All systems go: The emirate is bouncing back strongly from the recent downturn

Like a latter-day Phoenix, Dubai’s economy has risen from the ashes and is soaring high and fast. So strong is the take-off that the crucial revenue-earning tourism sector has achieved a rare trio of simultaneous plusses – rising hotel rates, an increasing number of visitors and a growing quantity of hotel rooms.

Trade, the strongest of the emirate’s economic foundations, broke the trillion-dirham barrier in the third quarter of 2013. The bustling retail business, already offering among the biggest variety of outlets per head of population in the world, is in full expansion mode as Dubai mounts two 2020 campaigns at the same time – one to increase the number of tourists to 20m by 2020 and the other to prepare for the World Expo 2020, which Dubai won the right to stage in November 2013.

Rising Capacity

 The emirate is also set to be equipped to handle more than 250m airline passengers a year. That would be the combined capacity of Dubai International Airport and Al Maktoum International Airport at Dubai World Central when both are fully functional – assuming that both are kept operational. Certainly Dubai’s airlines will be doing their bit. Emirates ordered 200 new aircraft – 150 777s and 50 A380s – at the Dubai Air Show, and lowcost carrier flydubai waded in with potential for 111 more aircraft, tripling the size of its fleet.

While there is no shortage of other cheering news as well, the issue of debt remains a major concern. The Dh142bn ($38.7bn) in government or government-related-entity debt would weigh down progress almost anywhere else – the level of debt is 102% of GDP – but in Dubai it is merely a challenge.


There can have been few more heartening signs of recognition from the outside world that the financial crisis of 2009/10 had been consigned to history than the various upgrades the UAE received from the middle of 2013 onwards. The New York-based MSCI Global Equity Indices announced in June that it was moving the UAE from frontier market status to that of emerging market . MSCI indices are global equity benchmarks and serve as the basis for over 500 funds throughout the world. Interestingly, the same mid-year annual review saw Greece moving in the opposite direction.

A little later the S&P Dow Jones Indices followed suit, noting among other reasons for the switch that “the current foreign ownership limit of 49% is considered satisfactory and in line with a few other countries currently designated as emerging. There is an expectation that this limit will be relaxed in the coming years.” The significance of moves such as these is that they open up paths for the UAE to tap into sources of capital that were not previously available, as well as broaden the pool of potential investors. The following month, the ratings agency Moody’s upgraded UAE banks from negative to stable, citing as its main reason the fact that economic growth and real estate recovery would eat into problem loans over the following 12-18 months.

Dubai’s real estate market showed strong signs of recovery and growth throughout 2013. Renewed activity in projects that had been shelved, alongside announcements of expansion in the retail sector – a mainstay of the emirate’s economy – helped push up prices by 30-40%, although they still fell short of the peaks that were seen in 2008.

Gdp Growth

 This all translated into GDP growth of 4.9% in the first half of 2013, according to Dubai Statistics Centre, the best January-June result since the pre-crash figures of 2008. This was produced by strong results from a variety of sectors, and put midyear GDP at Dh169bn ($46bn).

Dubai Statistics Centre said that the hotel and restaurant sector grew by 13.7%, the number of hotel guests rose by 11.1% to 5.6m (see tourism chapter), and wholesale and retail trade, estimated to comprise approximately 32% of GDP, expanded by 4.1% over 2012 figures. Meanwhile, aided by strong exports, manufacturing showed a rise of 13.3%.

Although the real estate and business services sector increased by a seemingly modest 3.3%, the rise was around double the 1.7% seen for the whole of 2012. Financial services rose in the first half of 2013 by 2.7%. Official full-year GDP growth figures for 2013 were not available at time of press, but the rise is expected to be around 5%.


Dubai Customs reported in December 2013 that the emirate’s non-oil foreign trade for the first three quarters of the year had shot up by nearly 10%. There were increases in both imports and exports, producing a total volume of Dh1.01trn ($275bn), compared to Dh918bn ($250bn) for the same period in 2012. Imports rose to Dh610bn ($166bn), up from Dh546bn ($149bn) in 2012.

