The defining image of the UAE economy in recent years would be the Dubai debt crisis (apocryphal stories of an airport car parked packed with vehicles abandoned by expats fleeing a 10-year boom that had suddenly turned to dust) .
Seemingly in the bat of an eyelid, the equity market dropped 70% and real estate prices by 60%. “The scale of those losses could have turned the UAE into another Iceland,” says Simon Jon William, Chief Economist, HSBC.
That it didn’t speaks much to the UAE’s deeper resilience.
With a per capita GDP of $60,000, the UAE ranks in the world’s top ten richest economies. It consistently runs a fiscal surplus, something that Western government’s might find hard to grasp. Over the last decade, it has generated budget surpluses equivalent to $270bn. To bolster its foundations, the UAE’s investment arms retain over $900bn in assets.
This financial bedrock underpinned the UAE’s stability and currency in the downturn. And now the turn in the cycle is well underway.
“I see oxygenated blood flowing through the UAE economy,” observes Williams. His view is reflected in the numbers. Recent Purchasing Manager Index data show confidence is higher in the UAE than in China.
Partly it’s an oil story. With the 7th largest reserves on the planet, the UAE has more than 95 years of output at current production levels. But policy makers realise they cannot take current prices of over $100 a barrel for granted.
The UAE has long been making strides to diversify beyond its reliance on oil. For the region, oil revenues account for 30% of GDP. By 2020, this is forecast to drop to 20%.
Central to this is Dubai’s ambition to function as a global trade hub. Its geographical location seven hours flying time from both London and Hong Kong gives it a natural advantage. As James McCallum, CEO of energy services company Senergy highlights, for an executive with a young family the ability to fly direct to main markets is an important factor, “in the region of 70% of the world’s currently produceable hydrocarbons lie within a medium haul direct flight from Dubai and the UAE”.
For Williams, the most impressive of Dubai’s superlatives are not buildings you can see from the moon, rather it’s the volume of passengers going through the airport. Currently handling 56 million passengers a year, Dubai’s airport has been steadily closing the gap on Heathrow’s 65 million. It highlights Dubai’s ambition that the new international airport under construction has been designed to handle 175 million passengers.
It is the same picture in ports and freight handling with Jebel Ali becoming the third largest trans-shipment port in the world.
A mall for all
But to many, Dubai’s reputation is that of a global tourism and retail destination. Its famous ‘shopping festivals’ bring customers throughout the world. Retailers have seen consistent year on year growth and Dubai currently has second most targeted retail space in the world after London. Its appetite for new brands remains strong.
In summary we believe that the UAE economy has bounced back from the recession and the major economic indicators show that it is poised for growth for the next 10 years. If you have any comments or questions, please feel free to leave them in the comments box below.