Dubai's future looks bright, with or without oil
Economic diversification has accelerated the rise of other industries
Welcome to the UAE, a country amidst an oil-rich region, with minimum reliance on oil export revenues, a futuristic infrastructure and a solid economic outlook. The UAE's efforts at economic diversification have delivered strong outcomes in creating a favourable business climate, minimising reliance on hydrocarbon revenues and leveraging the potential of other sectors, including construction, tourism, trade, services and aviation.
After instructions from the International Monetary Fund (IMF) in the past few years, all GCC countries have been implementing efforts for economic diversification to create a stable macroeconomic environment and shield their economies from volatility in the global oil market. The GCC countries adopted a number of policies to reduce reliance on oil, improve trade, strengthen the business environment, liberalise foreign direct investment (FDI) and advance education and health sectors. The adopted policies and the growth model achieved significant results.
The UAE was always keen on economic diversification, with the emirate of Dubai in the forefront. Dubai developed from a small settlement with few natural resources and limited infrastructure to a global city with a modern infrastructure and the world's busiest airport. This significant transformation happened in less than 50 years.
While other GCC countries spent oil money to improve infrastructure, Dubai was busy shaping a diverse path towards modernisation. Dubai's favourable location in the oil-rich Gulf region and the forward-thinking policies of its leaders freed it from oil dependence, from 25 per cent in the early 1990s to four per cent in 2015. This was a major achievement and accelerated the rise of other sectors to create a buffer that is necessary to absorb a shock that could arise from uncertainty in the global oil market.
Leveraging the potential of other sectors such as tourism, construction, trade and aviation, Dubai achieved remarkable growth and became the most viable place for investors in the region. Dubai is now a regional hub in trade, finance and other sectors. The emirate has built modern infrastructure, shaped a business-friendly environment and regulations that attract international businesses. Dubai's airport, which already served more than 70 million travellers in 2015, is being beefed up to serve over 200 million in the coming years.
The Jebel Ali port is the largest in the world, busiest in the Gulf region and is expected to become the biggest container port in the world by 2030.
The UAE is the ranked number one for quality of seaports infrastructure regionally, third globally and is ranked sixth globally for seaports structure, according to the Global Competitiveness Index 2014-2015.
The 'free zone' concept was created in the UAE, and the model was replicated within the country and the region. There are currently 22 operational free zones in the UAE catering to specific industries, including technology, media, healthcare, finance and communication.
The free zones are playing a positive role in the UAE's economic growth. In 2015, companies within Dubai free zones accounted for approximately 50 per cent of FDI in the emirate.
Impact of low oil price
Global oil prices have plummeted sharply since H2 of 2014 and hit the lowest level in 2015. This raised concerns about stability across economies. As the UAE had already advanced in its economic diversification during the high oil price period, this had a relatively small impact on growth.
The real estate sector has been a major contributor to Dubai's gross domestic product (GDP) and an important component of growth and employment creation. After a significant fall in global oil prices and other external factors such as a slowing Chinese economy, slow growth in eurozone economies and a strong US dollar that makes real estate more expensive for international investors holding non-USD liquidity, it led to a
decline in property transactions and drop in sales prices.
However, this impact on property is more psychological than economic. The UAE is well-positioned to sustain low oil prices for a very long time. As per the IMF, the UAE has adequate fiscal buffers to endure low oil prices for years and shield the economy and real estate from any negative impact.
Real estate prices did not see a major decline in Q1 2016. As the real estate sector is cyclical in nature, sales price recovery is what we should see in H2 of 2016. Investors are returning to Dubai as property prices are at their bottom. This is possibly the best time to buy and expect high capital appreciation in the long term.
The British, Indians and Pakistanis have invested majorly in Dubai real estate. Now, a Chinese wave of investors is likely to hit the UAE as the domestic Chinese market is not lucrative enough.
Dubai has emerged as the most preferred destination for investors from around the world. With the Expo 2020 expected to attract 22 million tourists, a diversified, robust economy and projects scheduled worth billions of dollars, the future looks bright, with or without oil.
The writer is an online marketing manager at Aston Pearl Real Estate. Views expressed are his own and do not reflect the newspaper's policies.
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