Increased spending on transport infrastructure ahead of Dubai's Expo 2020

 

As a well-established regional hub for transport and logistics, Dubai is the UAE’s primary transit point for passengers and the main gateway for its non-oil exports and imports. Counting one of the world’s busiest airports and the Middle East’s largest port among its facilities, the transport sector makes a significant contribution to Dubai’s economy as well as that of the wider UAE. In 2017 transport and storage accounted for 11.2% of Dubai’s economy at a value of Dh46.1bn ($12.5bn), second only to wholesale and retail trade, which accounted for 25.8% of the economy.

Although the emirate’s economy has had difficulties in recent years due to a series of largely external factors, including global financial downturns, deflated oil and gas prices, and regional political tensions, the transport and logistics sector has by and large bucked the trend. Some of the most important entities within the sector are state owned, such as Dubai Airports, which operates Dubai International Airport (DXB) and the new Al Maktoum International Airport, also known as Dubai World Central (DWC); port operator DP World; and Emirates and flydubai airlines. State control of these companies and careful regulation has allowed Dubai to steer towards growth in what has become one of the world’s most important air and sea transport centres.

Structure & Oversight

Both federal- and emirate-level bodies oversee the regulation of Dubai’s transport and logistics sector. At the emirate level, regulations are divided among three bodies, with one each for land, air and maritime. The Roads and Transport Authority (RTA) manages the city’s public transport systems including taxis, trams, metro and buses; designs and maintains the road networks; and oversees all vehicle licensing and registration matters. The other regulators are the Dubai Maritime City Authority (DMCA) and Civil Aviation Authority (DCVA), with all three of the emirate’s regulatory authorities working in coordination with the federal-level General Civil Aviation Authority (GCAA) and the Federal Transport Authority. Partnerships between the regulatory authorities and other government institutions and private corporations allow them to work jointly to devise and deliver new strategies that work towards the objectives of the Dubai Plan 2021 and beyond.

Government Revenue & Expenditure

Government investment in the sector is on the rise, with infrastructure accounting for 21% of Dubai’s 2018 budget, the largest chunk in the history of the emirate. Dubai earmarked Dh11.9bn ($3.2bn) in 2017 for infrastructure, up 46.5% from the year before, partly due to preparations for Dubai’s Expo 2020, which will be the first world expo held in the MENA region.

In revenue terms the transport and storage sector outperformed other sectors in 2017 as the largest contributor to Dubai’s economic growth, with an 18.5% share, exceeding the contribution of wholesale and retail trade, traditionally the largest sector. In absolute terms its contribution to the economy increased from Dh35.8bn ($9.7bn) in 2012 to Dh46.1bn ($12.5bn) in 2017. The sector’s share of the GDP remained more or less steady during that period, fluctuating between a low of 10.6% in 2013 and 12% in 2015. In particular, air transport contributed significantly to the economy.

Transport Strategies

A number of transport-related strategies and initiatives aim to not only upgrade Dubai’s transport system but also utilise new approaches to solve logistical problems faced by modern cities. Many of these fall under the Dubai Smart City and Dubai 10x initiatives, which aim to introduce new cutting-edge technologies and methodologies to Dubai’s government services.

One key goal that has been announced by the RTA in conjunction with the Dubai Future Foundation is the Dubai Autonomous Transportation Strategy. The initiative aims to make 25% of all transport in Dubai autonomous by 2030, saving around Dh22bn ($6bn) annually by reducing transport costs, carbon emissions and accidents while raising productivity levels and saving hundreds of millions of hours usually spent in traffic jams. It is envisioned that the strategy will cut transportation costs by 44% and reduce environmental pollution by 12%, which together will save Dh2.4bn ($653.3m). The biggest savings, of around Dh18bn ($4.9bn) per year, will result from improved efficiency by cutting travel time by 396m hours. As a further benefit it will greatly reduce the number of required parking spaces and congestion in the city.

As part of the strategy, an international request for proposals was launched, known as the Dubai World Challenge for Self-Driving Transport. The first of its kind on such a large scale, the challenge received 30% more applications than anticipated from companies, universities, colleges, and research and development centres. Entrants were judged at the Gulf Information Technology Exhibition (GITEX) in Dubai in late October 2018 in three categories: leaders, start-ups, and local and international universities. The finalists, Navya and EasyMile from France; 2getthere from the Netherlands; Westfield from the UK; Drive.ai from the US; and Baidu from China, will be assessed by an international jury in 2019 on criteria including the ability to drive under simulated real-life traffic conditions, power efficiency, electronic safety and user experience.

