The Report: Dubai 2016

Economy

Dubai’s economy is the result of a decades-long pursuit of diversification which has brought evolution into a variety of offerings – including services, finance and trade – that has made the emirate a cross-continental meeting point for commerce. Dubai has felt the impact of the fall in crude prices since mid-2014, but it now has sectors that can thrive regardless of oil market conditions. Since the global financial crisis the emirate’s economic narrative has been framed by its recovery efforts. Despite little direct exposure to the toxic assets that triggered the meltdown, Dubai experienced external shocks as the global economy suffered. However, it has successfully shifted the focus from concerns about the past towards plans for the future. As legacy debts are repaid or restructured new economic potential is emerging, helping to underpin fresh analyses and projections. Dubai will host World Expo 2020, for example, and preparation for this six-month-long series of events is a story analysts are now focused on.

This chapter contains interviews with Obaid Humaid Al Tayer, Minister of State for Financial Affairs; Hamad Buamim, President and CEO, Dubai Chamber; Amina Al Rustamani, Group CEO, TECOM Group; and a viewpoint from Jim Yong Kim, President, World Bank Group.

Banking

The banking sector is a pillar of Dubai’s economy, having provided the basis for development over the past decade. The banks serve as conduits that link Dubai to regional and global economies, and their publicly traded shares are one of two main drivers of the local stock market, along with real estate stocks. For now, the banking sector in Dubai appears to be in the midst of transition, with lenders adjusting to changing demand patterns triggered by lower oil prices and continuing to evolve their offerings and operations. While it is expected that top-line growth will be muted in 2016, banks as a group appear ready to meet the challenge of staying profitable. The emirate’s lenders exist in the wider national system of the UAE, which means they are licensed at the federal level and authorised to operate anywhere within the seven emirates, regardless of where they are based.

This chapter contains interviews with Mubarak Rashed Al Mansoori, Governor, Central Bank of the UAE; and Abdulla Qassem, Chairman, Network International.

Capital Markets

The past 15 years have seen major advances in capital markets activity in Dubai. The financial sector free zone, the Dubai International Financial Centre (DIFC), has gone from idea to reality, and the emirate recently became the world’s largest market for sukuk (Islamic bonds). However, development has been uneven across types of capital markets offerings based on local demand patterns. New equity and bond offerings remain relatively underdeveloped, as most entrepreneurs in the emirate and the region are already well capitalised thanks to wealth accrued over years of oil exporting. Dubai aims to build on its growing reputation as a regional financial centre, and that has led to continued efforts by the government and major private sector leaders to encourage more breadth and depth in capital markets.

This chapter contains an interview with Essa Kazim, Chairman, Dubai Financial Market (DFM).

Islamic Financial Services

The financial services industry in Dubai is a major economic driver for the emirate, and the Islamic segment is no exception. In addition to the emirate’s Islamic banks and takaful (Islamic insurance) providers, since July 2015 it is also the largest centre for sukuk (Islamic bond) issuance in the world, with $36.7bn in sukuk listed on Dubai’s exchange. The drop in crude oil prices in 2015 may constrain growth, but Dubai is expected to continue adding breadth and depth to its sharia-compliant capital markets, and to carry on its leadership in boosting standards and governance. There is a renewed emphasis on Islamic financial services, as the emirate has ambitions to become the capital of the global Islamic economy, a goal set in 2013. Dubai now produces an annual “State of the Global Islamic Economy Report” and has implemented various initiatives, including new offerings and capacity-development programmes for Islamic financial services.

This chapter contains an interview with Adnan Chilwan, Group CEO, Dubai Islamic Bank (DIB).

Insurance

Insurance penetration in Dubai is very low and the potential for growth is immense, making the sector competitive and highly oriented toward future expansion. However, the current operating environment is challenging, with companies competing on price to capture market share, scale up customer bases and boost profits. An additional obstacle in the past year has been the decline in oil prices. Though the emirate is not directly exposed – indeed, as a net importer it benefits – the regional focus on crude exports means less liquidity in the economy overall. It also means a drop in valuations for most types of assets, including those insurers who typically hold their investment portfolios, such as equities and real estate. The emirate also hosts an offshore insurance sector in its financial free zone, the Dubai International Financial Centre (DIFC), and the operators housed there have helped create a centre for reinsurance, with specialist providers operating in niche markets. These firms are limited in their ability to service the domestic market and are instead looking at regional, African and Asian markets as a catchment area for customers.