Exports and re-exports rose to Dh399bn ($109bn), from Dh372bn ($101bn). Direct trade of Dh649bn ($177bn) accounted for 64% of the total, up from Dh595bn ($162bn) in 2012. The free zones’ share of Dh348bn ($94.7bn) was equal to 35%, up from Dh316bn ($86bn), and Customs warehouse trade hit Dh12bn ($3.27bn), up from Dh6bn ($1.63bn).

India was Dubai’s main non-oil trade partner with a joint volume of Dh111bn ($30.2bn), followed by China with Dh99bn ($26.9bn) and the US with Dh65bn ($17.7bn). For imports alone, China’s 16% share headed the list (Dh96bn/$26.1bn), followed by the US (9%, Dh58bn/$15.8bn) and India (9%, Dh55bn/$15bn). Exports showed a shuffle with India on top with 21% (Dh24bn/$6.5bn), followed by Turkey (13%, Dh15bn/$4.1bn) and Switzerland (7%, Dh8bn/$2.2bn), while re-exports put Saudi Arabia first (12%, Dh33bn/$9bn), India second (11%, Dh32bn/$8.7bn) and Iraq third (7%, Dh20bn/$5.4bn).

The main imports for the three quarters were, in order of value, gold, cellular and wired communication devices, diamonds and cars. Gold was also top of the export list, followed by raw aluminium, petroleum oils and jewellery. Mohammed Al Shaibani, the CEO of Investment Corporation of Dubai, told local press that the government intended to expand the traditional market and gold souk by 30%. The area has around a quarter of the emirate’s businesses.


Increased trade benefitted DP World, the planet’s third-largest port operator, which handled a record volume of cargo during the third quarter of 2013. The state-controlled company said that 3.6m twenty-foot equivalent units (TEUs) were shipped through Jebel Ali, an increase of 5.4% on the same period in the previous year. That rise helped propel the nine-month TEU total over 10m for the first time. “Our flagship UAE operation has recorded the best quarter in its history,” said DP World’s chairman, Sultan Ahmed bin Sulayem.

Trade has been pivotal to Dubai’s revival, as indeed it was in its initial growth. As Malcolm Wall Morris, the CEO of Dubai Multi-Commodity Centre (DMCC), told OBG, “No matter how much we see an economy slip, trade as a whole is not going to stop – it is a matter of being adaptable and adjusting to the shifts in trade flows.” Recent developments, reflecting global political and economic realities, show a diminution of commercial ties with Iran in the face of international sanctions against Tehran, a 30% rise in trade with Africa and the growing influence of Chinese merchants. A Chinese businessman who exports toys from Chenghai to the Gulf and on to Africa told the international press that Dubai’s central bazaar comprises around one-third Chinese firms, which have displaced a number of Indian wholesale traders.


Non-oil trade with Iran fell by 12% in the first half of 2013, as US financial sanctions, imposed two years ago over Iran’s nuclear programme, drove banks in Dubai and elsewhere to reduce their Iran-related business. Two-way non-oil trade between traditionally close partners Dubai and Iran fell in the first half of 2013 over the same period a year earlier, from Dh12.3bn ($3.3bn) to Dh10.8bn ($2.9bn), the Dubai Customs authority told Reuters.

Re-exports to Iran were down by 13.5% to Dh9bn ($2.4bn), exports were flat at Dh1bn ($272m) and imports from Iran to Dubai dropped to Dh766m ($209m), from Dh819m ($223m) in first-half 2012.

Expo 2020

 Dubai’s economy was well on the way to recovery even before it beat Izmir in Turkey, São Paolo in Brazil and Yekaterinburg in Russia for the right to stage the World Expo 2020 (see analysis). Sheikh Ahmed bin Saeed Al Maktoum, chairman of the Dubai Expo 2020 High Committee, said the emirate needs to spend $8.1bn to build infrastructure for the Expo. A report by Standard Chartered Bank on the effect of winning the bid said this was well within Dubai’s capabilities. “The costs look manageable relative to the size of Dubai’s economy, in spite of maturing debt of government and related enterprises between 2014 and 2016,” the report said. “Substantial private sector spending will be needed, particularly in the hotel sector. Private sector credit growth is currently neutral. It hit 48.4% in 2008, and has been flat post 2009. We expect to see a revival in credit growth and healthy lending dynamics within the banking sector,” said the bank.

