By Rob Corder
Long term goals can survive short term shocks, but only if plans are adjusted along the way, says Rob Corder.
With the global economic meltdown wreaking havoc across the GCC, it is tempting to assume that governments have little or no chance of meeting ambitious strategic goals.
The region is no stranger to targets. Saudi Arabia, for example, has been working to five-year plans for several decades.
The most ambitious in recent years has been Dubai’s Strategic Plan (DSP) for 2015, published in 2007 at the height of the surge in foreign direct investment that was fuelling a boom in construction, tourism and trade.
DSP 2015 is worth another look today in light of the contraction of FDI caused by the global credit crunch.
At the time of DSP’s publication, and for around a year afterwards, it was assumed there were three sources of funds for massive investment projects: national, regional and international.
Such was the enthusiasm for Dubai projects that investors from the UAE, GCC and the rest of the world would fight for the opportunity to finance projects ranging from Palm Island to the world’s tallest tower, Burj Dubai. No project or cheque was too large.
It was not only building work that was being funded. Money flowed into six key industries identified in the DSP as key growth areas: travel and tourism; financial services; professional services; transport and logistic services; trade and storage; and construction.
Many projects encompassed several of these key verticals within a master development such as Dubai International Financial Centre or Dubailand.
DSP earmarked these key verticals on the basis of their growth potential, but recognised that growth would only be sustained if several critical horizontal factors were observed.
The plan said that in order for all industries to succeed and grow, they would need to be underpinned by leadership in these seven horizontal factors: human capital; productivity; science, technology and innovation; cost of doing business and living; quality of life; economic policy and institutional framework; laws and regulation.
These add up to vital sustainable competitive advantage, and should not be forgotten, overlooked or diluted no matter what the economic difficulties.
But there is a key missing element in these horizontal factors: FINANCE.
Finance is the lifeblood of all industries. In 2007, it was limitless, and arguably seemed unnecessary to list.Cast you mind back to those heady days and recall how every project was announced with an ever-larger price tag. The price tag was not viewed as a cost, it was a badge of honour.
A $1 billion project no longer made headlines, the price had to be $10 billion to be noticed. Before long, even $10 billion failed to raise eyebrows, so larger sums became routine.
Before long, the GCC construction industry (this wasn’t just a Dubai issue) was being measured in trillions. But still nobody seemed to question where the money was coming from and how it would be repaid.
The Dubai Strategic Plan is still a valuable set of objectives. Its main aim is to increase GDP by 11 percent per year in the period from 2005-2015, and to increase GDP per capita from $31,140 in 2005 to $44,000 in 2015.
The key industries that the plan identifies as growth drivers are broadly the right ones for a city economy with the resources, geographic position and economic history of Dubai.
But the current crisis necessitates a fundamental rethink if 2015 targets are to remain useful. Real GDP growth in 2008 came in at 7.7 percent, well short of the annual target of 11 percent. 2009 will be considerably worse, with some analysts forecasting negative growth, and even the most optimistic suggesting two percent real growth would be a remarkable achievement.
In these circumstances it is easy to question whether DSP 2015 remains in any way meaningful given how far behind target Dubai has found itself, but this would be missing the point.
Long term targets and goals are long term for a reason. They should be designed to take into account fluctuations along the way, and focus peoples’ minds on the core mission even when they are buffeted by events.
At the same time, it would be wrong to continue to assert that 11 percent GDP growth is achievable for the 10 years from 2005-2015. An utterly unachievable target is de-motivating for those charged with meeting it, and undermines the authority of those that try to enforce it.
The Dubai government needs to take stock of current conditions and come up with a Strategic Plan B that maintains the core vision and wisdom that underpins the original version, but sets realistic new economic goals and strategies for the future.
And Plan B needs to recognise that the taps have been turned off for easy finance, and are unlikely to be turned on again before 2015.
2015 is only six years away, yet it might seem a lifetime to those in government charged with meeting the lofty goals of the DSP. While the stated strategies of raising GDP etc. were sound, strategic thinking is now required to manage expectations towards 2015 and accept that the money tree is dead. Also, the revised DSP needs to factor in the unknown costs of salvaging the real estate carcass, and how to responsibly take up the oversupply in all sectors.
Another missing element of theDSP, arguably, is human factor. Any ambitious strategy should hve a sharp focus on human resource, which is a major defect in Dubai's plan. Wiithout the expat workforce, which aso makes the vast majority of consumers and investors, there is no sense in any strategy for Dubai. With all due respect to Dubai's ambitions, it just can not reply on the notion of an economic tansit lounge forever, permanent residence for selected HR and intellectual wealth should come to play at some point. Failing to address this is in my view a major flaw in DSP or any vision for that matter.