Dubai's recovering economy has chance to push on

By Gérard Al-Fil

The UAE economy's rebound bares some comparison to the recovery of Germany in 1990. After civil unrest put an end to communism in Eastern and Central Europe at the end of 1989, which led to the German re-unification, Germany's economy started a boom which lasted over three years. The central European country provided investors the most advanced social market economy, and high-quality products made in Germany flooded the former Warsaw Pact-member states.

There is a similarity to the UAE. While most investors pull out of trouble-stricken MENA-countries like Egypt and Bahrain, they come back in masses to the Gulf, as Dubai and Abu Dhabi provide stability, connectivity and a more reliable legal environment. The numbers speak for themselves. During the first six months of 2011, Dubai International Finance Centre (DIFC) welcomed 64 new firms, and 95% of its leasable space is occupied. Hotels in Abu Dhabi witnessed 10% growth between January and May. Consequently, Emirates NBD has raised the growth forecast for the UAE economy to 4.6% for 2011, up from 4.2%. In order to avoid leaving other emirates behind, the UAE decided to invest Dhs5.8bn ($1.6bn) in the infrastructure of the less developed north-east of the country.

The German boom of the early nineties also offers some lessons. While growth is good at first glance, it can lead to complacency and the postponement of reforming laws. In Germany, the re-unification boom kept then-chancellor Helmut Kohl away from liberalising the rigid labor law, which prevented enterprises from quickly reducing staff during recessions - a fatal disadvantage in a growing globalised economy. Only ten years later, the Schröder government had the courage to drastically revamp the country's traditional politics and enforced regulations which punish those who deny taking a job although they are able to do so. Today in 2011, German unemployment stands at 6.9%, which is much lower than the European Union's average of over 9%.

UAE needs to continue to attract and retain international firms

What are the implications for the UAE? The UAE should continue to implement laws to attract and retain international firms, investors and qualified staff likewise. The decision to grant buyers of a property worth above Dhs1m a three-year visa is the step into the right direction. The concept of free zones has already attracted most of the global players which make up the Fortune-500 list.

Sooner or later the question over whether residence visas should be issued for longer than three years will be addressed by the seven emirates. Switzerland, for example, grants foreigners a C-permit after five years residence. C-Permit holders have the right for an unlimited stay, but they remain foreigners, hence they are not allowed to vote but must pay taxes. The Swiss concept encourages white collar workers to stay in the country, keeling fluctuations at top-levels low.

An expat who has the right to stay for good is more likely to buy a house or to build up an enterprise which will produce sustainable services or products for generations to come. Keeping fluctuations low in the labour market is the key for a sustainable growing economy.