Rising infrastructure investment in Dubai points to future growth

With increasing road, air and maritime transport movements and the recent launch of a new five-year plan for the emirate’s transport industry, Dubai’s reputation as a major transport centre in the Middle East has continued to grow. In 2016 the emirate saw growth in aircraft, air passenger and air freight movement, as well as in the total number of Dubai Metro and bus system passengers. Economic contribution from the maritime shipping segment has also increased. The emirate’s success in these and other transport and logistics-related areas over the past decade can be attributed largely to the rapid implementation of ambitious development strategies. From 2014 to 2016 the Roads and Transport Authority (RTA) launched 29 initiatives under the government’s Smart City project, the goal of which is to turn Dubai into a global centre for the use of innovation and technology in urban planning. To ensure a continuation of this progress, the RTA is moving forward with a five-year transport strategy, running from 2017 to 2021. “Dubai’s strengths in terms of transport development and innovation are numerous,” Lorne Riley, head of corporate communications at Dubai Airports, told OBG. “As a regional and global hub the emirate is geographically well placed to access growing middle-class markets in India and China.”

Forging Ahead

Despite a generally favourable outlook, the transport sector faced a number of challenges near the end of 2016. The global economic slowdown, sluggish oil and gas price growth, the current strength of the US dollar on international currency markets and regional political tensions all either impacted or threatened to impact Dubai’s transport sector, as well as the economy at large. Plateauing global trade resulted in a slight decline in container shipping traffic at the emirate’s Jebel Ali Port in 2016, indicative of the economic situation across the region in recent years. According to Dubai’s Department of Economic Development (DED), overall economic growth slowed to 2.7% in 2016, down from expansion of around 4% in 2015, on the back of sluggish global trade and continued low oil prices, among other key factors. However, the emirate’s position as a regional transport centre may have helped give the sector the strength to manage economic headwinds. Speaking in July 2017 Sheikh Ahmed bin Saeed Al Maktoum, chairman and CEO at The Emirates Group, president of the Dubai Civil Aviation Authority, and chairman of the Economic Development Committee, announced a change in downward trends with official figures forecasting real economic growth to reach 3.1% in 2017 – it reached 3.2% – and increasing further to 3.6% by the end of 2018.

History

Dubai’s reputation as a centre for trans-shipment, built largely on its location between three continents, was expanded to include production and export of hydrocarbons. Consequently, from the late 1950s onward regional governments invested a considerable amount of money in transport infrastructure to better supply rising global demand for energy resources.

One of the earliest major developments in this vein was the dredging of Dubai Creek in the 1960s, which reflected the body of water’s status as a major industrial waterway. During the same period the state began construction of Port Rashid, which opened for container traffic in 1972. Seven years later in 1979 the state completed work at Jebel Ali, the largest port in the Middle East, and one of the busiest in the world.

Road & Rail

During the last few decades of the 20th century Dubai’s government began to invest heavily in other kinds of transport infrastructure. Prior to the 1970s the emirate’s road network was relatively underdeveloped. In 1973 the first road connecting Dubai and Abu Dhabi was completed, with each emirate building the road to their shared border. Alongside the opening of Jebel Ali, the state invested in several major road projects in the late 1970s to support the port’s growing status as a gateway to the Arabian Peninsula. The emirate’s rail segment was formed in the mid-1990s when Dubai’s Ports, Customs and Free Zone Corporation commissioned a feasibility study on the potential for rail links within the region.

Preparing For Flight

In 1937 a British Imperial Airways aircraft outfitted with pontoons landed in Dubai Creek, representing the first air travel in the region. In 1960 the city opened its first airport, Dubai International Airport (DXB), which was capable of handling planes up to the size of a DC-3. Through the 1970s and 1980s the government worked to expand the airport to serve incoming traffic related to the growing energy industry. By 2000 DXB had a capacity of 23m passengers in total. By 2008 this figure had increased to 60m, primarily as a result of the inauguration of Emirates Terminal 3, the largest passenger terminal in the world at the time. In 2010 Al Maktoum International Airport (DWC) was opened as well, first serving cargo flights only, then expanding to passenger three years later in 2013.

Recent Performance

Despite downturns in previous years in the emirate’s overall economy, the logistics and transport sectors have largely been insulated from slower growth, as a result of the government’s efforts to expand and upgrade infrastructure in preparation for Expo 2020, which will take place in the emirate from October of that year until early 2021.

In December 2017 Dubai released a budget that indicated state expenditure would rise from Dh47.3bn ($12.9bn) in 2017 to Dh56.6bn ($15.4bn) in 2018. However, revenue was set to increase 12.5% to Dh50.4bn ($13.7bn) from Dh44.8bn ($12.2bn) in 2017, creating a Dh6.2bn ($1.7bn) deficit. The 2018 budget included a nearly 47% rise in infrastructure spending to about Dh11.9bn ($3.3bn), almost half of which, Dh5bn ($1.4bn), is allocated for Expo 2020 projects. Dubai is expected to fund this work primarily through non-tax government fees, which made up 71% of revenues in the budget, while taxes accounted for 21%, oil revenues for 6% and government investments set to generate 2%. Value-added tax has been increased as of January 2018 by 5%, which will boost government revenues.

