Dubai may not see Expo benefits until 2015 - analyst

Expo-related spending seen taking up to 2 years to ramp up; stock market rally is likely to slow well before then

Dubai's success in bidding to host the 2020 World Expo will trigger billions of dollars of investment in the emirate, but the economic benefits may not be seen for two years, an analyst said.

After competing against three cities, Dubai was awarded the world's fair by the Bureau International des Expositions on Wednesday, setting the seal on a dramatic economic recovery.

In the short term, shares may rise further because of a feel-good factor, fund managers and analysts said. However, it will take a year or two for Expo-related spending to ramp up, and the stock market rally is likely to slow well before then.

"We should see a surge in the stock index and later a sell-off. The Expo is priced in but the economic benefit won't materialise before 2015," said Ali Adou, portfolio manager at The National Investor in Abu Dhabi.

He recalled that when Qatar was bidding to host the 2022 soccer World Cup in 2010, its bourse performed well, and kept rising immediately after the bid succeeded. Within weeks there was a sell-off, though, and the market moved sideways in 2011.

However, some observers also warned the emirate may risk a repeat of the boom-and-bust cycle which nearly caused financial collapse just a few years ago.

Four years ago, the emirate of 2.2 million people nearly defaulted on its debt after a real estate bubble burst, causing property prices to crash over 50 percent between 2008 and 2010.

Now a boom in trade, tourism and finance is repairing the damage and Dubai again has the resources to plan big projects. But some businessmen fear the additional investment for the Expo may be hard for the economy to absorb.

Hopes for a successful Expo bid have already contributed to speculation in the property market, where prices are up some 20 percent over the past 12 months, and the stock market, where the index has soared 79 percent this year.

Further large rises could start to hurt Dubai's economic competitiveness by raising its cost base - and conceivably set the emirate up for another crash down the road.

"(The Expo) a powerful symbol of Dubai putting the 2009 bust behind it and of the world recognising the strengths of its political stability and its open, export-oriented real economy," said Simon Williams, chief Middle East economist for HSBC.

But he added: "The key challenge policymakers now face isn't generating growth but managing it, making sure it's sustainable and well-balanced. Policy decisions over the next 12 months will determine how successful Dubai will be in avoiding a repeat of the boom-and-bust cycle further down the line."

Because of Dubai's small population, the Expo may have more of an impact on it than most host locations. The government thinks the event will draw over 25 million visitors, 70 percent from outside the United Arab Emirates, and create 277,000 jobs - though some analysts believe those numbers may be too high.

A huge exhibition centre will be built on the 438-hectare Expo site, plus tens of thousands of new hotel rooms and an extension to Dubai's metro line.

The government expects infrastructure spending to total some $6.8 billion; overall Expo-related spending, including private sector projects, may reach $18.3 billion, HSBC estimated.

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Posted by: DME

Thank you, you have made a very good suggestion: Sponsoring by a government department rather than an individual. That should solve most of the issues linked to sponsorship....

Posted by: Alan

A key point which is not being considered is limited benefit arising from easing of Iran sanctions. Dubai has traditionally been the first choice of business for Iranian merchants via import/export /re-export business - limited easing of sanctions including release of few billion dollars will result in at least 35-40% of such funds being used in such manner that will benefit Dubai economy - and given the small size of Dubai's population (native and expat) the benefits will be higher than average. The gains will be compounded by Expo2020 backed spending. A very good point the author has highlighted is 'managing' the success and investment , one key point will be reconsidering the 'sponsorship' system where an individual investor is linked to another individual via sponsorship system. Fresh Investors will be less skeptical and happier if sponsorship was moved from individual to a government department while usual sponsorship fee is being paid.

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