Alan Robertson, the CEO of Jones Lang LaSalle (JLL) MENA, said in another report that estimates of the additional hotel supply necessary to accommodate a possible 25m visitors for the Expo and the targeted 20m regular tourists by that date vary. A number of strategies are being considered, “but it could be as high as 45,000 additional rooms”.

The Expo is set to add 2% to Dubai’s GDP and create 277,000 jobs, according to JLL. Standard Chartered’s report put the figure at 300,000, and said that “90% of the job opportunities would occur from 2018 to 2021, with most of the jobs created in the travel and tourism sector. This indicates a good chance that a high percentage of these will be converted into permanent jobs, which would benefit the expanded economy in the post-Expo period.”

Robertson said there was likely to be an increase in the asking price for both land and existing residences in developments close to the Expo site on Dubai World Central. “While prices will almost certainly increase, the availability of significant new supply will temper this increase and could result in a widening gap between asking prices and those the market is willing to pay,” said Robertson.


 Looking ahead to the period after the exhibition and continuing use of the facilities, Robertson said; “The most significant legacy benefits of hosting Expo 2020 will be to bring forward the timing of a number of major infrastructure projects and to provide the impetus to develop a whole new urban district (Dubai World Central) to the south of the existing urban area.” That urban area contains or will contain Al Maktoum International, Jebel Ali Port, a future airport-based city and a metro extension.

“A less publicised infrastructural benefit of the World Expo 2020 would be the creation of an integrated sea and air freight facility at Jebel Ali,” said Robertson. “The proximity of the new airport to one of the world’s largest existing seaports at Jebel Ali allows for the creation of a single major new conference and exhibition facility within Dubai World Central.” He said this would provide an ideal site for a major purpose-built conference facility and also “allow the phased redevelopment of the existing convention and exhibition facilities on Sheikh Zayed Road for alternative, higher-value, land uses”.

The potential higher value for land and developments in the Expo area was on many minds even before the successful bid was announced in late November. Interest in Dubai Investments, which owns Dubai Investments Park, a large mixed-use real estate development next to the Expo location, as well as land nearby, saw its share price double. Dubai Investments was not the only attraction for Expo watchers. Shares in Air Arabia, the UAE’s only listed airline, rose by 63% before the announcement.

Potential Overheat

 Amid the euphoria, whether for the economic recovery or for winning the Expo bid – or more likely both – there are concerns that the circumstances that led up to the post-2008 boom-bust cycle are reappearing. Some analysts and officials are calling for better planning to prevent the cycle from being repeated. “The question of supply should be separated from speculative demand – the onus is on developers to go with a coordinated plan,” Farouk Soussa, Middle East economist at Citigroup, was quoted as saying. For Craig Plumb, head of MENA research for JLL, the increase in demand between now and 2020 would ordinarily mean price and rent increases over the next seven years. “Owners may expect overnight rent increases that wouldn’t necessarily be justified just on the back of Expo 2020,” said Plumb. “There is no logic as to why rents should increase in the Marina or Downtown tomorrow, just because of the Expo in seven years’ time.”

“The Expo is a powerful symbol of Dubai putting the 2009 bust behind it and of the world recognising the strengths of its political stability and its open, export-oriented real economy,” said Simon Williams, chief Middle East economist for HSBC. “The key challenge policymakers now face isn’t generating growth but managing it, making sure it is sustainable and well-balanced. Policy decisions over the next 12 months will determine how successful Dubai will be in avoiding a repeat of the boom-and-bust cycle further down the line,” he said.

