Dubai economic recovery looks more solid than London
Posted on 06 June 2011 with 5 comments from readers
Back in the UK for the past week this correspondent felt that the recovery in London seemed very shallow and facing a three-year downturn, while Dubai shows every sign of putting the not inconsiderable problems of the past few years behind it.
In Britain the real recession is just starting. House prices are unchanged in London and down 20 per cent elsewhere since the 2007-8 crisis. The government then bailed everybody out to save the financial sector but only at the cost of huge borrowings that now threaten the system again, and are being addressed with austerity measures and higher taxes.
Age of Austerity
You can’t really get an economy to recover without a proper real estate market correction to bring prices back into line with economic reality, and you are certainly not going to get a recovery with consumer spending and disposable incomes under pressure. Quite the contrary, you will get a recession or something close to it.
The Dubai economy had its sudden stop from a run-away real estate boom three years ago this October, and property prices have crashed 50 per cent or more since then (click here for video). The system has been purged, and the debt mountain has been brought under control with rescheduling, consolidation and a few defaults. Debt issurance rates for Dubai have halved in 12 months.
Debt in Dubai never got to the 450 per cent of GDP level still present in the UK. There was always the backstop of Abu Dhabi with its fabulous oil wealth and sovereign wealth fund that makes the UAE a net creditor and not a debtor nation, quite a rare phenomenon in global terms these days.
Dubai has also enjoyed the full force of the rebound in global trade since the financial crisis three years ago. Its splendid airline Emirates has fully capitalized on growth in this region’s aviation market, which was the only one still growing in 2008.
Then there has been the windfall of the Arab uprisings this year. Tourists have abandoned Egypt, Syria, Jordan, Lebanon and Bahrain for Dubai. There has also been a flight of money from these countries to the safe haven of the UAE while regional businesses have moved key staff from Bahrain and are now expanding their presence in Dubai as an alternative.
At the same time oil prices have been high. For the UAE that means an extra $250 million in oil revenues a week. This money is recapitalizing the banking sector, and deposits are now well ahead of loans which is pushing down interest rates.
UAE outlook
Nobody is saying that the UAE will have an entirely smooth passage over the next few years. Regional troubles could still impinge on trade flows or cause security scares. The oil price could fall if places like the UK drop really badly into recession.
And the real estate market still looks oversupplied in all categories, albeit this gives UAE business the great benefit of offering low-cost accomodation, unlike London for instance which remains hugely overpriced because interest rates have been held too low and below inflation levels.
Think say of a big London bank pondering its future: zero tax for its staff and great accomodation and infrastructure might look more attractive than clattering to work on the tube to be taxed at 50 per cent.
The justification for being in London is the scale and depth of business but the higher growth prospects are surely in the Middle East now rather than Europe. Downsizing in one city and upsizing in the other seems only logical.
5 Comments posted by readers:
This is a very very weak article….Dubai never ‘ALWAYS KNEW ABU DHABI WOULD BE A BACKSTOP’…that comment is wrong….and if you look at the total debt ot gdp of dubai (on its own, not including reexports etc) you will be shocked..perhaps not at the 450% level but waaaay too high anyway…and as for low cost accomodation ? well….in the middle of essentially a desert, well yes, as low as it can be…..Dubai will never be a financial hub…not globally…ever…it doesnt have the people, nor the infrastructure (in terms of educated population , both local and foriegn) to make a go of things…it is at best a las vegas in the sands or slightly upscale corfu…..and as for 50% tax for staff, do i need to remind the writer of how many people actually physically pay the 50%? not much …….even companies who threatened to leave the UK are coming back..it makes more economic sense…remember you have higher to go when you are at the bottom of the valley…for dubai, it still has a long way……down…….
Salut all..i happen to like our editor’s tone, so must rush to his defense..first up, the tone of tim osman’s letter is cool & efficient, not opinionated, groggy, or mean spirited..a compliment all around..he makes points because he seems to have true experience in the region, without bragging when or where..but Peter has nailed the flow chart of public $ 2008/present..he knows the filthy, toxic nature of world financial personalities & bureaucracies..as an optimist & healer, he hates to admit these people should be incarcerated @ best..We the People have been more brutally sacrificed than the Lamb of Hebrew scripture..Peter is spot on higher taxes, austerity, recovery, debt, interest rates, real estate, the list is long..he happens to prefer what i call Arabian Nights, but this is taste, the one market none shall ever corner or cure..hats off the all..obe, i miss your tone too..i love this site, & am surprised the comment section is not wildly popular
Ed,
Good points…all of them.
Except for the 2 huge differences between Dubai and London….Credibility and Fairplay
Investors don’t believe a word of what the Goverment / quasi govt. bodies promise and nobody really believes that their investments are safe.
With frequent flip flops on residency visas, guess how many businessman are convinced that they are really welcome…NONE.
The overwhelming sense among expatriates is that they are welcome till they earn and contribute and spend. After that they are as welcome as a fly in one’s food. Cities grow and become great when masses adopt them as their home and migration is permanent. Dubai is and will remain a port of call…..just for transit…a giant airport….a Las Vegas…..and everybody knows that’s not permanent.
Ed Note: Nothing censored here, perhaps it needs to be said, but why then are people not leaving and arriving instead?
Only geniuses can be so, so wrong! It is virtue, not brainpower that pays off. The UK stimulus programs didn’t work. All they could do was to disguise the facts and delay the necessary adjustments. QE1 & QE2 in the US & bailouts & bumph in the UK are all called “stimulus”. Claptrap is what it is! Extend and pretend…Delay and pray….The UK’s economy is still very weak and the stock market’s future looks weaker… but you know what.. not being a victim of an higher education, I’ve learnt that many who know so much about modern economic theory have no room left in their brains for good, old common sense.
There are countries where investing your money makes sense, the UAE is not one of them. Dubai’s financial world is still becoming unglued and in 1933 a very wise man said of this region “They have sluggish methods of commerce and insecurity of property exist.” Still very accurate in 2011.
Ed Note: I would hardly call the most modern airports and ports sluggish – and property title is very clear if you have it. But agreed the UK is in a state of denial, like Dubai in 2008?
Seems like our editor is still in a state of denial regarding Dubai. “Most modern airports and ports” – but the real life experience is still sluggish. Try importing goods here compared to the UK.
Ed Note: Yes it took me an hour-and-a-half through the Cargo Village!