Transport & Logistics

With major expansions across land, sea and air connections currently under way, Dubai’s transport sector continues to drive much of the emirate’s economic and international success. The government is fully committed to the continuous improvement of this infrastructure, with new rules for public-private partnerships aiming to enhance delivery in the sector. Meanwhile, Dubai finds itself in an increasingly competitive regional economic environment. The current slowdown in global growth, falling oil and gas prices, regional uncertainties and a strengthening dollar are also all affecting the emirate and its transport sector. Yet Dubai finds itself uniquely placed to face these challenges, with confidence high that it will continue to be the region’s pre-eminent transportation hub.

This chapter contains an interview with Mattar Al Tayer, Director-General and Chairman of the Board of Executive Directors, Roads and Transport Authority.

Maritime Industry

In recent years Dubai has risen through the ranks as a global maritime centre, taking its place among the top port cities worldwide. As global trade becomes more integrated, transnational companies continue to grow, and sea, land and air connections proliferate, the emirate looks set to continue climbing the rungs, helped on its way by significant amounts of new investment. Further progress could be hampered, however, by the challenges currently facing the global maritime industry, including an oversupply of vessels at a time of declining growth in cargoes. Yet during its development, Dubai has demonstrated a flexibility and willingness to change that should stand it in good stead through any storms to come.

This chapter contains an interview with Sultan Ahmed bin Sulayem, Group Chairman and CEO, DP World; and President, Dubai Maritime City Authority.

Construction & Real Estate

Although perhaps no longer able to boast more cranes operating within its boundaries than in all the other cities of the world put together, Dubai is still comfortably one of the world’s leading centres for the construction industry. Major projects continue to roll out, while existing ones finish off or evolve into new developments. This activity is not without its challenges however. Past misfortunes have left a legacy of greater caution and tighter regulation. The global environment, too, poses challenges, with oil and gas prices at a low, the dollar – and thus the dollar-pegged dirham – at a high, and growth slowing in China and sluggish in Europe. All these factors impact the Dubai construction sector precisely because of one of its great strengths – its global interconnectedness and international status. Going forward though, there is plenty about which to be optimistic, with contractors, building materials suppliers and manufacturers all seeing high demand for their services as the emirate prepares itself for Dubai Expo 2020 and beyond.

This chapter contains interviews with Sultan Buti Bin Mejren, Director-General, Dubai Land Department (DLD); and Hesham Abdullah Al Qassim, CEO, wasl Asset Management Group.

Tourism

Dubai’s Department of Tourism and Commerce Marketing (DTCM) expects an influx of visitors by the turn of the decade, and these projections are helping to drive the construction of theme parks, hospital wings, shopping malls and several new hotels. Dubai announced total international visitor figures of 14.2m for 2015, an increase of 7.5% on 2014, and became the fourth-most-visited city in the world. Additionally, Dubai International Airport (DIA) was crowned the world’s busiest air transport hub for overseas flights in 2015, pulling ahead of London’s Heathrow and staying ahead since. In the years leading up to 2020 a number of key developments are taking place that are designed to attract and cater to increasing numbers of tourists. The emirate is targeting new segments of the travel market geographically, as well as adapting its offering to entice more family groups and medical tourists.

This chapter contains interviews with Helal Saeed Almarri, Director-General, Department of Tourism and Commerce Marketing (DTCM) and Raed Al Nuaimi, CEO, Dubai Parks and Resorts.

Retail

The retail industry has played a key role in the rapid development of Dubai over the past four decades and remains a firm pillar underpinning economic growth. The interplay between retail, real estate, air transport and tourism is fundamental to Dubai’s value proposition for consumers and investors. The city has established itself as the Middle East’s shopping capital, but the same developers that created malls of astounding proportions on the site of Silk Road souqs are now determined to innovate and expand, generating new opportunities for investment and fresh experiences for shoppers. Dubai’s retail ecosystem is driven to a large extent by the franchise model, which brings together global brands and privately owned family firms that represent their interests in the country and region. The emirate also serves as the headquarters of regional retail and wholesale giants that may have started with a single small shop in Damascus, Basra or Manama, while brands born in Dubai itself are making their mark across the region.

This chapter contains an interview with Colm McLoughlin, Executive Vice-Chairman and CEO, Dubai Duty Free.

Energy

It has been 50 years since Dubai first struck oil in the Fateh field, but in 2016 the emirate’s determination to ensure it did not become dependent on petroleum wealth is paying dividends. Although the impact on its neighbours of lower global oil prices may have an indirect impact on Dubai’s fortunes in the years to come, in the immediate future its energy policies revolve around reducing consumption and diversifying the mix of primary energy sources it uses to generate power and desalinated water for its citizens. Technological innovation and commercial acumen are driving the adoption of solar solutions, so much so that in 2016 Dubai’s energy planners announced that they expected renewables to account for 25% of the emirate’s needs by 2030. In 2014 its renewables targets were 1% by 2020 and 7% by 2030.