Anti-Bust Measures

 The words coming from the worried were being acted upon in some cases before they have been spoken. A variety of measures have already been taken to prevent or at least dampen the kind of speculative fever that laid the emirate low four years ago. The single biggest problem then, when there was a swift and steep rise in property prices, was perhaps the ability to reserve the right to buy off-plan a residence with a deposit as low as $10,000. Some of the options to buy, which were held by people who had little or no intention of becoming end-users, were sold on to others for a profit. Measures to outlaw this practice have been introduced by Emaar, Dubai’s biggest developer, alongside other changes to discourage speculators by making the purchasing process more expensive.

Responsible Lending

 The central bank has introduced restrictions on home loans, and the establishment of a credit bureau should also help eliminate speculators by identifying those who are not in a position to buy a house. Under the new mortgage regulations, for first homes under Dh5m ($1.36m), loans will be capped at 80% of valuation for UAE nationals and 75% for expatriates. Other rates apply for second homes and off-plan purchases (see analysis).

In another move to discourage speculators, the Dubai Land Department (DLD) doubled the transaction fee from 2% to 4% applicable to residential and commercial properties, including those sold off-plan. Even after the increase investors in Dubai would still pay a relatively low property tax, the DLD’s director-general, Sultan bin Mejren, said. Property sales tax in the UK ranges from 4-15%, while people pay 6% in France and 5.8% in Japan, he said, adding that further new regulations would be introduced later.

In November 2013, as reported in the local press, government-owned Emaar Properties restricted real estate agents from selling off-plan units bought under their own names until the units are built and handed over. In addition, agents are barred from buying finished units until they have been on the market for a minimum of 14 days, although the developer does not restrict resale.

Earlier in 2013, Emaar’s chairman, Mohamed Alabbar, was quoted as saying the company was working to limit flipping of its properties. “If you buy and you flip within 30 days, the system will never allow you to come and buy with us again. People are very smart – they bring in their friends the next time.”

Finally, Abdul Aziz Al Ghurair, head of the UAE Banking Federation and chairman of Mashreq, said that when the proposed UAE credit bureau becomes fully operational in 2015 “the banks will find out who’s really been borrowing and how much”. US investment bank Goldman Sachs Group has said that fears of a real estate bubble are “exaggerated” and that property prices are far below their 2008 peak.


While real estate concerns were being addressed, Dubai’s government was preparing its 2014 budget, which was approved in November 2013 with the deficit reduced by 41% compared to the year before. Even so, it allotted Dh37.8bn ($10.3bn) to infrastructure spending, a rise of 11% over 2013 and the largest amount since 2008.

Higher spending and a smaller deficit is being made possible by an anticipated increase in revenues because of strong economic growth, according to a statement by Abdul Rahman Saleh Al Saleh, director-general of the Department of Finance, to the UAE state news agency WAM. “Revenues will reach Dh37bn ($10.1bn) in 2014, up 13% from 2013,” he said, adding that the deficit would shrink from Dh1.5bn ($408m) of 2013 to Dh882m ($240m), or 0.26% of GDP. The 4.9% surge in GDP in the first half of the year, based on higher tourism and trade, plus the pick-up in the property market, underpinned the rise in government finances.

Debt Stabilising and Declining

 “A more entrenched growth recovery and fiscal consolidation plans are appeasing our previously voiced concerns on debt dynamics at the Dubai central government level,” read a report issued by Bank of America Merrill Lynch. “In the absence of further government-related-entity bailouts, debt dynamics point toward a stabilising and gradually declining path, but sensitivity to the global backdrop is pronounced as growth, interest rate shocks and fiscal deterioration could raise the debt-to-GDP ratio to 65% by 2021,” the report said. Al Saleh said that it would have been possible to balance the 2014 budget, but that the government preferred to allot a higher amount of spending to supporting the emirate’s economy and contribute to the higher rates of economic growth.


On the revenue side, the government expects a 24% rise in fees – which represent 67% of government revenues – compared with 2013, though the level of those fees has not been raised since the economic crisis. The money raised from Customs and taxes on foreign banks is forecast to rise by 1%, good indicators, according to the government, of the movement in the economy. These sources provide 21% of state income. The last segment of state finances, 9%, comes from net oil revenue.