New Initiatives

Another initiative at GITEX was Dubai’s first autonomous taxi, designed by Dubai Silicon Oasis and robotics company DGW orld. In October 2018 a three-month pilot programme was launched in select parts of the city in which passengers could be shuttled by the vehicle, which travels at a maximum speed of 35 km per hour and is capable of navigating its surroundings using cameras, sensors and GPS. It has a capacity for three passengers and a standby driver. “The driver’s service can be called in when the vehicle experiences a potential technical glitch by pressing a button, which shifts the operation from autonomous driving to the human driving mode,” Ahmed Bahrozyan, CEO of the RTA’s Public Transport Agency, told local press at GITEX. With technology in the early stages, the self-driving taxi service will play an important role in making Dubai’s public transport autonomous.

On the environmental front, authorities are working to boost the use of electric vehicles. In 2016 Dubai’s Supreme Council of Energy announced at least 10% of all newly purchased government vehicles would be electric or hybrid by 2020. The number of electric and hybrid taxis is also set to grow, with the TRA supplying the Dubai Taxi Corporation (DTC) with 200 Tesla electric cars. In 2018, 125 were handed over and the rest are set to be distributed by the end of 2019. In order to manage the new fleet the DTC will be building 13 dedicated electric charging stations.

Authorities are also looking to increase the number of private electric vehicles. In October 2018 the Dubai Electricity and Water Authority completed its second installation of an additional 100 electric vehicle green charging stations, bringing the total in the emirate to 200. The stations are in a variety of locations, including petrol stations, shopping malls, government offices, airports, clinics and hospitals, commercial offices, and housing complexes. There are plans to increase the number of stations to encourage private purchases of electric vehicles, with the goal of at least 42,000 electric cars by 2030. Other incentives include free parking and electric charging until the end of 2019, exemption from toll fees and discounts on registration fees.

Additionally, in October 2018 the RTA launched a mobile charging station for electric vehicles that can travel to a customer should an electric car run out of power. By assuring electric vehicle drivers they will never be stranded, the initiative aims to boost confidence in electric vehicles and encourage their use.

Public Transport Provision

The RTA also hopes that public transport will become increasingly popular, in order to reduce traffic, travel times and carbon emissions. In 2017 an average of 1.5m daily trips were made on Dubai’s public transport system, with a total ridership of 551.7m passengers, up from 543.6m in 2016. The overall proportion of journeys made via public transport rose from 6% in 2006 to 17% in 2017. While the increase in ridership has been significant, it is behind other global cities of a similar size, indicating that further investment would be beneficial.

Dubai Metro was the most popular form of public transport for the first time in 2017, accounting for approximately 36% of trips, ahead of taxis and buses at 32% and 28%, respectively. The metro, which carries some 200m passengers a year, currently has two lines – the Red Line and the Blue Line – that together cover 75 km. An extension of the Dubai Metro Red Line is under construction, Route 2020, and will span an additional 14.5 km. This line will be completed in time for Expo 2020 and then will be extended as the metro link to DWC. Autonomy and technology have already been incorporated into the Dubai Metro system, which was until 2016 the world’s longest driverless train network. In addition to this, robots have been used to clean its stations and 3D printing has been used to make selected metro parts in a partnership with Siemens.

World’s Busiest Airport

DBX hosts around 75 airlines, which fly to more than 220 destinations on six continents, making Dubai one of the best-connected cities in the world. The airport’s growth in recent years has been substantial. Between 1960 and 2011 the airport hosted 500m passengers and doubled this number between 2012 and 2019, hosting its billionth passenger in December 2018. Over the past decade Dubai Airports has invested over $12bn in DXB, making it one of the airports with the most substantial investments in the world.

In August 2018 DXB saw record passenger numbers, reaching 8.4m that month and setting a world record for international passenger numbers. The airport hosted 89.1m passengers in 2018, up 1% from 88.2m the year before. “Right now we are the world’s number-one international airport when it comes to volumes by a country mile,” Lorne Riley, director of corporate communications for Dubai Airports, told OBG. The closest airport in terms of average international passenger volume in London Heathrow Airport, which has about 1m fewer passengers a month. “Our focus now is on passenger service, and as much as we are proud of the 8.4m passenger record we set, we are prouder of the fact that queue times were down 44% in August 2018, compared to the same month in 2017. This means the customer experience is better, we are getting people through quicker and we are giving ourselves additional room for growth,” Riley said. DXB is approaching capacity and the slowdown in passenger growth can be partly attributed to the airport no longer having a large enough footprint to expand. However, authorities are working on an initiative that will boost capacity from its current 90m to at least 118m by 2023 with room for further growth. The fact that August’s record-breaking passenger numbers were up while waiting times were down is a good indication that technology innovation can help overcome space constraints. Technologies to be implemented to reduce waiting time include the installation of smart gates at immigration points for passengers with readable passports, longer trays and automated return mechanisms at security gates, and X-ray machines.

