The great UAE boom to cool says IMF

IMF officials this week praised the UAE for driving growth through 'the private sector with a lot of partnerships' and for heavy investment in domestic infrastructure. But this physical investment is now proving a barrier to higher levels of growth.

'The UAE growth rate this year will be one of the fastest in the world but these rates can not persist,' IMF regional director, Mohsin S. Khan, told a news conference this week. 'You will be hitting capacity constraints especially in the construction industry.'

In August steel prices rocketed by 45 per cent in the UAE and cement prices increased by 11 per cent. It is this sort of inflation that illustrates that the supply of building materials is failing to keep up with demand. This will affect the viability of current and future construction projects unless they have already bought supplies.

40-60,000 new homes

However, the IMF noted that relief was in sight for rental inflation in the UAE with some 40-60,000 new housing units set to reach the market over the next 12 months.

The flow of new economic migrants into Dubai was underlined by new statistics showing passenger numbers at the Dubai International Airport continuing to grow by an annual rate of 15 per cent in the first nine months of the year.

This phenomenal growth means that DIA will handle 27.4 million passengers in 2006 and even with its huge current expansion program will probably out grow its facilities by 2012. And remarkably the airport is frequently named as one of the world's favorites despite the massive construction projects underway.

But the capacity constraints highlighted by the IMF have a darker side in terms of standard of living. Traffic jams have become a nightmare in Dubai, soaring rental costs mean that many people are forced to share unsatisfactory accommodation and working hours have become long.

No space to rent

Indeed, this factor is also now seen as a constraint to the economic boom as companies are choosing to locate in alternative cities because accommodation is not available at reasonable prices. Office vacancy rates of one per cent make it impossible for many major companies to move to Dubai, for example.

On the other hand, there seems little prospect of a sudden collapse of the UAE boom. Oil revenues continue to flow at a very healthy level providing huge liquidity. It is capacity and inflation that are an issue, not the money to pay for development.

The UAE has profited greatly from the oil boom of the early 21st century, and much of this cash is still available to see the economy through any downturn in hydrocarbon prices.