Salaries and wages account for 37% of 2014’s projected spending, and this includes a provision for creating 1650 job opportunities for citizens. This is a continuation of the policy implemented in 2013, and is marginally higher than the 1600 jobs for that year. Goods and services – together with capital expenditure, grants and support – absorbs some 32% of total spending, with another 17% allotted to infrastructure projects. A further 11% is channelled to meeting commitments to pay bonds.


 The rapid rise in the price of housing had not fed into inflation figures by August 2013, and following a report by Emirates NBD the UAE rate year-on-year was just under 1%. Inflation figures are usually estimated nationally rather than by emirate. Originally Emirates NBD had projected 2.5% for 2013, but reduced its forecast and said that “the downgrade reflected finding little evidence of inflationary pressures in other sectors of the economy”.

The bank did, however, sound a warning. “We do expect inflation to rise as we head into 2014, as domestic demand continues to strengthen and higher real estate prices feed through to the official index,” it said. Emirates NBD said that the rate could rise to as high as 3%. “The downward revision is counter-intuitive against the background of sharply higher real estate prices in Dubai, which have pushed up the cost of housing in the emirate,” Khatija Haque, a senior economist at Emirates NBD, wrote in the report. “Although the housing component of the CPI [the consumer price index] has shown inflation on an annual basis since June, the average price change in the year to August is still slightly negative at 0.2%.”

By November the picture was beginning to change, with Dubai Statistics Centre citing consumer price data that pointed to the highest level of inflation since December 2009. Housing and utility costs, which are calculated as carrying 44% of consumer expenses, rose 3.2% year-on-year and 0.2% month-on-month in October 2013. Food and beverage prices – 11% of the basket – were 1.8% more expensive than in October 2012, although almost half a percent cheaper than one month before.

Analysts polled by Reuters in September 2013 forecast average inflation in the UAE federation would accelerate to 1.5% in 2013 and 2.3% in 2014, up from 0.7% in 2012, the lowest level since 1990. Meanwhile, the IMF, whose mid-year forecast for UAE’s inflation rate in 2013 was 1.6%, the lowest in the Middle East, warned that 2014 could see rates of around 3.3% in the whole of the GCC.


Salaries in the UAE are expected to grow at a rate of 5% in 2014, according to a survey carried out by human resources firm Aon Hewitt. “While linking individual performance to pay is not uncommon, we advise employers to use annual bonus payments as the larger component for rewarding high performers,” said Robert Richter, the compensation survey manager at Aon Hewitt Middle East.

“Salary increases typically take into consideration a number of other factors as well as performance, including inflation, rises to reflect promotions, and the need to ensure that employees at the same grade remain within a single pay band,” said Richter.

Responses from all the Gulf states indicated that companies predicted an average salary increase of 5.5% in 2014, higher than the UAE figure. Some 500 Middle East companies, including 180 from the UAE, took part in the Global Salary Increase Survey.


Perhaps as important as economic statistics to a business community that was hit as hard as Dubai’s was in 2009-10 are confidence and positive expectations of overall business conditions.

As 2013 progressed, many of the emirate’s business leaders were feeling optimistic, according to the Business Leaders’ Survey for the third quarter of 2013, which was conducted by the Dubai Chamber of Commerce and Industry (DCCI). The responses showed that some 48% of those asked expected business conditions in Dubai to improve, 26% expected them to remain the same, while the remaining 26% expected them to get worse.

Hamad Buamim, the director-general of the DCCI, said the surveys helped to monitor the pulse of businesses, as well as gauge the perceptions and future outlook for entrepreneurs and investors.

Among points raised by those surveyed were the impact of rising rents on the cost of operations and the issue of longer visas for employees, saying that employers were discouraged from spending money on human resources development in case they lost their employees to competitors.

Rental Increases

 Another prevalent issue among respondents was the unpredictability of rental increases. On this subject, many asked for government intervention in terms of clearer policies based on economic indicators and market information.

