The emirate has tweaked its growth strategy after the downturn, by sidelining financial services and construction in favour of sectors, such as trade.
Dubai moves away from finance and property
The emirate has tweaked its growth strategy after the downturn, by sidelining financial services and construction in favour of sectors, such as trade, where it has traditionally been strong, writesTom Arnold Dubai has dropped financial services and construction as its core focuses for expansion, recalibrating its growth strategy after the global financial crisis. The emirate is focusing on sectors where Dubai has traditionally been strong such as wholesale and retail, international and domestic trade, transport and storage, and tourism and manufacturing under the Dubai Strategic Plan (DSP) 2015.
The revelation is contained within an updated sovereign bond prospectus published on the London Stock Exchange website yesterday. "The global economic crisis has significantly impacted the Dubai Government's economic development plans and, as a result, the Government is currently reassessing the stated aims of the DSP 2015 in the area of economic development," said the document. Senior officials have already talked about the need for Dubai to move away from property and financial services, sectors which acted as twin engines to drive rapid economic growth until the financial downturn.
Nonetheless, this is believed to be the first time the Dubai Government has publicly stated its intentions to realign the economy. The property and financial services sectors have been at the root of many of the emirate's problems during the crisis. The downturn burst a property bubble in Dubai that was fuelled by easy credit and high oil prices, which helped accelerate economic expansion. Analysts do not expect a recovery in the sector until next year at the earliest.
The government-controlled conglomerate Dubai World is close to finalising a restructuring of US$24.9 billion (Dh91.46bn) of debt, much of it linked to its property units. Many of the Government's financial investment vehicles, such as Dubai International Capital, have also encountered financial troubles due to investments turning sour during the downturn. "A refocus is not surprising," said Eckart Woertz, the director of economic studies at the Gulf Research Centre. "Real estate may have been more of an aberration from the traditional growth models of Dubai as a trade hub."
Problems linked to significant declines in property sale prices and market and rental rates were likely to adversely impact the emirate's GDP last year and in subsequent years, said the prospectus. But it said no official estimates of the emirate's nominal GDP forecasts for last year are yet available. The IMF and the Institute of International Finance both estimated that the economy contracted last year as Dubai dipped into recession.
The nominal GDP of Dubai in 2008 equalled 32.3 per cent of the nominal GDP of the UAE in the same year, the prospectus said. Data published by the UAE's National Bureau of Statistics showed the UAE's nominal GDP last year was Dh914.3bn, representing a decline of about 2.1 per cent from 2008, the prospectus said. It attributed the decline to the adverse effects of the economic crisis and the drop in oil prices last year.
The prospectus also sheds light on Dubai's fiscal health. The emirate was expected to post a budget deficit of Dh5.99bn this year despite a 14 per cent drop in budgeted expenditure from last year to Dh35.4bn. Budgeted government revenues were Dh29.4bn this year it said. Last year's budget deficit was Dh12.9bn. The Government's revenues included tax income such as customs duties and non-tax revenues from fees as well as revenues from oil and gas operations and income from investments made by the Dubai Government.
"The Dubai Government has no plans currently to implement income or corporation taxes, although there has been speculation in relation to a Federal Government-imposed value-added tax regime for some time," said the prospectus. Dubai's Government had outstanding direct debt of Dh105.47bn as of July 31 this year, it said. The debt includes funds borrowed by the Government to finance the expansion of Dubai International Airport, the first phase of the construction of Al Maktoum International Airport, other infrastructure projects in Dubai and borrowings by Investment Corporation of Dubai. Other deficits arose from related party debt from the Abu Dhabi Government and the Central Bank of the UAE for the Dubai Financial Support Fund and the restructuring of the Dubai World Group, according to the prospectus.