UAE begins recovery as growth prospects increase (page 1 of 2)

Empty stands, few visitors and well-known names missing. At the start of October, a visit to Cityscape Global in Dubai, once the largest GCC real estate fair, left the impression the UAE has seen its best days. According to Kuwait's Global Investment House, in 2009 the UAE's total government revenue was almost Dhs293bn, a decline of 35% from the previous year. An economy relying on oil and gas, trade and real estate financing from mainly external sources can be exposed to severe shocks if the world economy loses steam. Nevertheless, local production is gaining pace.

Half of Dubai's real estate projects have been cancelled or put on hold, such as the planned tramway, which has been postponed to 2014.

UAE stock markets picking up

But those investing away from Dubai are starting to think twice. The stock markets - DFM in Dubai and the ADX in Abu Dhabi - have been surging since the end of Ramadan. Dubai World managed to find an agreement with its creditors in order to restructure its $24.9bn debt. The UAE appears to have performed a gigantic shift from a one-sided growth engine based on hydro-carbon resources, real estate and trade to a well diversified, multi-asset class state.

It is a painful process. Old industries must die and former monopolies shrink, while many careers at the top are cut short. Hydrocarbon revenues remained the largest revenue generator for the UAE as it represented 74% of total revenues in 2009. But oil and gas revenues declined by 40% to Dhs217.5bn in 2009, against Dhs362bn in 2008. Nevertheless, the IMF says that restructuring measures taken to reanimate lending are "rapid and orderly". Since the fall of Lehman Brothers on September 15 2008, the UAE Central Bank pumped Dhs70bn ($19bn) into the domestic banking sector. Meanwhile, UAE firms have carefully started hiring again, according to an HSBC study.

The UAE's economy is tied closely to the world economy, meaning if global trade increases, the UAE growth pace outperforms other economies and vice versa. As world trade picks up, UAE global players such as Abu Dhabi National Energy (Taqa), or DP World benefit. Both groups have expanded into new markets. Taqa is strengthening its position in the North Sea, where on September 15 it signed a sale and purchase agreement (SPA) relating to Total's entire equity stake of 81% in production licences for two blocks. Two weeks later DP World, number three among the world's port operators, inaugurated a $500m container port in Peru.

Share prices of Taqa at Abu Dhabi's ADX and DP World at the Nasdaq Dubai both climbed to new highs in the second half of 2010. "One of the healthy signs at the ADX is the increasing active role of institutional investors in trading activities, accounting for 47.5% of the total value of purchases compared to 32.5% in the third quarter of 2009, and 42.63% of the total value of sales compared to 28.4% during the same period last year", commented Rashed Al Baloushi, ADX's deputy chief executive and director of operations.