A different business confidence survey, this time conducted by Dubai’s Department of Economic Development (DED), revealed that the vast majority of businesses were optimistic. The results said that 86% of the businesses are upbeat on sales and profits and 98% planned either to increase (23%) or maintain (75%) the number of their employees.

Some 91% of firms reported either improvement or stability in business conditions in the second quarter of 2013. “Economic activity in Dubai is on firmer ground, especially with key sectors such as tourism, logistics and aviation flourishing, and real estate on a recovery path,” Sami Al Qamzi, director-general of the DED, was quoted saying in the local press.

More than half (55%) of the companies surveyed said that they will invest in expansion during the coming 12 months. This proportion is slightly higher among larger companies. Furthermore, 40% of the respondents are planning to invest in upgrading technology over the same period.


Various independent external agents have looked at Dubai’s debt burden and seem unconcerned about its capability to steady the financial ship. Moody’s, Standard & Poor’s and MSCI have all issued positive reports and upgrades, and the IMF noted that Dubai’s recent growth and “progress in fiscal consolidation” have put it in a better position to deal with its debts. Their assessments have also broadened Dubai’s opportunities to raise money.

According to the IMF, the government and government-related entities (GRE) together owe $60bn on maturing bonds and syndicated loans due between 2014 and 2016. Continued recovery in the real estate market – an event made more likely after winning the Expo 2020 bid – will make it easier for GREs to divest assets to pay instalments on some debts and remove others in their entirety.

The IMF notes that the government debt-to-GDP ratio has declined from its peak of 48% in 2009. That percentage would be welcome in the finance ministries of many Western countries, although Western governments are not burdened with too much additional GRE debt. If all of that is added to Dubai’s direct debt, the percentage to GDP is around 102.


The IMF’s baseline scenario comprises steady medium-term growth, continued fiscal consolidation and an almost-balanced 2014 budget, leading to a gradual decline in the debt-to-GDP ratio. The IMF explores theoretical variations to the baseline scenario where the economy does not perform well and the debt mountain rises. The government’s focus is to succeed sufficiently in its recovery plan not to need to face either of these variations.

The IMF said that Dubai’s GREs increased their debt over the past year to an estimated $93bn, from $84bn in March 2012, of which around $60bn is due between 2013 and 2017. “This includes GREs which are operating on a commercial basis and borrow on their own credit strength,” said the IMF report, adding that “timely communication” about the maturity of key GRE debts, such as those of Dubai World or Nakheel, is important to support market confidence.

Early Surprise

 A few months after the IMF report, developer Nakheel volunteered early repayment of some of its bank debt. Nakheel’s chairman, Ali Rashid Lootah, said the company would repay in February 2014 Dh2.35bn ($640m) of a Dh6.8bn ($1.85bn) bank loan due for repayment in September 2015. A further Dh1.65bn ($449m) against the loan was pledged before the end of 2014. Lootah said the early repayment was possible because of a reduction in claims from contractors and customers alongside cash collection, which has tripled in the past three years to Dh7.1bn ($1.9bn). The income flow stems from Nakheel’s restart of all 10 of what it terms its “near start” projects, i.e. those where the infrastructure was complete or almost complete.

The reward for Nakheel could be lower interest charges. The developer is still in restructuring talks on its $3.4bn overall debt. “By 2018 we will be debt-free,” said Lootah. Nakheel’s return to profitability means it has used only $381m of the $4.5bn pledged by the government’s financial support fund in 2011. Nakheel’s parent company, Dubai World, continues to negotiate to try to sell of some of its assets to lessen its debt burden. Those assets sales, including P&O Ferries and MGM Resorts International, have been slow, though Atlantis Hotel on Palm Island has been sold to Investment Corporation of Dubai, and Palm Utilities will probably be bought by Dubai Electricity and Water Authority.


In the ongoing efforts at economic diversification, the UAE is considering making large-scale investments in manufacturing, including shipbuilding, refined petrochemicals products, pharmaceuticals, motor vehicles parts, power generation, transmission and distribution products.

