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— Industry Insight —
Of course, Dubai has been affected by the global financial turmoil, which created two interlinked problems: Local asset values tumbled, and due to the shortage of liquidity globally, questions surfaced about the emirate's ability to refinance its debt. However, these two issues are short-term setbacks when viewed in the broader context. First, even after the 75% decline in the Dubai Financial Market index from its 2008 peak, it is still at about 60 percent higher than it was five years ago, and at current levels there are some genuine bargains on undervalued equities. In the property market, anecdotal evidence points to price drops of up to 50% in some off-plan developments, and such declines will make Dubai more affordable.
Second, Dubai government sources have acknowledged that borrowings
by the emirate and emirate-affiliated companies amount to $80 billion.
Much of this capital has been invested in high-quality local assets
that will yield strong returns over the medium term. In the short term,
frozen global credit markets will challenge refinancing needs, and some
type of restructuring might need to occur. The government has shown its
openness to such initiatives with the merging of Dubai mortgage lenders
Amlak Finance PJSC and Tamweel PJSC and their subsequent absorption
into Emirates Development Bank, as well as through the creation of a high-level committee to evaluate its financial alternatives.
The emirate's emergence as a regional hub can be traced to its leaders, who created a strong foundation for the fast-growing economy. For while real estate has been an engine of growth, the majority of Dubai's economy involves three other sectors: trade and logistics, professional services, and tourism and hospitality. Dubai's leadership in trade and logistics began decades ago. In the '60s and '70s, the late Sheikh Rashed Al-Maktoum borrowed funds to dredge the Dubai Creek to facilitate trade flows. He later built what seemed at the time like an unnecessarily large project, the Jebel Ali harbor. Today the port is space-constrained and houses 6,000 companies from 110 countries. Sheikh Rashed's son, the current Dubai ruler, Sheikh Mohammed, has led tremendous advances in professional services and tourism, partly by opening the emirate to workers and visitors from around the world. Dubai has one of the world's most cosmopolitan populations, and it boasts 7 million visitors per year. In professional services, the Dubai International Financial Centre is the unrivaled financial hub of the Middle East. While many service providers have also opened offices in other regional cities, the "kitchen" continues to be in the DIFC. Dubai Internet City stands as yet another example of leadership, serving as the regional sales and marketing hub for technology companies. The costs of switching such industry centers to other cities are high. The miraculous boom in tourism and hospitality in Dubai is entirely of the emirate's making. Dubai has scalding hot weather for six months a year, a limited stretch of waterfront and an otherwise barren, though beautiful, desert. Yet the emirate has built world-class hotels, shopping developments and conference centers that thrive in an open environment supported by a leading airport and airline. As a result, it has transformed its desert into a destination that combines leisure, commerce and accessibility in a manner unmatched in the greater region. Continued access to funding is critical for Dubai's success, but the storm will pass. Like most emerging markets, volatility will remain a feature of Dubai's economy. However, the emirate's fundamentals point to a strong secular upward trend for years to come. Fawzi Jumean is executive vice president heading the lower Gulf region at Amwal AlKhaleej, a Middle East and North Africa private equity firm. |
A favorite topic of discussion these days is an anticipated decline of Dubai as a regional hub amid economic challenges. But this notion fails to consider the full picture of the emirate's development as a force for growth. Dubai will remain central to economic activity in the Gulf and the broader region. 
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