CAN DO WILL

UAE, Dubai 2014 | DIPLOMACY | YEAR IN REVIEW

Dubai posted another solid GDP growth figure in 2013, with the successful World Expo 2020 bid being the icing on the cake.

Faced with the option of balancing the budget or ramping up public spending, Dubai's leadership chose the latter moving into 2014, with spending up 11%, significantly at its highest level since the crash of 2008. Buoyed by solid GDP growth—the figure hit 4.6% in 2013, with the Department of Economic Development (DED) predicting 4.7% for 2014—the government has seen fit to earmark $1.73 billion to new infrastructure projects over the year, up 13% YoY. And it's the private sector that will likely benefit from the additional work, especially the Emirate's extensive SME network, which now represents 40% of the economy. Caution has been advised, however, as the IMF issued a warning that old mistakes could be repeated following an increase in real estate costs by one-third in 1Q2014. In some areas, that puts prices back at pre-2008 levels. Transactions are also on the up, growing by 53% in 2013 at a value of $64.3 billion.

Other indicators from 1Q2014 include a 10% rise in international passenger traffic, a 17% rise in port container traffic, and a 4% expansion in air cargo YoY. In banking, 1Q2014 net profits came in up 25% YoY, a reflection of the level of momentum on the consumer and commercial side. As a legacy of 2008, however, the banks' combined NPL ratio stands at 13.8%, although the figure is improving. Other key indicators for investors include an FY2013 inflation figure of 1.31%, up on the previous year as a result of an increase of prices (14.79%) in the beverages and tobacco group. Unemployment for nationals stands at 2.57%, with Emiratization policies helping to swell the number of Emiratis at work in the private sector. In current account terms, the UAE ran a surplus of $64.7 billion in 2013, although Dubai tells a different story; without the hydrocarbon wealth of other Emirates, exports, and re-exports have been allowed to diversify. Over the full year, Dubai's direct foreign trade was valued at $230.46 billion, up 4.7% on 2012. Diving into the details, 64.4% of that figure was accounted for by imports, 14.9% by exports, and 20.7% by re-exports. That meant a trade gap of $66.57 billion in 2013. The weight of Dubai's free zone and custom warehouse trade is also significant, representing $131.58 billion of direct foreign trade.

One of the biggest developments for Dubai over the last 12 months was undoubtedly its successful bid to host the World Expo 2020. Awarded in November 2013, the Emirate's business community has been abuzz ever since, with the event offering up tantalizing investment opportunities. According to officials, the event, set to run from October 2020 to April 2021, will attract 25 million visitors, 70% from abroad. The event could also create up to 100,000 new jobs over the 2015-2021 period, add 0.5-0.6 percentage points to GDP, and open up investment opportunities for domestic and foreign firms alike.

And while Dubai will certainly look forward to the added attention it will receive from investors in the run up to the Expo, the Emirate is already replete with FDI. In 2013, $12 billion flowed into the UAE, with Dubai taking the lion's share. In 2014, that figure is expected to rise to $14.4 billion. And aside from the Expo, there are plenty of indicators to keep investors interested; private consumption is expected to rise at an average rate of 7.8% until 2015, with retail sales to grow 32.9% to $41.1 billion in parallel. Foreigners are also big buyers of Dubai real estate, representing nearly half of all transactions in 2013 at a value of $31 billion. But not all of the foreigners in Dubai are permanent; the Emirate also boasts a robust tourism industry, clocking 11 million guest arrivals in 2013, up over 10% according to the Department of Tourism and Commerce Marketing (DTCM). That put hotel occupancy rates close to 80%, indicative of Dubai's success in encouraging longer stays. Currently, the tourism sector contributes 20% to the Emirate's GDP. There will be 114,000 rooms and apartments available in Dubai by end-2016, up from 84,534 at end-2013. By 2020, when the World Expo opens its doors in the city, that figure will need to be as high as 160,000, offering plenty more opportunities for investment, especially in the three- and four-star hotels sector, which the government is currently promoting the development of through special concessions.

The DED's prediction of 4.7% GDP growth for 2014 suggests Dubai will continue on its path for the foreseeable future. In the medium term, the development of the Islamic economy, much touted by the Emirate's leadership, will begin to have an impact on the makeup of the wider economy. Having grown by between 10% and 15% annually over recent years, the charge is being led by the Islamic banking sector, although the Emirate's recent issuance of $750 million worth of sukuk is also indicative of the increasing popularity of sharia-compliant products.