A study by the DCCI points out the advantages of producing goods with added value, and recommends using high-tech. Dubai has targeted services and light industries, whereas Abu Dhabi’s competitive advantage lies in being able to use inexpensive energy in heavy industry. Although the number of manufacturing firms in Abu Dhabi is small, the capital accounts for 59% of all manufacturing investment because of the size of those few firms. Manufacturing investment in Dubai, according to the DCCI, accounts for 22% of the total, although around 40% of manufacturing firms are located there. Most of the rest are in Sharjah (29%) and Ajman (15%).

Khalid bin Kalban, managing director and CEO of Dubai Investments, told OBG, “Dubai’s industrial sector weathered the crisis better than any other segment, due in large part to industrial activity being almost entirely private sector driven.” He added that Dubai’s reputation as an industrial hub for the region “has continued to strengthen”. In the short to medium term, the number of establishments and employees – and amount of investment – in the manufacturing sector should rise with the development of Dubai Industrial City, in Dubai World Central near Al Maktoum International, which should be complete in 2015. It is divided into six industrial sectors, including machinery and mechanical equipment, transport equipment and parts, base metals, chemicals, food and beverages, and mineral products.

Free Zones

 DMCC has become the UAE’s largest free zone, overtaking Jebel Ali. The zone has more than 7330 active registrations, with an average of 200 companies joining every month, according to DMCC’s chairman, Ahmed bin Sulayem. A third of DMCC member companies are from South Asia, a third are from the Middle East (including the UAE), and a third are from Western Europe and North America.

“More and more companies are choosing to establish themselves in Dubai as a result of word-of-mouth from business counterparts or other contacts, which is of course the best testament to attractiveness,” Wall Morris told OBG. “Moreover, companies come to Dubai to conduct business, not set up offices, and there are few locations with easier registration and set-up processes to get businesses up and running as quickly as possible.”

Even if it has been relegated to second place in terms of size, Jebel Ali has some impressive numbers of its own. It hosts more than 6000 businesses from 110 countries – 75% in trading, warehousing and distribution, 20% in manufacturing and the rest in services. Most industrial investment in Jebel Ali Free Zone is in light engineering and final-stage assembly in sectors such as electronics.

Financial Centre

 Although the financial sector as a whole was slow to register sizeable growth in Dubai’s recovery, great store is being placed on the sector’s role in it and the future. The number of companies registered at Dubai International Financial Centre (DIFC) grew by 7% in the first half of 2013, much of it driven by new businesses from Asia, the Middle East, Europe and North America.

That 7% growth in new companies physically doing business within the DIFC translates into 1000 new jobs, bringing the number of employees to 15,000. In terms of source, the regulated companies form their own kind of world forum, with 36% coming from Europe, followed by 27% from the Middle East, 16% from North America, 11% from Asia and 10% from the rest of the world. Among the companies joining in that period were the Agricultural Bank of China and China Construction Bank. DIFC now has four of the top five banks in China. The top five banks account for 80% of banking activity in China.

Islamic Finance

 Though the development of the financial sector as a whole is interesting, the subject of the hour is surely Dubai’s attempt to become a centre for Islamic finance. The newly opened Dubai Centre for Islamic Banking and Finance is seen by Dubai’s crown prince, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, as a “major step forward in the economic development agenda”.

The institution will train professionals to work in the sector, providing master’s degrees, foundation certificates, and short-term training programmes in Islamic banking and finance. The benefits to the economy could extend well beyond recognition as a centre for Islamic finance, Buamim told the local press. Dubai would also be able to capitalise on other aspects of a sharia-compliant economy, such as the services, lifestyle and food sectors.

If the initiative proves successful, the emirate will have to overcome stiff competition as it looks to expand its presence in the $1.5trn global Islamic finance market, which is estimated to be growing by 15-20% per year. Saudi Arabia, Kuwait and Qatar are all looking to broaden the base of their sharia-compliant financial sectors, while Bahrain has long been acknowledged as the industry leader in the Gulf region, having developed many of the instruments that have become standard in the market. Further afield, Malaysia is a major player on the global stage.


