Dubai (and the GCC)’s Economy into the Future – Part 2

August 30, 2008

This post is a continuation from my last post about the future economy of Dubai and the region.  By the way, I am not an economist – these facts have been gleaned from various articles in the local business press over the last couple of months and the interpretations are my own ruminations of a complex and difficult topic.

While many western countries are suffering economic slowdowns (such as the US with the credit crunch and house prices), the economies of the gulf countries are growing at high rates. Inflation is a concern, just as it is elsewhere. It is now around 10% per year, up from just 2% or so four years ago. Much of this is due to supply bottlenecks but also the rising price of food and rent. A recent report in the local press blamed the current surging oil windfall with too much and too cheap money chasing too few goods and services. In other words, the problem is not that there is not enough money, but the inability to spend it due to shortages in labour and materials! The decline in the US dollar to which many of the local currencies are pegged also does not help the rising cost of imports (although this has bounced in recent weeks).

For Dubai, the proportion of the economy based on oil and gas is now down around 6% as tourism and the financial sector have proportionally increased. Travel and tourism takes up 22.6% of the UAE’s GDP. Construction is a huge economic contributor as anyone here will tell you with the amount of both public and private sector work carrying on. For example, one of the construction companies in Dubai, Nakheel, plans to deliver homes for 3 million people over the next 5 years. Many nations in the region have established sovereign wealth funds which they are using to fund acquisitions in international markets as benign investors.

Some figures on GDP growth: Due to population increases and the large amount of construction activity, GSP growth of 16% is forecast for 2008. GCC countries forecast growth (nominal GDP) over next three years to be 16% per year. The previous three years the economy has been running at 19.4% growth. Real GDP growth is forecast to go from 5.6% in the last three years to 6.6% in the next three years with UAE and Qatar to perform the best. ING estimates that the construction boom will last another 3-5 years with another USD 2 trillion of construction work in the pipeline.

Also, UAE is among the top 5 countries in the world (behind Norway, India, Indonesia, and Denmark) with the highest levels of consumer confidence – although figures are lower than this time last year reflecting the general global downturn. Job prospects are one of the keys to the high ranking for the UAE. While the US lost 260,000 jobs during the first four months of 2008, the UAE added 640,000 during same period.

Much of the regional growth is fuelled by oil revenues. A recent article out of Stratfor notes that oil exporting companies will gain a financial windfall with increased energy prices and along with this, they gain increased political power through directing where oil is exported and also influencing regional governments. But this is only possible if the oil continues to flow, particularly for countries in this region to achieve stability to export oil out through the Straits of Hormuz. The excess cash can be used to “buy peace” with neighbours, as well as for domestic infrastructure investment. For example, Saudi Arabia is constructing large cities in the desert to attract and house new workers and prepare for a post-oil world.

One statistic –oil revenue for 2008 in the region exceeded US$400 billion last year with the UAE earning 56 billion (up from 22 billion in 2003) and Saudi Arabia up to 172 billion (up from 70 billion in 2003 and a paltry 34 billion in 1998). By comparison, the US pays in oil imports the same as its defence budget.
So what is my take on all this? If stability in the region ensues (which requires overcoming the Sunni-Saudi, Shiite-Iran tensions) and oil prices remain relatively high, then revenues will continue to be high into the medium term. As Stratfor points out, with economic power comes political influence. Saudi Arabia, with 40% of its population under the age of 15, remains the key with its major growth prospects and continued oil revenues.

The long term sustainability of local developments remains the question. And for this, we must turn to cultural matters (which as anyone will tell you who has studied foresight, the future lies more in the inner world of intention, values and culture rather than the development of the external world of technology, construction and the economy).

Dubai’s Economy into the Future

August 25, 2008

Last post, I talked about the sustainability culture in Dubai. This is slowly improving but down the road, Abu Dhabi is somewhat more advanced through its Masdar Initiative which aims to develop a global platform for researching sustainable energies. But this post in this series I will focus on economic development.

The UAE and the broader GCC region (which includes Kuwait, Saudi Arabia, Bahrain, Qatar and Oman) are undergoing a period of strong economic growth. One statistic to prove this point – there will be more than USD 1 trillion of capital expenditure over the three years 2008-10 in the region. Three quarters of this will be non-energy related infrastructure spend – that is $750 billion. These numbers are huge. They involve the building of million population cities with their associated infrastructure (water, power, etc), much of this in Saudi Arabia. The region is expecting to attract an additional 25 million people over the next few years; one of the greatest movements of people the planet has ever seen. Much of this growth is fuelled by high energy prices generating larger sums of money into the region looking to be invested.

The countries here, particularly Saudi and the UAE, are undertaking true nation-building tasks. It is highly growth oriented, and generating construction, services and population booms. Life here is akin to living in a construction zone. And where I reside in Dubai Marina, just picture the Gold Coast with the high rise and the beaches but then think that half the buildings are currently being built. And 5 years ago, none of these high rises existed!

So how long is this growth going to last? Momentum is very important and with the amounts being invested here and the strong financial inflows, there are still some years to run. Here in Dubai, Dubailand and the Bawadi complex of hotels and resorts will not come through for at least a couple more years. Some of the locals have been waiting for the tide to turn in the growth for the past 5 years but the direction is still all one way. There has been nothing like the housing price decreases like those that have occurred in the US or the UK. Prices are still increasing, especially rent! For a fairly standard 3 bedroom villa in a relatively nice area, you are looking at about 250,000 dirhams – or let’s say A$75,000 per year.