Dubai World Central

A next-generation airport, DWC, is taking shape 40-km to the south-west of DXB and is expected to eventually replace Dubai International. Passenger services begun in October 2013 with a capacity of 5m passengers a year, but it is undergoing an expansion that will eventually allow the airport to accommodate 240m passengers a year. The expansion will be built in two phases: the first bringing capacity to 26.5m passengers, was completed in 2018, and the second is slated for completion in 2030, bringing capacity to 120m, with plans to expand and accommodate up to 240m. Dubai Airports is beginning to aggressively market the new DWC. “We see DWC as the natural home for those airlines which want to access a new airport that is not capacity-constrained, has far more flexibility in time slots and at the same time takes advantage of a different catchment area closer to New Dubai and even to Abu Dhabi while taking advantage of very competitive rates,” Riley told OBG. DWC will have five 4.5 km runways separated by at least 800 metres. The airport will be serviced by road connections, a metro line and an underground rail system. Passengers will be able to check in their luggage in the city, then take the train directly to the terminal, arriving no more than 400 metres from their final boarding gate. “We believe the current airport experience needs to be radically changed by leveraging technology so that it is more personal, less intrusive and yet maintains the high level of security demanded by the industry in general,” Riley told OBG. Already among the top-25 airports for international freight movements, DWC expansions are set to increase capacity to 16m tonnes per year. Key to the airport’s success as a logistics hub will be its location in Dubai South, a development built around the airport which will include Logistics City, as well as residential, retail, leisure and Expo 2020 facilities. The development will also have a free economic zone connected by a dedicated bonded road from the airport to Jebel Ali Port.

There are also opportunities for growth in the private jet segment. “Although around 70% of the private aviation market is driven by the US, the non-US market is experiencing rapid growth as the number of millionaires keeps increasing,” Holger Ostheimer, managing director of DC Aviation, told OBG. “Dubai is very well positioned as a hub for the non-US market because of its geographical location, attractive financial regulations and fiscal freedom.”

Infrastructure Development

In April 2019 DXB’s southern runway will be closed as part of a routine upgrade programme. The maintenance will last 45 days and include a complete refurbishment of the runway, followed by trials. As of January 2019 Dubai Airports was working closely with airways and the independent slot coordinator to make sure that slots will be fairly allocated. During this period, carriers will have the option to land at DWC, which will be provided by Dubai Airports without landing or take-off fees throughout the period of the DXB runway refurbishment. For many airlines this will also act as an introduction to DWC, encouraging them to start operations there.

In addition to the metro system that serves Dubai, the UAE government has plans to develop a 1200-km rail network that will run from the border with Saudi Arabia in the west to that with Oman in the east. Although originally conceived to include full passenger service, at present it comprises 264 km of track for industrial purposes. Plans for passenger travel are currently suspended, but expansion of the network for cargo purposes is under way, with 850 km of additional track scheduled to be completed by 2024.

Although there are plans for the further development of public transit, automobiles remain the main form of transport in Dubai. By 2020 the RTA predicts that there will be 5.3m vehicles registered in Dubai and taxis alone will have carried 292m passengers. The road network has increased by 354% since 1991, along with rapid population growth, reaching over 13,500 km of road in 2017, with this number set to continue ticking upwards as extensions, such as the ones to service the Expo 2020 site, come online.

The future for the bulk of cargo transport lies in maritime container shipment. The Port of Jebel Ali, the ninth-busiest port in the world, is one of the largest global trans-shipping ports and the largest man-made port. Benefitting from impressive facilities and an ideal location for access to shipping from Asia, Africa, the Middle East and Europe, the port is likely to grow in importance due to increased emerging market demand from Africa and volume from India and China. In 2018 the International Shipping Development Index ranked Dubai among the top five maritime cities for the first time (see Maritime chapter).

Outlook

With increased government spending on infrastructure, ambitious strategies and the drive to maintain leading positions in the airport and trans-shipping arenas, Dubai’s transport and logistics sector is well placed to prosper moving forward.

As with any industry, the transport and logistics sector faces challenges such as oil price fluctuations, regional political instability, and policy coordination with other emirates and the wider GCC. In spite of this, Dubai, whose well-diversified economy is far less exposed to oil price fluctuations than those of the other emirates, delivered its largest budget to date in 2018 with considerable infrastructure expenditure. Likewise, while the broader region may sometimes seem beset by political and security concerns, Dubai and the UAE as a whole are viewed as a haven of stability. Policy coordination will be essential for large-scale projects reaching beyond Dubai, such as the future rail and hyperloop systems.

In the short term, Expo 2020 will continue to drive major road and metro expansions, while partnerships between government agencies and leading national and international companies encourages further innovation. Among the emirate’s particular strengths has been its recognition of the role that technological developments can play in transport and logistics as well as in attracting new business and investment to Dubai.

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The Report: Dubai 2019

Transport & Logistics chapter from The Report: Dubai 2019

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