 Some positive signs have emerged from Dubai so far, including an increase in the number of sukuks (Islamic bonds) issued and listed in 2013.

In April, Sharjah Islamic Bank floated a $500m sharia-compliant bond, bringing the nominal value of sukuks listed on the emirate’s exchanges to more than $12bn, with $4.25bn of that coming since the launch of the “capital of the Islamic economy” initiative was announced in January 2013. In total, 15 sukuks are listed in the emirate – including five on the Dubai Financial Market.

While Dubai has the advantage of already being a recognised centre for banking and business, with the technical infrastructure in place, challenges remain when it comes to developing the broader sukuk market, not only in the UAE but also elsewhere in the region. In part this is a general issue related to bond markets, quite apart from the Islamic finance sector. To date, the number of debt instruments issued by the government and corporations has been fairly modest, which has meant that the associated services sector – including market makers and primary dealers – has yet to develop fully.

Assuming that hurdle can be surmounted, the concerns of the sharia market increasingly come to the fore, including a need for lawyers and bankers who specialise in Islamic finance. To some extent, Dubai Centre for Islamic Banking and Finance should help in this regard, by training people that can staff these businesses and support the development of a more robust Islamic financial services sector.


Members of the Federal National Council (FNC) have called for the introduction of Emiratisation quotas at all private firms. Having campaigned for many years to encourage the private sector to employ nationals, the FNC’s Emiratisation Committee will call for stronger measures to enforce the idea and thus lower unemployment rates.

However, it also recognises that one of the difficulties is that nationals have been shown over the years to be attracted more to public sector jobs because the working hours are often shorter, the holidays longer and the salaries higher. SUBSIDIES AN OPTION?: The committee is suggesting, therefore, that the state should subsidise such employees, since the private sector is reluctant to create a privileged class of workers.

A subsidy would mean that the financial cost to the employer would be exactly the same as if they had employed an expatriate. The difficulty with this idea, which has already been floated in other parts of the Gulf, is that some employers are understandably averse to the prospect of having two people doing the same job, yet earning widely differing salaries because one of them is subsidised.

Hamad Al Rahoomi, an FNC member for Dubai, told local press that there were approximately 40,000 unemployed nationals, and that if nothing were done that would shoot up to 150,000 by 2020. “No matter what, we should not reach such high unemployment rates,” he said. Arguing for the subsidy idea, Al Rahoomi said offering at least the same salaries as those prevalent in the public sector would compensate for lower job security in the private sector.

“If we ask them to work for half the salary, this will not happen,” he said, adding that it was “illogical and unfair” to have two Emiratis, both graduates of the same class, with a Dh15,000 ($4083) salary gap because one was a government employee and the other worked in the private sector.

“Companies cannot give Emiratis a small shoe and ask them to wear it. They will put up with it for a while until they throw it away,” Al Rahoomi said. A clause insisting that firms hired a foreigner only if there was no national for the job was not being enforced, he claimed. Al Rahoomi said that the FNC would not tolerate Emiratis being hired as token gestures to allow companies to meet quotas.


The preparations to host Expo 2020, which provides one of the biggest platforms on the global stage, are expected to bring billions of dollars – some analysts speak of $25bn – in investment across most sectors of the economy. The emirate will also hold the 10th session of the World Islamic Economic Forum in 2014. The meeting will bolster Dubai’s plans to establish itself as a centre for Islamic finance and highlight the increasingly important role the sector plays in the broader economy.

Prying the claim to being the world’s centre of Islamic finance away from Bahrain, Malaysia or even London will be neither swift nor easy, but just 12 years ago Dubai International Airport was the 99th-busiest in the world. Now, however, it is about to take over the number one slot, which shows that almost nothing is impossible. Tearing itself free of debt will not be swift or easy either, but Dubai has already shown that it has a firm intention to get a grip on that problem and to work methodically through a solution.


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The Report: Dubai 2014

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