Inflation is a serious issue, caused by a combination of high growth, rent increases, a decrease in the value of the US dollar to which the dirham is pegged which increases the price of imports, and the general commodity price increases (including food of course). Inflation in the UAE is running at around 11 or 12%, an increase from 9% a couple of years ago. The normal economic response in these environments is currency appreciation to ease inflation but that is not happening with the pegged dirham. There is talk in the papers about pegging to a basket of currencies instead, similar to what Kuwait did last year.

So what is the future of the Dubai economy? Well it all seems to be gangbusters for the next three or four years at least, barring any shocks associated with local geopolitics. In the longer term, that really depends on whether the growth retains a sizeable liveability component with people willing to live and visit here if it is too hard to get around with traffic (which is already stressed) and other issues. The cultural factors about this growth I will leave to another post.

A Sustainable Future for Dubai?

August 7, 2008

My fellow futures traveller Andrew Wynberg asked me a question some time ago: “What is it like to be a futurist in Dubai?” I have been pondering that question at some length and will attempt to make a cogent and coherent answer to it over the coming few posts.

First off some reflections on sustainability:

In a presentation a while ago by Richard Slaughter that I witnessed, he provided pictures of Dubai and the various islands shaped like palms off its shore and questioned their long-term viability in the face of climate change. Local media on 28 April here in Dubai talked about a presentation by Dr Rajendra Jumar Pachauri, chairman of the IPCC, of the concern for sea level rise and the potential for subsidence of these low lying areas and the need for strict zoning laws. The comments quoted by property developers in response are pertinent to my view of futures thinking in Dubai. These include:

  • That we have factored in sea level rises of half a metre over 100 years into the design of our reclamation projects.
  • That the timeframes are long and the opportunity for management, adaptation and response will extend across generations of human existence.

Now that’s all fine if sea levels do not rise but if they do by more than that, there could be some very expensive underwater real estate. Other aspects around sustainability I find interesting here surround the use of alternative energies which are few and far between. One would expect that solar energy would be encouraged with the large amounts of hot sun and warm temperatures yet I am yet to see one anywhere apart from to power remote speed cameras. And the amount of power that is used is significant per property due to the use of airconditioning, pool cooling, etc.

Further, significant amounts of power are used for desalination of water. Many people drink bottled water which is sourced from aquifers in the mountain areas. But the use of tap water is profligate. Unlike Melbourne and much of south-east Australia that is gripped by drought and suffering from extensive water restrictions, here there is no limit to what you can do with water. No restrictions at all! Fountains are running freely and more are being built (unlike Melbourne which turned them off some time ago to reduce the amount of water used and to set an example). New swimming pools are created daily and filled. Gardens, bushes and trees are watered and the grass is a brilliant verdant green.

Despite the recent efforts of the local and national governments, there is little culture of sustainability here. Recycling is difficult with no easy kerbside collection of recyclables. There are only a few bins around that provide the facility. People have a throw-away culture. As petrol is cheap, people drive large gas-guzzling cars.

It takes a long time to build a sustainability culture and change the behaviours of the populace towards greater sustainability efforts. Even though Dubai is a place that can move very quickly (one of the benefits of an autocracy), the interior conditions of the people do take time to shift as well as changing the types of energy infrastructures. Westernised countries started to make that shift years ago and are only just starting to get traction recently. In Dubai, there is a long way to go. The growth and get big quick mottos that have made Dubai what it is today and tomorrow are yet to gain a solid sustainability flavour.

More on Dubai futures in subsequent posts.

A Dark Knight of Batman

August 3, 2008

Last week I went to see the latest Batman movie which has been hailed by many movie critics as one of the best superhero movies ever.  Well I must not be in to those movies or it might be the pick of a fairly bad bunch, but I was not so impressed – although Heath Ledger’s portrayal as the evil Joker was a fantastic performance, full of mania and mayhem.  The friend who I went with and I laughed at some of the plot storylines; but then I should not expect too much of such a film then!  And it was very violent of course – not one for the kids!

Throughout the film and after, I kept remembering the 2002 book by Zia Sardar and Merryl Win Davies Why Do People Hate America?  In it, they look at the quintessential western, Shane, and how the story of the hero bringing order to a lawless land is translated in the American mythological metanarrative of the USA to its international affairs of bringing peace and democracy to alien lands.

The role of the American Batman hero is like Shane, as the custodian and keeper of peace, and not necessarily within the law.  He is emotionally poor, who either does not need women or cannot keep them because he is beholden to his way of life.  Truth does not matter and it is not important to know things that might hurt or alter your beliefs – instead faith in your beliefs and what is right is more important.  As others fall around him, he holds to this way of life, the true way, no matter what, with a steel jaw, tough fists and guns blazing.  And in the end, he rides off into the sunset to fight another villain another day.

Other familiar metaphors ran through the film as well – that of the real heroes as the cops on the street or the fighters on the frontline.  And the best line of course was that of the Joker stating that Batman needs anti-heroes like him as competing forces of good and evil.  And the particular line?  “You complete me”.  Just brilliant.

The other comedic attraction was the attitude of the locals in the audience, always fascinating in the Dubai crowd.  Fortunately, the crowd was relatively well behaved with not too many mobile phones going off and given that the movie was quite loud, the talking in the crowd was indistinct.  But the funniest part was seeing dozens of people leave the movie just before the end so that they could get away before the crowd rushes to the exit.  As someone who is nearly always the last to leave a cinema, I found that simply amazing.