x Abu Dhabi, UAEThursday 27 July 2017

Dubai reshuffle signals light at end of tunnel

After such a tough year, the emirate is doing more than moving key players around. It is striving to adapt to the needs of a vastly different economic environment.

Sheikh Ahmed bin Saeed Al Maktoum, CEO and chairman of Emirates Airline, heads economic development committee.
Sheikh Ahmed bin Saeed Al Maktoum, CEO and chairman of Emirates Airline, heads economic development committee.

The shake-up at the top of Dubai Inc announced last week may at first glance look like the work of a bureaucratic paper shuffler, but in fact it holds the key to the future economic strategy of the emirate. It is a sign that, while there is still much to do in resolving individual corporate problems within Dubai's debt-buffeted structure, there is light at the end of the tunnel that the emirate entered with the decision last November to restructure Dubai World.

The creation of five top-level committees to oversee government strategy - in the fields of economy; security and justice; social and community areas; infrastructure and environment; and health and safety - is a key indicator that Dubai Inc has drawn a line under the financial crisis, and is beginning to plan how the emirate will emerge from the other end. "The key is 'back to basics', that's for sure, but it's also a sign that Dubai is also thinking of 'back to the future'," said a government adviser who asked to remain anonymous. "It's been a tough year or so, but Dubai will emerge with a coherent and long-term strategy, and a vision of its future role within the UAE federation."

The motives for the reshuffle are to be found in the need to streamline decision making in those five key areas of government policy. But its origins can be traced back to the Dubai Strategy Plan 2015 announced by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, in early 2007. Then, at the height of the economic boom, Sheikh Mohammed announced that although Dubai had met the targets of an earlier plan ahead of schedule, he was not going to let the pace of development slacken. In fact, he was going to aim for higher and tougher standards over the next eight years.

"Dubai needs to ensure that it builds on its success through proper planning and strategic development," he said back then. He outlined the areas of focus for government strategy, which more or less overlap the special elements of the committees created last week. But there was no doubt that the first and most important element of the 2015 strategy was in the area of economic development. The double-digit growth of the economy from 2000 to 2005 was the motor that made possible Dubai's development as the modern, dynamic city that caught the attention of the world and became a leading hub in the Middle East. It was becoming, in Sheikh Mohammed's words, "an Arab city of global significance".

In the first five years of the decade, Dubai's economy had been among the fastest-growing in the world, with a 13 per cent annual increase in GDP. That was faster than China, India or any of the traditional industrial superpowers in Europe or America. Such economic hyperactivity allowed the emirate to diversify away from energy dependency and invest in the infrastructural, social and cultural capital of the emirate.

Back in 2007, Sheikh Mohammed set demanding standards for the economy in the following eight years. Annual GDP growth would be 11 per cent, he said, with productivity growth of 4 per cent per year, fuelling Dubai's expansion to a workforce population of 1.7 million in increasingly highly skilled employment. The target for Dubai GDP in 2015 was US$108 billion (Dh396.69bn). That was the ambitious plan in early 2007. If the world economy had maintained the momentum of the early part of the millennium, the strategy might have been achieved.

But the global financial crisis changed all that. By autumn 2008, the mathematics of Dubai's economic growth had been rendered meaningless as the world slipped first into financial turmoil and then economic recession. Most economists now believe that only massive intervention by western governments and the underestimated resilience of the Asian economic powerhouses, led by China, prevented a depression of 1930s proportions.

Dubai, with its mainly government-owned corporations caught on the up-curve of the investment cycle, was especially vulnerable to the financial storm that swept the world. In particular, its large borrowings - geared for 11 per cent GDP growth and theoretically sustainable as long as that target was hit - threatened its future economic progress. The first job of the new committees, announced last week under Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, will be to assess and reconfigure the economic model to suit the very different circumstances of 2010.

The head of the key committee overseeing economic development is Sheikh Ahmed bin Saeed Al Maktoum, the Ruler's uncle and the chairman and chief executive of Emirates Airline. He is one of the few business leaders to have emerged unscathed from the crisis and his airline, too, has continued to grow despite the global turbulence. But the world has changed and he will have to adapt an economic strategy to suit the new environment.

In particular, he will have to do without the engine of a dynamic property sector, at least in the short term. Property, the real dynamo of the boom years, has suffered badly in the crisis and analysts are not expecting a recovery any time soon. Farouk Soussa, the head of Middle East government debt analysis at Standard & Poor's, says: "It is viable that Dubai can achieve sustainable economic growth without the property sector, at least for a couple of years. It can leverage its existing competitive advantage in logistics, transport and tourism. New growth will come from improvements in productivity, rather than financial investment."

Dubai will also have to adjust to new financial disciplines, following the shock to the system from the Dubai World restructuring. "There is a risk of short-term financial market exclusion, so growth will not come from borrowed money. Any new money raised will have to service existing debt and other financial obligations," Mr Soussa says. The pace of recovery in Dubai, still a leading centre for world trade, will inevitably depend on the global macroenvironment. The World Bank is forecasting global GDP growth of 2.7 per cent this year, and 3.2 per cent next year. Emerging-market growth forecasts, led by China, are in the 7 per cent to 9 per cent range. The UAE, with Dubai slowing it down, will struggle to hit those levels, with the IMF saying it thinks growth will be "about flat", although government estimates suggest 4 per cent is achievable.

These are the economic variables being assessed by Sheikh Ahmed's crucial new economic committee. If Dubai gets it right, the emirate will be able to resume normal economic growth in a comparatively short period. The ambitious strategic plans for 2015 may have to be put back a few years, but they are still at the forefront of Dubai's thinking. @Email:fkane@thenational.ae