Dubai’s Economy into the Future

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.

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3 Responses to Dubai’s Economy into the Future

  1. […] (and the GCC)’s Economy into the Future – Part 2 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 […]

  2. Economist says:

    Hey
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    Well let me know on info@sayeconomy.com . I would really like a link exchange.
    Thank you in advance for your reply. Sory about this post again, just delete it once you read it 🙂 .

    Cheers,
    Matt

  3. Website says:

    Website…

    Dubai’s Economy into the Future « Knowledge Futures…

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