This chapter contains interviews with Saeed Mohammed Al Tayer, Managing Director and CEO, Dubai Electricity and Water Authority (DEWA); and Saif Humaid Al Falasi, Group CEO, Emirates National Oil Company (ENOC).

Health

With more physicians per head than the UK and a lower mortality rate for children under five than the US, Dubai can boast of a world-class health care system by some measures. However, in the face of rapid population growth and the quest for a more comprehensive offering of clinical specialities, much is left to be done in Dubai’s health care system. As of the first quarter of 2015, health officials said 18 private hospitals were under construction, and it has been predicted that if the pace of growth in the commercial health sector is maintained, an additional 1500 beds will be required by 2020. In September 2016 Dubai will welcome its first co-educational cohort of students to a new university medical college. The year will also mark the final stage of the introduction of the emirate’s mandatory health insurance scheme. This chapter contains an interview with Princess Haya Bint Al Hussein, Chairperson, Dubai Healthcare City Authority; and Humaid Al Qatami, Chairman and Director-General, Dubai Health Authority (DHA).

Education

As befits a vibrant, highly commercial global city, Dubai’s education sector is multi-faceted, with kindergartens, schools and universities offering public and private education drawing on best practice from around the world. Dubai is a destination of choice for many international students and teachers. The quality of its educational facilities plays a significant role in attracting professional talent to a city that is a centre of excellence and innovation in a multitude of sectors, including aviation, commerce and hospitality. Research by education advisory Altamont Group suggests that Dubai’s role as an international education centre has a significant impact on its economy, with the K-12 and higher education sector together directly contributing more than $3bn a year to the economy.

This chapter contains an interview with Hussain Al Hammadi, Minister of Education.

ICT

Over the past 15 years, Dubai has developed one of the most advanced IT sectors in the GCC region. As of early 2016 more than 90% of the UAE’s population reported using the internet on a regular basis. ICT is at the heart of the seven-year Dubai Plan 2021 (DP2021). DP2021 builds on more than 15 years of investment in advanced technology by the emirate’s leadership, in conjunction with a wide range of blue-chip private sector technology companies. Together, the government and the private sector have turned Dubai into a centre for technological innovation in the Middle East, with the Dubai Smart City (DSC) project a testament to the emirate’s ambitions.

This chapter contains interviews with Aisha bin Bishr, Director-General, Smart Dubai Office; and Osman Sultan, CEO, du.

Industry

With a long-standing status as one of Dubai’s key economic contributors, activity in the industrial sector has been a major contributor to non-oil GDP for the emirate. Even as Dubai’s government has invested heavily in areas such as ICT in recent years, industrial activity has remained a central component of the emirate’s long-term economic diversification plan. While some figures from 2015 point to slowing growth in the sector overall – with manufacturing trade for 2015 down 3% year-on-year, recent trends highlight several high-performing segments. With higher lending rates to the sector recorded in 2015 and the launch of a new industrial strategy and investment plan by the government in 2016, there seems significant scope to continue to develop and diversify Dubai’s manufacturing base, which is currently highly focused in a few subsectors.

Media & Advertising

Over the past 15 years, Dubai has come into its own as one of the Middle East’s key centres for print, broadcast and digital media. The emirate’s media-focused free zone, Dubai Media City, has attracted a range of global media brands, including news organisations like Reuters, The Economist and CNN; publishing firms, such as McGraw Hill and Forbes; media production companies, including Sony and Showtime; and advertising majors like DDB and Dentsu Aegis. These companies – and many others like them – serve global audiences from the UAE. Dubai, as a consequence, is increasingly considered to be a growing player on the global media landscape. The government has worked to shore up the emirate’s reputation as a media hub in recent years, rolling out new initiatives in an effort to ensure that Dubai remains competitive with other regional media centres, including Egypt, Lebanon and Qatar.

Tax

This chapter contains an overview of the tax framework in which local and foreign investors operate, including a look ahead at the GCC value-added tax (VAT) framework that is being created and the considered implementation of a corporate income tax.

This chapter contains a viewpoint from Dean Kern, Middle East Tax and Legal Services Leader, PwC.

Legal Framework

This chapter contains an outline of the legal framework in which local and foreign investors operate, including an overview of the expected future changes to foreign direct investment (FDI) restrictions, a rundown of the recently overhauled workplace regulations and protections, and a look at the implications of the expanded scope and greater emphasis being placed on public-private partnerships (PPPs).

This chapter contains a viewpoint from Michael Kerr, Regional Managing Partner, Dentons.

The Guide

The guide contains listings of some of the leading hotels and resorts in Dubai, and contacts for important government offices and services. It also contains useful tips and information for first-time, regular, business and leisure visitors alike.

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