Dubai hit by economic sea change

THE GLOBAL recession has seen the brakes sharply applied on the Dubai economy and its geographical position means it must patiently wait for east and west demand to bounce back.
After six years of runaway growth, everyone has been waiting for Dubai’s economy to drop anchor.
The downturn has not come as that much of a shock then, but what has taken everyone by surprise has been the speed and severity of its impact, starting with the slump in property sales towards the end of last year, which subsequently filtered through to hit all sectors, not least shipping.
The Dubai government arranged a US$20bn bond in February, in a bid to help companies refinance debts, which came on top of a series of cash injections – Dirham120bn (US$32.7bn) was pumped in during October alone – from the UAE Central Bank to keep the state’s economy on an even keel.
A ‘crisis committee’ was set up in March, unimaginable 12 months previously, when the city was basking in buoyant trades, record oil revenues and abundant liquidity.
If the last six months have seen a sea change for Dubai, compounding the anxiety is the knowledge that it’s not out of the woods yet.
Redundancies
With all the key sectors still to show any signs of economic alacrity, let alone the top gears experienced in recent years, the ‘city of gold’ is unlike to regain its shine in the short term and its east-meets-west position – for years, one of its prime attributes – is now something of a drawback as it must wait for markets in the east and west to bounce back.
In the meantime, the roads are quieter, the hotel rooms emptier.
Where once the story was of chronic skills shortages, as companies struggled to attract skilled labour and keep pace with demand, the roles have been reversed and now the lexicon is one of redundancies, recruitment freezes and corporate consolidation.
Dubai Maritime City and GAC Group Dubai have laid off 9% and 5% of their workforces respectively and they are not alone.
Ali Al-Daboos, DMC’s chief operating officer, said the purpose-built maritime centre could be developed in such a manner that was “flexible enough to adapt to the overall macro and micro business environments”, a policy that is now widespread as managers scrutinise costs and designs and see where savings can be made.
While no one can doubt DMC has made progress – around 85% of the infrastructure for the industrial precinct is complete and groundwork of the commercial precinct is two-thirds finished – there are inevitably question marks as to whether its scheduled 2012 completion date is now achievable.
Portfolio
Conscious of the economic challenges, DP World Jebel Ali maintained its 2008 tariffs at Jebel Ali port and reverted to providing ten days’ free storage time for all local importers with effect from March.
The global operator, which handled more than 27.7m teu across its consolidated terminals in 2008, up 15% on 2007, saw its Dubai volumes reach almost 12m teu, an 11% increase, reflecting slower volume growth in the second half of the year.
It successfully integrated new terminals at Aden, Dakar and Sokhna into its portfolio, won a concession to operate two terminals in Algeria, which will contribute to volume growth this year, and recently officially opened its new Djibouti terminal.
Despite the slowdown – vacant office space has doubled in the last six months, according to a Jones Lang LaSalle report – Dubai still has a strong sense of energy and optimism.
Key projects are still under way, chief among them the Dubai Metro which has been given an unmissable deadline of opening 09/09/09.
The driver-less trains will initially start on the Red Line, spanning the length of the city and ending at Jebel Ali, across the road from the port, which will be followed by the Green Line, operating a city centre loop, next March.
By that time, the Dubai government will be hoping the global economy is back on track and trade is pumping through the emirate’s veins once again.