Dubai to be far more competitive in 2011

Like any commercial city in a crisis Dubai is becoming more and more competitive in the drive to exit its long recession. The cost of doing business is coming down. Dubai International Financial Centre this week belatedly slashed its rental rates by up to 50 per cent. The cost of housing for staff is also tumbling.

Many salaries are also being cut for 2011 as firms take advantage of the lower cost of housing and the fact that the market for employment after being laid off remains weak. At the same time local hotels are having to slash the cost of restaurants, bars and nightclubs to keep the punters from staying at home.

Costs falling

The overwhelming balance of costs is still towards Dubai becoming more competitive. There are a few worrying signs. The Dubai Electricity and Water Authority is raising prices 15 per cent for 2011, but then few cities in the world can avoid such increases now. The cost of gas in fuel tanks is up, pushing up the cost of local transportation.

Then again the continued success of Emirates Airline, the airports (and there are now two) and trade from Dubai’s massive ports, suggest that the infrastructure of the city remains globally competitive and indeed is winning business through being more competitive than the alternatives.

For certainly in the Gulf there are cities like Doha and Abu Dhabi that aspire to Dubai’s commercial success but are going in the reverse direction as far as being competitive in commercial terms. High rents, traffic and construction congestion are just a few of their problems that Dubai does not now have.

Recovery year?

Does that make 2011 a year of recovery for Dubai? The arrival of Emirates boss Sheikh Ahmed bin Saeed Al Maktoum as the chairman of Dubai World was perhaps inevitable given his role in its debt restructuring. This a hopeful sign that the mistakes of the past will not be quickly repeated and that Dubai will concentrate on what it does best rather than building dreams in the sand.

That said the global financial environment could quickly turn nasty again with bond prices falling in the US and interest rates on the way up. For Dubai with its debt estimated at $112 billion by Barclays Bank that would make refinancing around $18 billion next year a nightmare.

It is therefore likely that Dubai will need all of its new found competitiveness to pull through another difficult year. ArabianMoney would like to believe the New Year cheer about global recovery but bond markets point to something very different about to happen.