Dubai’s diversification model has right mix to re-accelerate growth, report

Job Creation, Funding and Execution Are the Key Drivers for Success

According to a new medium-term outlook BofA Merrill Lynch Global Research Report ‘GCC 2020: Time to Shift Gears’, Dubai’s superior infrastructure investment and robust population growth have established solid foundations for its economic trajectory. The report suggests that the emirate is set on course to outperform growth projections driven by job creation, improved funding and solid execution of its diversification strategy.

Stephen Pettyfer, head of MENA Research at BofA Merrill Lynch Global Research said, “Dubai has the right mix to re-accelerate growth. Given that there is a certain degree of duplication, competition or lack of distinct differentiation among various projects in the GCC, Dubai’s model of diversification stands out, having already achieved a critical mass, scale and a degree of competitiveness.”

Jean-Michel Saliba, MENA economist at BofA Merrill Lynch Global Research added, “Dubai’s status as a regional financial, transport and logistics hub places it in a position to benefit from growth in neighbouring countries in a self-sustaining fashion.”

According to the report, Dubai’s vision has relied on an historical factor of path dependence, as well as an element of risk-taking in enacting forward-looking policies. It used its oil revenues early on to help fund the construction of Jebel Ali Port Complex to supplement Port Rashid, and its diversification efforts predate most other GCC country initiatives.

The report suggests that while the economy slowly recovers, Dubai is one of the best GCC cities in which to develop business. Its relatively small population of 2.1 million people and the ambitious objectives of the major Dubai-based corporates mean job creation should accelerate and support the real estate market.

Although the current working population in Dubai stands at 1.3 million, the emirate aims to create 950,000 new jobs by 2020, with retail, tourism and related sectors fueling growth. This is an ambitious but realistic goal which would see the population increase on average by 4 percent, which will, in turn, drive further economic growth by creating:

• Incremental housing demand of 317,000 units which represents 94 percent of current stock.
• Retail sales increase of 5 percent per annum.
• More than 15 million tourists, up from a total of 8 million visitors in 2011.
• Air traffic levels to increase by 7.2 percent CAGR.
• A 35 percent increase in hotel occupancy.
• An additional 18,868 hotel rooms.

Pettyfer concluded by stating, “Dubai’s diversification model has proved successful in developing both infrastructure assets faster than other GCC countries, and a non-oil-based economy more geared towards trade and tourism. That gives the emirate a key regional competitive advantage in attracting talent and boosting non-hydrocarbon-related activities.”