Dubai: Notes From A City At A Crossroads
Having just returned from my latest business trip to Dubai, I have to report that confidence in general remains very subdued. For sheer tragic parade-raining, bubble-bursting symbolism, you can’t beat the Burj Khalifa tower (renamed at the last minute to appease the neighbours and then closed soon after opening for ‘technical reasons’ – for three weeks and counting). Risk Watchdog was also fortunate (?) enough to be on the ground at Dubai Mall, when this aquarium incident occurred – another flagship project which was, literally, in this case, starting to show the cracks.
Meanwhile, construction sites still lie abandoned in many cases, traffic is actually moving on the Sheikh Zayed Road, and the whole place feels a lot quieter in general. This anecdotal evidence is backed up by latest import figures: Dubai’s purchases of base metals were down 67.9% y-o-y in Q3 2009, to AED6bn, while overall imports were down 34.9% y-o-y. Demonstrating the downturn in consumer sentiment (and indeed, consumer numbers, in my view), ‘precious/semi-precious stones and jewellery’ imports and ‘machinery, electrical and electronics equipment’ also fell by just under 30% y-o-y.
In general, bankers and investors are waiting on the announcement from Dubai World which is due sometime in March, for a clearer picture of what is planned for the process of restructuring US$22bn of its liabilities. An announcement of insolvency from Dubai World is possible – and this could upset the market once again, but it may just be that creditors are persuaded to just remain in state of perpetual rollover. Obviously, this will increase risk premiums and delay the lending recovery – but at least no one will be able to say that Dubai defaulted. However, my colleagues and I are as in the dark as anyone: most of what we heard from our contacts in Dubai was in rumour form: the lack of transparency is part of the problem, and something Dubai will need to address if it is to boost perceptions of its own creditworthiness and breathe life back into lending markets.
In spite of all appearances, the official figures suggest that Dubai’s population is still growing. The Dubai Statistics Center says that the number of permanent residents of Dubai had risen 5.6% in the first nine months of 2009 to 1.738mn, while the number of people who either commute to Dubai or have temporary residency there was up 7.7% to 867,800 over the same period.
This does not chime with the views of many of the people I talked to in Dubai. Anecdotally, I found Dubai very quiet this time around, and there is talk that once the school year ends (in June), there will be a renewed wave of departures. However, with rents having fallen dramatically in Dubai, there has been a reversal of the old trend, whereby those working in Dubai would commute from the more affordable Abu Dhabi, with Dubai now attracting some of Abu Dhabi’s workers, which may have boosted its population numbers somewhat.
In any case, the government needs to keep foreigners in Dubai over the longer term, and given the climate, the political conditions and now the economic difficulties, it may need to work harder to do this. Offering citizenship to long-term residents would be an encouraging first step.
It’s not all bad news, though. To end on a positive, there’s always the happy accident of geography. My colleagues at Business Monitor think Asia, Africa and then MENA will be the top global growth performers in 2010 in that order (ahead of Latam, Europe and the developed states) – and Dubai is a convenient centre point between these regions. Hence the Gulfood trade fair I attended was booming, with companies from all over the world, and traffic at Dubai International Airport was up 9.2% in 2009. Add in Abu Dhabi’s generous backing and a few reforms here and there, and it’s clear that the Dubai dream is not over. And look on the bright side: if there is a global double dip, there’s not much further left to fall…