Impressive unity but UAE economy faces serious headwinds

The official tour of Dubai by UAE President His Highness Sheikh Khalifa bin Zayed Al Nahyan has been hailed as an impressive demonstration of federal unity in the face of the mounting challenges that face the UAE economy this year.

Only this week the International Monetary Fund slashed its forecast for UAE economic growth from six to 3.3 per cent. Economy Minister Sultan bin Saeed Al Mansouri yesterday declined to give reporters an official forecast for GDP growth in 2009.

Oil revenues

But it is certainly going to be a tough year for the federation which generates almost a third of its income from oil exports. Opec officials yesterday forecast that total oil revenues this year will be half of 2008. That is a serious blow to UAE revenues with investment income also hard hit by the global economic crisis.

So far the government response has been a substantial bailout for the banking system, higher public spending, and the $10 billion Dubai Government bond taken up by the Central Bank to re-finance debt.

The word from President Khalifa yesterday was that he stands squarely behind the vision of Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum and takes real pride in the achievement of all the emirates that make up the federation.

However, the question being asked in local business circles is what comes next? The sudden ending of the six-year Dubai real estate boom last year has left some local companies with massive debts and led to construction sites being abandoned.

What happens to the 160,000 off-plan units registered with the Dubai Land Department of which just 12,000 have been transferred to their owners? How many of these units will be completed and what happens to the monies paid already by off-plan investors?

Unwinding real estate

Unwinding a real estate boom is seldom an easy exercise, and to accomplish it successfully against the background of the worst slump in global trade and growth in two generations is going to be a challenge for even the greatest leaders.

But to be united in purpose and endeavor is always essential at the outset of any venture, and close cooperation at the very top of any country is generally part of the formula for ultimate success.

It helps too that the UAE is a net creditor nation with massive financial assets and almost 10 per cent of the world’s oil reserves with among the lowest extraction costs. Real assets will greatly assist a real recovery.