Dubai’s booming economy and what it means for your business

Expert advice: The expected growth in the SME sector is among the reasons to be cheerful about Dubai’s future.
To date, 43 percent of contracts have gone to SMEs.
By Neil Petch, Virtugroup
Tue 18 Jul 2017 05:47 PM

We’re used to hearing big, bold headlines about Dubai, whether it’s another record-breaking skyscraper, man-made islands, or drone taxis set to whisk people around the city.

With the economy too, the headlines are often celebratory. Just this week, a Google search returns stories about a booming data economy, a big upswing in new business licenses, and a projection that UAE digital investments will grow from $35m to $799m in three years.

If the stories sound like hype, that doesn’t mean they’re not true, but do they give the full picture and what are the implications for the entrepreneur?

Bouncing back – and moving beyond oil

Last year, Dubai’s growth slowed to its lowest rate since 2009 and, as part of the UAE, the economy remains heavily affected by oil prices. For years, Dubai and the UAE as a whole have worked hard to move from an oil-based to a knowledge-based economy. However, the sluggish global oil picture naturally has knock-on effects for aviation, transport and construction. As recently as mid-2016, the Financial Times reported on the effects of a global slowdown on tourism and exports. Dubai may no longer rely on oil like many of its neighbours, but that doesn’t make it immune.

However, there are lots of reasons to believe the future looks brighter. The IMF is predicting much healthier growth for 2017 and 2018.

According to Dubai SME, the economy grew 2.7 percent in real terms in 2016. Since then, Dubai’s Economic Development Committee has projected growth of 3.1 percent for 2017. In March, the UAE’s Minister of Economy gave a similar prediction of 3.5-4%. In both cases it was construction, infrastructure and non-oil revenues that were cited as reasons for optimism.

It’s not just government opinion either: Emirates NBD Research backs up the claim and as mentioned earlier, the IMF, while more muted, gives a similar prediction for 2018.

There are other promising signs. The Emirates NBD Dubai Economy Tracker Index (DETI) rose to 57.7 in April, up from 56.6 in March – the fastest rate of growth since this time in 2015. At the beginning of Q2, businesses were more optimistic than in Q1 and the construction sector index rose more than three points. Travel and tourism are also doing well, with the sector index rising from 55.3 in March to 57.0 in April.

Reasons for the renewed vigour – implications for the entrepreneur

According to doingbusiness.org the UAE climbed 12 places last year for ‘Ease of doing business’ and improved 39 percent in the quality of its protection for investors. Overall, it would seem things are picking up for new businesses here. So what’s behind it?

One of the clear reasons for healthy projections is that Expo 2020 Dubai is now a little over three years away. This is the first world Expo to take place in the Middle East and, over a six-month period, Dubai expects to welcome an international audience of 25 million. The project is ahead of schedule too. While events of this scale often fall behind (see the Rio Olympics), Expo is set to complete most of its construction one full year before the deadline.

Visitors will see spectacular architecture, mix with other cultures and, most importantly, witness what Dubai can offer to the world as a place in which to invest and to do business. To that end, Dubai is determined that Expo should leave a lasting business legacy.

Last year, Expo 2020 Dubai awarded more than 1,200 contracts worth AED2bn in total. This year so far, it plans to award 47 construction contracts worth AED 11bn and another 98 non-construction contracts totalling AED 360m. More than 12,000 vendors have registered on the Expo supply portal and 66 percent are SMEs.

To date, 43 percent of contracts have gone to SMEs. This is an important figure for those looking to start a new company in the UAE. Big business is sometimes about small businesses.

Dubai’s SME ‘backbone’

So SMEs are certainly a reason to be cheerful about Dubai’s future. In 2013, Dubai SME called them the ‘backbone’ of the UAE economy and the nickname has stuck. SMEs account for a dominant share in Dubai’s total business composition – 95 percent of the total number of firms. Moreover, the government aims to increase the contribution of SMEs to 45 percent of GDP in 2021, by helping 40,000 startups, creating 370,000 jobs and adding AED 65bn to the economy.

Confidence is high among small businesses. Dubai SME’s Business Confidence Index (BCI) found that SMEs were more optimistic than large companies for the first quarter of 2017. While there are still hurdles for smaller companies, even the attitude here is bullish. The survey looked at the challenges perceived by businesses and found that 78 percent of respondents didn’t feel they had faced hurdles in Q1 of 2017, compared to 72 percent for the previous quarter.

Accelerators, incubators and private equity are all active in Dubai and while not every venture is a success story, there are some very notable ones. This year Souq.com reached critical mass and was acquired by Amazon. Another flagship is Careem, a ride-hailing app, which this year raised $350m in foreign investments.

Construction for Expo and beyond

Investment in infrastructure is another key benefit of Expo 2020 Dubai. The development of a 4.4sq.km site at Dubai World Central (DWC) – now known as Dubai South - by the new Al Maktoum International Airport in Jebel Ali, presents a major opportunity for the construction sector. The site will include 500,000 sq m of permanent structures, plus 700,000 sq m of venue space.

But infrastructure investment goes beyond the Expo. It’s also one of the key pillars behind Dubai Plan 2021, which seeks to build ‘fully connected and integrated infrastructure… in line with the world’s best cities’. It seems to be working too. According to global design and consultancy firm Arcadis, the UAE now ranks third in the world for infrastructure investment – above even the UK, USA, and Canada.

Harnessing the full potential of tourism

The upsurge in tourism that’s expected in the next few years is important too. At this point, figures for 2017 already outstrip 2016 and the trend is set to continue. According to Emirates NDB Research, in the opening months of the year, passenger numbers at Dubai International Airport rose to 22.5 million, a 7.4 percent year-on-year increase. Tourists staying for at least one night in Dubai reached 4.57 million – up by 11.2 percent on last year.

In line with this, and with plans elsewhere, Dubai has another vision. Dubai’s Tourism Vision for 2020 aims to attract 20 million visitors per year by 2020 and to establish Dubai as the ‘first choice’ for the international leisure and business traveller. By 2020, the UAE can expect another 54,000 hotel rooms – an increase of one third over current numbers. Dubai is also working hard to build on both corporate hospitality and family tourism – four new theme parks opened in 2016, with another two on the way.

Slowing up or limbering up?

In the coming months we can expect more headlines about Dubai. While some of those from recent years have been pessimistic, predictions from both government bodies and private sector observers suggest that 2017’s headlines will be more upbeat. As Expo 2020 Dubai draws nearer, we’re likely to see headlines about investment in construction, hospitality, infrastructure and, crucially, SMEs. Small businesses have long been the bedrock of Dubai’s economy, but recent developments have placed them more centrally than ever.

As a final point, in recent weeks the Dubai Data Economic Impact Report, produced by Dubai Smart Office and KPMG, has been widely reported. It predicts that opening and sharing government and private sector data could add AED 10.4bn annually to Dubai’s economy by helping government departments to improve their decision-making processes and increasing efficiency. In line with the Dubai Data Law of 2015, Dubai aims to become a ‘smart city’. Making data easily accessible is not easy, and will require businesses with the right know-how in order to integrate legacy systems. It could be good territory for SMEs with the right technical expertise to take up the challenge.

If it’s not quite boom time yet, the next few years look set to be and, with a clear focus on partnering with SMEs, that may be your cue to get involved. While the figures for contracts issued in 2016 and 2017 are impressive, there are still more than three years’ work ahead until the six-month crescendo of the Expo itself.

Dubai’s growth isn’t slowing up – it’s limbering up. The question for small businesses is, do you want to be part of tomorrow’s bold headlines?

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