Media reports of Dubai's demise speak too soon

'To quote Mark Twain: 'The reports of our death have been greatly exaggerated',' said Omar Hijazi, CEO of Dubai-based e-commerce network Tejari when asked what he thought of reports of Dubai's collapse.

The press loves a story of failure as much as one of success, and the same outlets that were lauding the emirate while it was riding the crest of the boom are the same that are now circling, eagerly predicting the demise of the 'Dubai Dream'.

'There's a lot of negative media attention, both from a regional and an international basis being paid to Dubai in particular,' Ian Ohan, Jones Lang Lasalle's head of Investment Transactions for the Mena region told AME Info.

'Investor confidence globally is obviously very dramatically affected currently. Going forward we obviously have some work to do to repair that. There are a number of government initiatives taking place today that are coming to the forefront that we think will go some way to repairing investor confidence.'

Expatriate migration

That the city has witnessed a change in fortunes is undeniable. A number of real estate projects have been cancelled, which, with close to half of the city's residents linked to the industry, has had knock-on effects across the board.

Property prices in some locations have fallen by up to 50% and the emirate's new property court is being deluged with complaints of defaults by investors and developers. This has coupled with the crisis plaguing the financial industry to leave Dubai's two biggest economic drivers struggling to find the bottom of the downturn.

The biggest fear is of the effect that this will have on the emirate's expatriate population, which accounts for close to 90% of the city's residents. Figures from UBS bank put the predicted exodus of professional expatriates at 160,000, but anecdotal evidence has many expecting a much larger exodus of families come the summer and the end of the academic year.

Given that Dubai's expansion has been fuelled to a large extent by FDI and a foreign workforce, with the growth driven by non-oil sector industries such as hospitality, shipping and property, this is something that the government is urgently trying to address.

'Our eyes and our focus are on the job market. We want to safeguard job opportunities and hopefully shield Dubai from the financial crisis through government action. Everything is on the table, nothing is taboo,' Dr Raed Safadi, Chief Economist at Dubai government's Department of Economic Development told delegates at a recent Meed conference.

Safadi also indicated that the government was willing to examine the issue of employees only having a 30-day grace period in which to leave the country following the cancellation of visas, one of the major stumbling blocks to retaining the expatriate workforce.

Global conditions

'The economic pillar of the 2015 strategic plan has to be revised, otherwise we would be in denial. But we are growing, we are set for 2.5% real GDP growth, of course this isn't as big as last year - but then we were growing at 16% - compare that to the world economy, which is set for negative growth at -2%,' said Safadi.

This is the crux of the matter. While Dubai's economy is suffering it is not an isolated case. Rather, the emirate is suffering the knock-on effects of global conditions; the collapse of major finance houses, the effect of the dollar's strength (or weakness in other major currencies) on international exchanges, the freezing of global trade and low oil prices, among others.

To counter this Dubai, along with other Gulf hubs, has launched a series of initiatives to fuel stagnated market sectors, including $20bn of bonds that will be used to pump liquidity into the system. Along with Abu Dhabi, the emirate is willing to cut into its previous surpluses to support its key sectors.

'We are being challenged on exports, on the tourism sector, everywhere you look. But look at the figures, look at our budget surpluses over the last six years - we are only projecting a 3% deficit over the next few years,' said Safadi.

This is backed by Hijazi: 'Dubai is going to spend 40% more than it did in 2008. This deficit spending will spur the economy here and it will come from the government. We're looking at a 2010 turnaround, with some heavy investment by the government in 2009.'

The silver lining of the current situation for the city's residents is that the cost of living in Dubai, which had become unsustainable by September 2008, has finally begun to slow to more manageable levels. With inflation expected to fall to single digits by mid-2009, Dubai has the chance, by the time the recovery becomes apparent, to re-iterate its credentials as the destination of choice for international business in the Gulf.