Top-Line Data

Dubai has long been the UAE’s primary hub for exports, imports and trans-shipment, particularly of non-hydrocarbons. In November 2017 the government reported non-oil foreign trade in the third quarter of the year had reached Dh344bn ($93.6bn), representing a 13% increase year on year (y-o-y) from Dh305bn ($83bn). Re-exports were the main contributor to the increase, rising 34% y-o-y. DP World data reported Dh1.3trn ($354m) non-oil trade in 2016.

The overall contribution of the transport and storage sector to the GDP at constant prices was Dh41.7bn ($13bn), or 11.4%, in 2015 and Dh43.6bn ($11.7bn), or 11.6%, in 2016, according to the Dubai Statistics Centre (DSC). In the first quarter of 2017, according to the latest data available as of early 2018, the sector contributed 12.3% to overall GDP, giving a figure of Dh12.1bn ($3.3bn). This represents a y-o-y increase from 2016 of 12.1%, or Dh11.6bn ($3.2bn). The industry is expected to see significant growth largely due to ongoing public expenditures in preparation for the coming world expo, as well as expanding trade with key markets in Asia and sub-Saharan Africa (see analysis).

A 2016 Frost & Sullivan report pointed out that maritime transport handled 90% of freight movement in the UAE and was expected to grow. According to DP World, in 2016 the UAE handled 14.7m twenty-foot equivalent units (TEUs), in the first half of 2017 this was up 4.3% y-o-y to 7.7m TEUs. Much of this passed through Jebel Ali Port, which is 10th largest in the world and handles 11,000 vessels per year. Alongside maritime, major investments in air and rail capacity, particularly in Dubai, have the potential to also create growth. “Airport expansion and the GCC rail network will strengthen alternate modes for freight and cargo transportation,” the report read. “Despite lower oil prices, manufacturing industries will support demand for domestic logistics services.”

The UAE market has achieved a certain level of sophistication that gives it a competitive edge over other countries in the region. Madhav Kurup, CEO of Hellmann Worldwide Logistics, told OBG, “In the UAE local companies are relatively comfortable outsourcing their logistics operations to third-party professionals. This is not the case in the more traditional economies of the GCC, where people are more reluctant to do so.”

Oversight & Planning

A considerable number of local and federal entities are involved in drawing up and implementing plans for logistics and transport development in Dubai. The emirate’s land transport sector is overseen in large part by the RTA. Formed by royal decree in 2005, the authority has a mandate to oversee Dubai’s taxis, buses, roads, parking, rail, automobile registration and licensing, and engineering works related to all types of land transport facilities. The authority is also responsible for maintaining traffic safety throughout Dubai and ensuring that it is well connected to its neighbouring emirates.

Other bodies currently involved in regulating the sector in Dubai include the Dubai Maritime City Authority (DMCA), the federal-level UAE General Civil Aviation Authority (GCAA) and the Federal Transport Authority, among others. Additionally, key drivers of development and regulatory updates throughout the sector include major state-owned entities such as port operator DP World, Emirates Airlines and Dubai Airports, the entity in control of operations at DXB and DWC.

Tech Focus

One key area of focus for the RTA as of mid-2017 is the development and implementation of new logistics and transport technology in the sector. Dubai prides itself on its ability to embrace and implement new innovations on a large scale. Until recently, however, this tendency had not yet come into play in the logistics industry. “The UAE needs to further its leadership position in logistics transformation by leveraging technology to enhance infrastructure and process efficiency,” Gopal R, global vice-president at Frost & Sullivan, told local media in March 2016. “We need to evolve into a supply chain nerve centre, beyond being just a logistics hub.”

Progress in this direction was made in September 2017 when the RTA’s five-year Revised Strategic Plan was approved. The plan includes the Smart Dubai Initiative, under which the emirate is working to collect public data and put it to productive use in government-led solutions, and the goal of a more integrated Dubai, which aims to strengthen cooperation between transport authorities and urban planners. Other objectives for this period include enhancing safety on Dubai’s roads, ensuring environmentally friendly policies and improving the transport sector’s financial sustainability. This latter goal involves strengthening the state’s partnership and collaboration with key private sector players. Adel Mardini, president and CEO of trip support company Jetex, told OBG, “The regulatory environment is very conducive to the functioning of the aviation sector. The GCAA wants the industry to grow and is committed to enacting rules to enable such growth.”

Long-Term Planning

Investing in innovative technologies on a large scale is a pillar of the five-year strategy. In particular, the RTA is focusing on the use of autonomous cars, ships and aircraft in the near future, as well as drones (see analysis).

