The growth dynamic that underpins Dubai

Can Dubai absorb the present boom in real estate? Or is there not enough property being built?

This dilemma highlights the problems of growth economics, and the difficulty of understanding the dynamics of a rapidly expanding economy. For simultaneous expansion of multiple sectors of an economy has a dynamic of its own.

In the case of Dubai we can see the simultaneous creation and expansion of multiple free zones. New ones range from the Dubai International Financial Centre to the Dubai Healthcare City and even the Dubai Textiles City. Expanding free zones include the highly successful Jebel Ali Free Zones and the more recent Dubai Telecoms and Media Free Zone.

The signs of high economic growth in Dubai are plain to see from the traffic jams to a solid indicator like 10% plus increases in electricity demand. The city's population is also on a rapid growth track.

Now the answer to the dilemma of the real estate sector, for instance, depends on how high this growth rate is in reality.

Too low and you are left with empty homes and shopping malls. Too high and you face rising rental rates and a decline in the standard of living in Dubai.

Perhaps this is a time to be optimistic. At the Emirates Airline press conference to announce record profits its Chairman Sheikh Ahmed bin Saeed Al Maktoum brushed aside calls for caution, and outlined how the Dubai Government's carrier would continue to invest for expansion to a fleet of 139 aircraft by 2011, including a break into the North American market.

Emirates Group already contributes $3.7 billion to the GDP of Dubai, according to His Highness. How much more will the expanded airline be worth to the local economy in future years?

Dubai just seems to have got its growth strategy in place at the right time. The Middle East is experiencing a major economic boom thanks to high oil prices, a low US dollar and low interest rates. And Dubai is one of the few places to welcome foreign direct investment with open arms.

Under such circumstances Dubai will continue on its high growth path for some years. And unbelievable as it may sound, the local real estate sector may yet be underestimating future demand.

After all most developing economies eventually overheat, but the wise policies of Dubai's ruler are working to delay that day.