Dubai Economic Overview

Economic Outlook
Data provided by Landmark Advisory

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Dubai
Abu Dhabi
Graphs: Population Estimates; Office Sales and Rentals

Dubai

Dubai continues to provide a positive environment for investors, despite the current global slowdown and credit shortages. Although the market forecasts are cautiously being adjusted as new details unfold, we continue to find evidence that suggests upward growth in the Emirate.

For the past eight years, Dubai's economy has experienced continual growth and diversification under the visionary guidance of its ruler, HH Sheikh Mohammed Bin Rashid Al Maktoum. The Dubai Strategic Plan 2010 (DSP 2010) served as the platform that the Dubai government used to harness the accelerated investment activity to reach its goals by 2005 in half the time. Continuing this leadership legacy of dreaming big and strategic planning, the government has created the Dubai Strategic Plan 2015 to guide the next decade's growth. While oil prices continue to sink from the $147 per barrel peak in August, Dubai continues to enjoy the security of having a surplus account as the budget is set at a $23 per barrel benchmarkⁱ. Another important aspect to Dubai's current position has been the decreasing dependency on its shrinking oil reserves (the oil sector only contributes to 3% of Dubai's GDPⁱⁱ) while at the same time diversifying investment into the infrastructure, construction, tourism, and real estate sectors. The growth projections made at the beginning of 2008 expected to continue an 11% GDP growth, and although that will be corrected down, Dubai's economy has been stronger than the circulated growth figures for the country as a whole; the real GDP in 2007 was $53.9 billionⁱⁱⁱ. This is just one result of the optimism that the government continues to inject through their policy of doing whatever is necessary to assure investors, developers and banks, that we will see the realization of their strategic plan for Dubai.

The past couple of months have reminded us that markets can adjust very quickly, but the Dubai Government has shown that it is capable of quickly responding to the market disruptions in this area. However, the current economic situation may prove to be a challenge for even the most capable policy makers. The predictions for the near future suggest that there are a few downward-pulling influences that will affect the retail sector, such as the decreasing local purchasing power due to the increasing cost of housing and inflation (est. 15%, 2008; 13.5%, 2009)^iv, and speculation that tourism including retail tourism that is a pillar of the Dubai economy is expected to cool off throughout the world. The adjustments in the Dubai economy are likely to be felt more than in surrounding emirates, however, it is most likely that they will only be adjustments and position the economy for further healthy growth.

i- IMF Regional Economic Outlook: Middle East and Central Asia, October 208.
http://www.imf.org/external/pubs/ft/reo/2008/MCD/eng/mreo1008.pdf

ii- United Arab Emirates Yearbook 2008, October 2008.
http://www.uaeyearbook.com/uaeint_misc/pdf_2008/index.asp

iii- UAE Interact.com, “Dubai set to sustain 11% GDP growth,” March 29, 2008.
http://uaeinteract.com/docs/Dubai_set_to_sustain_11pc_GDP_growth/29323.htm

iv- IMF Regional Economic Outlook: Middle East and Central Asia, October 2008.
http://www.imf.org/external/pubs/ft/reo/2008/MCD/eng/mreo1008.pdf

Sources:

Oxford Business Group: Country Business Intelligence Reports, Emirates, Dubai
http://www.oxfordbusinessgroup.com/publication.asp?country=69
UAE Interact.com, 'Dubai set to sustain 11% GDP growth', March 29, 2008.
http://uaeinteract.com/docs/Dubai_set_to_sustain_11pc_GDP_growth/29323.htm
Landmark Advisory estimates

Abu Dhabi Economic Sectors

Although Abu Dhabi has avoided the limelight cast on Dubai over the past last five years, it has carefully drawn up impressive plans for growth for the next three decades and has the financial power to see them through to fruition. In our opinion, Abu Dhabi will continue to provide impressive opportunities in the short to medium term for real estate investors despite the global economic downturn and independent of the corrections that will be seen in neighboring Dubai.

Sitting atop of about 9 percent of the world's oil reserves^iv, the rising oil prices have allowed Abu Dhabi to realize spectacular growth in both its GDP and its government-sponsored investment fund (Abu Dhabi Investment Authority). The GDP, which is currently still two-thirds comprised of the oil sector, has had an average growth of 25% per year since 2002 and has not incurred any direct debt in over a decade^iv. Despite the quickly declining oil prices towards $50 per barrel, Abu Dhabi continues to be safely positioned to enjoy budgeted surpluses since the fiscal accounts are benchmarked at a barrel price of $23^iv. The aim for the economy has been to decrease the dependence on oil revenues by re-investing the resources into increasing diversification to other economic sectors such as construction, tourism, electricity and water and industry^iv. The Abu Dhabi Strategic Plan 2030 provides a visionary plan, as well as significant detail with respect to urban planning, in order to meet the goals that has been set out in a "strategic and coordinated way"^iv. The prudent but purposeful movement backed with strong cash reserves has given forward-looking analysts a positive outlook for Abu Dhabi's building initiative regardless of Dubai's property prices.

Abu Dhabi has been slower to open up its economy and continues to impose restrictions of foreign ownership, but it is presently one of the single most cash-rich governments in this precariously cash-strapped global economy. Many of the master-planned projects in Abu Dhabi are still in the early stages of development, and this is one of the reasons that Abu Dhabi has seen a greater price decreases in the secondary market; however, this is also the reason why Abu Dhabi is well-positioned to adjust with the global implications and continue with its steady, upward growth.