to expand and integrate the Islamic economy into overall economic development. In addition to finance, which is by now a traditional and rapidly developing activity, a whole range of manufacturing and logistics activities and products will cater to a large international niche market, in addition to the domestic market. The government has stepped up efforts to strengthen the sharia-compliant regulatory framework, with the design of a detailed system of Islamic standards that can be applied to production, management, and, more comprehensively, governance. Thanks to its outward orientation and capacity for quick adjustment to shifts in demand, Dubai is thus poised to seize these new opportunities in a way that will not only attract new foreign and domestic players, expand economic activity, and accelerate growth, but also enhance its diversification and make it more resilient to specific external shocks. Dubai is not starting from scratch, as Islamic finance already accounts for about 3% of total GDP and roughly for one-quarter of the value-added in the financial sector. This share is expected to increase in the future for several reasons; a major drive by the government, the worldwide expansion of Islamic finance schemes based on sound ethical principles and standards that discourage speculative behavior, and more halal-conscious consumers in the region and throughout the Muslim world. While it is difficult to put numbers on the growth impact of this new ambition, a widely shared view is that it will make a difference to the size as well as the structure of Dubai's economy.