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Fri 11 Mar 2016 01:05 AM

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Dubai's private sector faces short-term challenges but long-term opportunities

The decline in operating conditions in February may be a concern, but there are reasons to be positive about the economy in general, says Ed Attwood

Dubai's private sector faces short-term challenges but long-term opportunities

Research released last week about the health of Dubai’s private sector made for difficult reading. The Emirates NBD Economy Tracker Index showed that private companies signalled the first deterioration in overall operating conditions since data collection began six years ago.

Given the steadily worsening performance of the index over the last couple of months, this should not come as a huge surprise. All three segments covered by the index — travel and tourism, construction, and wholesale and retail — reported drops, while new orders also declined for the first time since 2010.

But for those who wish to seek them, there are still plenty of encouraging signs. The index also reported a slight increase in the private sector workforce, while companies surveyed said they had an improved level of optimism towards the one-year business outlook in February.

From the wider perspective, whereas some Gulf states have drastically cut spending, Dubai announced in December that its budget would rise by 12 percent in 2016, after a 9 percent rise the year before. Spending on infrastructure, transport and economic development will increase by roughly the same amount, in a boost to the many contractors and service companies who rely on the pipeline of future projects remaining strong. Dubai’s Roads and Transport Authority (RTA) has projected an 18 percent rise in revenues in 2016, and is cracking on with 55 projects.

That compares favourably, for example, with Saudi Arabia’s decision to slash its own 2016 infrastructure and transport budget by 63 percent — a move which is already having a knock-on effect on the kingdom’s biggest contractors, fuelling delayed salary payments and lay-offs.

The Dubai government’s desire to push ahead with spending plans appears to be matched by the private sector. Despite a weak period for the city’s property values, developers are still rolling out projects, and many of them are targeted at the in-demand affordable housing segment.

The sorts of megaprojects that put the emirate on the map are still being developed — such as Dubai Holding’s Mall of the World — but they are being built in manageable stages, which makes more sense in the current environment. And for those who fear a repeat of the collapse in property prices witnessed eight years ago, stricter controls on mortgage lending and higher transaction fees have alleviated those concerns.

While there’s no doubt it has been a difficult period for the UAE’s small businesses, there are signs that the banking sector is working hard to solve issues related to financing and repayment of debt. One estimate has put the cost of small business owners fleeing the country due to debt concerns at $1.4bn in 2015 alone.

Last week, however, the UAE Banking Federation announced that it was putting together a package to support SMEs in financial difficulties, including the suspension and restructuring of future payments. The introduction of a long-awaited bankruptcy law will no doubt assist these efforts.

That being said, it is certainly not going to be an easy year for the economies of Dubai and the wider UAE. External headwinds, such as the low oil price, regional instability and the strong US dollar will all play their part to make life difficult for the emirate’s companies. But if, as expected, the UAE’s economy grows by between 2.5-3 percent this year — compared to an overall OECD projected average of 3 percent — that would be an impressive performance in the circumstances.

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Karan Sahoo 4 years ago

A good read. thanks for sharing your views Mr Attwood.

Arsal 4 years ago

good read indeed, but i guess the article was written a month before RTAs silly hike of the parking costs...wonder what comment would come now from the readers when according to the article RTA and others expect to increase their revenue by inexplicably raising the costs of services, this is not growth...

The problem with all these 'experts' is that they announce and write articles stating the obvious and reiterating the statements from the govt when nothing is clear before the nail hits you.