(Economist) Foreigners are leaving the Middle East’s business hub
Dubai is unlike most of the Gulf’s sheikhdoms. Its economy thrives not on oil, but on tourism, trade and finance. Its patch of desert hosts one of the world’s busiest airports, its tallest skyscraper and the region’s biggest port at Jebel Ali. The pace of construction is dizzying. The emirate’s gdp is projected to grow by 3.3% in 2018, up from 2.8% last year.
Below the rosy top-line figures, though, there are growing signs that Dubai is running into trouble. Rising oil prices created momentum in the short term, but “trends are downwards” over the long term, says Ehsan Khoman of mufg, a bank. He and other analysts say an oversaturated property market and regional conflict are the biggest causes for concern.
Dubai’s stockmarket has slumped by 20% year-on-year and is the worst-performer in the Middle East. The recent collapse of Abraaj Group, the largest firm in the Dubai International Financial Centre, has jolted confidence. New business licences are far fewer and employment is shrinking for the first time on record. The emirate withholds statistics needed for a sovereign-credit rating, but state-owned companies provide a bellwether. In September s&p, a credit-rating agency, downgraded two, citing a weakening economy.
Foreigners make up more than 90% of the population, but schools for expatriates are closing. Removal companies say departures far outstrip arrivals. Real-estate agents bemoan a rash of empty flats, even as developers build more. Falling rents made Dubai’s property market the world’s second-worst performer in 2017. Shares in Emaar Properties, the emirate’s biggest developer, have sunk by 38% in a year.
Banks learnt to be more prudent after a debt-driven crisis in 2009, when Dubai needed a $20bn bail-out (equal to about a quarter of its gdp at the time) from Abu Dhabi, the richest fellow member of the United Arab Emirates (uae). Analysts do not expect another such crisis, but they still worry about the exposure of regional banks to property. Some would have gone bankrupt were it not for help from the central bank, says an asset manager.
Rising oil prices (until recent weeks), a recovery in Saudi Arabia, the Gulf’s biggest economy, and construction related to the next World Expo, which Dubai will host in 2020, help explain why firms say they are optimistic. But they also worry about protracted conflicts in the Gulf. Dubai, long a haven in the volatile region, has lately been caught up in the trouble. In August officials were forced to deny claims made by Yemeni rebels to have hit Dubai’s airport with armed drones.
Dubai is moored to the bellicose policies of Muhammad bin Zayed, the crown prince of Abu Dhabi and de facto ruler of the uae. He and Muhammad bin Salman, the crown prince of Saudi Arabia, have not only led the war in Yemen but also a 17-month-old blockade of Qatar. As a result, Dubai lost a trading partner. Flights connecting the busy airport in Doha, Qatar’s capital, to Dubai have been grounded. Qatar’s imports, once routed through Jebel Ali, now go direct (or via Oman). Rather than share the business generated by Qatar’s hosting of the World Cup in 2022, the uae is trying to scuttle the tournament.
Dubai’s profitable relationship with Iran has been similarly disrupted. The emirate earned big port fees from the $17bn trade in re-exports to Iran. But America’s re-imposition of sanctions, with the support of the two belligerent princes, has scared away business. The dhows that shipped goods across the Persian Gulf every week now go once a month. Dubai has become less attractive as a back door to Iran. In May American and Emirati monitors dismantled a currency-exchange network in Dubai used by the Quds Force, the foreign wing of Iran’s Revolutionary Guard Corps. America has added Dubai to its anti-money-laundering watch-list.
With Muhammad bin Zayed calling the shots abroad, Dubai’s emir, Muhammad bin Rashid, has introduced stimulus measures at home. Over the summer he froze private-school fees and cut levies. In order to keep more foreigners from leaving, he introduced longer-term work visas and loosened restrictions on business ownership. There is hope that Chinese investors will start piling in. China, for its part, is developing the Omani port of Duqm, which could allow ships to bypass Jebel Ali.
Optimists point to opportunities resulting from the uae’s foreign adventures. The capture of ports in Yemen has opened new lines of commerce and might eventually benefit dp World, a port operator owned by Dubai. An alliance with General Khalifa Haftar, a Libyan warlord, could provide similar prospects on the Mediterranean. Emirati footholds in Somaliland could lead to more business in Ethiopia’s landlocked market. Quiet ties to the regime of Bashar al-Assad in Syria could lead to reconstruction contracts. But as the uae becomes more entangled in the region’s political fights, so does Dubai. The emirate long benefited from the region’s distress. Now it risks becoming a victim of it.