The overhang from the collapse of the property market is no doubt still very much around in Dubai. The abundance of empty apartments and commercial space illustrates that perhaps not all the fundamentals necessarily back a surge in rental prices to the highs of 2007. However, rents are certainly going up in concentrated pockets of Dubai and although the recovery is far from coming around full circle, it is tough to deny that the economy has and is making a strong comeback.
Indicators clearly show confidence is slowly returning to the market. Consumer spending rose in the third quarter of 2012 with a brighter outlook reported on jobs and spending, according to Dubai’s Department of Economic Development. The government agency’s quarterly Consumer Confidence Index showed an increase to 129, above the average of 100 and the highest since the corresponding period a year earlier.
Though lending in the UAE grew about 3 percent in the third quarter — markedly less than a 15 percent rise in Saudi Arabia — spending patterns in Dubai illustrate the resurgence of the economy. Dubai is one of three best-selling locations in the world for cosmetics chain Sephora. The Gulf region including the UAE was the best performing market globally in 2012 for luxury car maker Rolls-Royce Motor Cars. For fast food giant McDonald’s revenue from the market is growing as much as 20 percent annually.
“Dubai’s core assets of trade, tourism and infrastructure have proved to be very resilient to the global economy’s weaknesses, and the role of Dubai as a regional hub has been greatly reinforced recently,” says Philippe Dauba-Pantanacce, senior economist at Standard Chartered.
The economies of the UAE and Dubai, in particular, will continue to expand on the back of services, trade and tourism, HH Sheikh Ahmed Bin Saeed Al Maktoum tells Arabian Business.
“All indications show that UAE and Dubai economy will continue growing in 2013 by 3.8 percent,” says Sheikh Ahmed who chairs Emirates Group, Emirates NBD, and Dubai World. “Tourism, hospitality and trade will continue to play a major role in the growth."
The UAE’s economy was projected to have grown four percent last year and is estimated to slow down to 2.6 percent according to the International Monetary Fund (IMF).
A partial rebound in the property market, a resurgence in consumer confidence and an improved performance in the banking sector has helped the Dubai stock market reach a 39-month high. The publicly listed Dubai Financial Market (DFM) posted a AED35.2m ($9.6m) profit in 2012 after recording a loss of AED6.9m the year before.
“The performance of the economy has recorded a remarkable and rapid improvement, with the majority of its sectors growing at high growth rates,” says the bourse’s chairman Abdul Jalil Yousuf Darwish. Last year was “the beginning of recovery by the real estate sector, as well as the constant improvement in the performance of the banking sector. These two sectors represent the key pillars for DFM”.
After a plunge of nearly 60 percent in prices when Dubai was hit by its worst financial crisis, the pace of the real estate market's recovery and that of the economy is increasing. Emaar Properties, the emirate’s biggest listed developer, has seen its share price surge to a 51-month high in February.
Emaar’s profit increased 18 percent last year. In its latest report, real estate advisory firm Jones Lang LaSalle said there were “promising signs of recovery from the end of last year in Abu Dhabi and Dubai, with upward prices in the residential, retail and hotel sectors.” Apartment sale prices increased about 7 percent in 2012, according to the property consultants. The UAE attracted about $7.7bn in foreign direct investment in 2011 compared with $5.5bn in 2010, according to the United Nations Conference on Trade and Development.
Tourism and logistics have also helped the economy improve. Emirates, the world’s largest airline by international traffic, doubled its first-half profit of its financial year, with net income rising to about $463m. The airline carried 18.7 million passengers since 1 April, an increase of 15.4 percent from the same period a year earlier.
“We expect businesses to do good in 2013... we expect the economy to do very well in all aspects especially in real estate which was suffering and is expected to recover even better,” Sultan Ahmed Bin Sulayem, chairman of DP World, the world’s third largest port operator, says in an interview with Arabian Business.
“I think this is due to many economies in the world coming out of recession or experiencing growth. China and the Far East in general is seeing growth, Latin America is seeing growth, Africa is experiencing growth. The only place not seeing growth is Europe,” adds Bin Sulayem. “In general we expect business to be better. Dubai has really performed better than what is expected, Dubai has this ability, whatever everybody expected with the crisis that it's going to paralyse Dubai — it didn’t.”
Emerging markets and developing economies are projected to grow about 5.6 percent this year, up from 5.3 percent last year, while Europe contracted 0.4 percent last year, and the US economy increased 2.2 percent, according to IMF estimates.
“I have no doubt that a recovery is under way; it began as much as twelve months ago and it's still building momentum,” says Simon Williams, the Middle East chief economist for HSBC. “It’s driven by the export-oriented service sector principally that's been lifted by strong regional and international demand. The real challenge will be to manage the pace of growth and its direction.”
HSBC’s forecasts the UAE’s economy is set to expand by 4 percent. Dubai will probably grow by the same pace, says Williams.
“Part of the reason that Dubai has been able to turn its fortunes around as quickly as it has is not only due to its excellent service sector but that sector being able to compete effectively,” he adds.
The investment in establishing itself as a logistics and global transportation hub is paying off. Aramex, the largest courier company in the Middle East and North Africa, has benefited from the resurgence in business activity.
“On the logistics side there is definitely a massive comeback from the recession days,” Aramex CEO Hussein Hachem tells Arabian Business. The company is growing locally and internationally, he says.
Aramex reported a fourth-quarter net profit increase of 15 percent climbing to AED65.7m ($17.9m) as revenue grew on the back of ecommerce and buoyant economies in the Gulf states and Asia.
“What’s fuelling it on the local side is a retail boom, there is more demand on logistics and — the Jebel Ali free zone and the port and the new Dubai World Central Airport — all integrated together, is attracting new companies who are positioning their operations out of Dubai.”
“We’re very happy with the economic climate in Dubai,” says Hachem, adding: “We’re definitely on the right track.”
That the small emirate has made strides doesn’t “mean that Dubai’s debt issues have vanished,” says Dauba-Pantanacce, “but it means that the Dubai business model is back to life and should help work this debt going forward.”
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