In September 2017 the city had its first test flight for an autonomous taxi drone service. The unmanned craft was supplied by a German manufacturer, and flew 200m high during the flight. Additionally, under way as part of the plan is an effort to improve and streamline the transport-related regulatory framework for drones.

Road Work

Cars remain the preferred means of transport for most of the emirate’s population. Maintaining the road network and ensuring that it is capable of handling ongoing population growth is the RTA’s job. In April 2017 Sheikh Mohammed bin Rashid Al Maktoum, vice-president and prime minister of the UAE and ruler of Dubai, officially endorsed a major new road construction project developed by the authority. The Dh800m ($217.8m) initiative, which will see the development of new roads in and around Dubai’s heavily trafficked urban core, was launched in an effort to “cope with the upswing and demographic expansion of Dubai,” Mattar Al Tayer, director-general and chairman of the Board of Executive Directors at the RTA, told local media in April 2017. Work on the first phase of the project is expected to begin in 2018. It will link the Jumeirah neighbourhood to the Al Khail and Al Asayel roads, with particular attention paid to the busy junction of the Latifa bint Hamdan and Umm Al Sheef roads. The second phase of the project, which is expected to be completed in early 2019, will improve the link between Sheikh Zayed Road and Al Khail Road, with Jumeirah to the east and Dubailand to the west. RTA projections indicate that the project could reduce traffic congestion during evening rush hour by as much as 78%.

Furthermore, in February 2017 the RTA announced that it had received royal approval for a Dh500m ($136.1m) project to implement improvements along key roadways linking the emirate to its northern neighbour, Sharjah. The plan will expand and upgrade a 12-km stretch on Tripoli Road, thereby improving the link between the Sheikh Mohammed bin Zayed and Emirates routes. Tripoli Road runs parallel to Airport Road, which is a major link between central Dubai and DXB, and is also in the midst of a Dh490m ($133.4m) spate of improvements. “The awarding of [the] Tripoli Road project is part of a plan set by the RTA for accommodating projected growth in the number of passengers using DXB, which is expected to shoot to 92m passengers by 2020,” Al Tayer told local media at the announcement. “The traffic study showed the importance of finalising the improvement of Airport Road by 2017.”

Metro

Alongside development of road transport, the government is working to shift automobile traffic to rail. This effort began in 2005 when an international consortium of transport firms, in conjunction with the emirate’s leadership, formed Dubai Rapid Link and began planning a two-line urban/suburban light rail system for the city. Lead players in the consortium included Turkish construction giant Yapı Merkezi and Japanese conglomerates Mitsubishi Heavy Industry and Mitsubishi Corporation, the latter of which was the lead contractor. Work proceeded through 2007 and 2008, despite the international financial downturn, which put pressure on Dubai’s economy.

Red & Green Lines

In 2009 the Red Line opened for business. Running more than 52.1 km, primarily on a dedicated, raised track alongside Sheikh Zayed Road, the Red Line has 29 stops in total and links Jebel Ali in the south to Al Rashidiya in the north, with stops at DXB. Two years later in 2011 the Green Line was completed, and it now traces a route that curves in and around the northern half of Dubai Creek. Covering almost 23 km with 20 stations, the Green Line intersects with the Red Line at two points, Khalid bin Al Waleed, near BurJuman in the south, and Union Square, north of Dubai Creek.

In mid-2016 the RTA announced that it had awarded a contract for a major expansion of the Red Line. The initiative, dubbed Route 2020, will add 15 km of new track connecting the Dubai Metro to the Expo 2020 site. The project will cost around Dh10.6bn ($2.9bn), and was awarded to Expolink; a consortium of international companies, including French firms Alstom and Thales Group, Spanish company Acciona and Turkey’s Gulermack. The extension is scheduled to open five months before the expo begins and will include seven new stations. In order to service the extension, the authority plans to purchase 15 new trains, as well as 35 additional trains to upgrade its existing fleet.

Tram

Another key piece of Dubai’s land transport system is the Dubai Tram, a 10.6-km, ground-level line that began operating in 2014. The tramline runs in a loop around the Marina and Jumeirah Beach Residence areas, linking up with both Dubai Metro and Palm Monorail, which runs across the Palm Jumeirah, the reclaimed land development, from its gateway to the outer tip, near the Palm Atlantis Hotel. The tram, like Dubai Metro, is owned and operated by the government, while Palm Monorail is privately operated.

The current Dubai Tram network is officially only in the first phase of a larger project, which is now moving forward. “We have already appointed engineering consultants to work on phase two of Dubai Tram,” Abdul Mohsin Younus, CEO of the RTA’s Rail Agency, told local media in March 2017. The study was expected to end in 2017. Upon completion of the feasibility study, further plans will be drawn up. Earlier plans for phase two of the tramway suggested a 5-km expansion, which would add five to six new stations to the current 11.

Etihad Rail

In addition to the commuter metro and tram systems, Dubai constitutes a key link in the planned regional GCC network, Etihad Rail, a $200bn project that will link all six countries in the region. The completion date for the entire project, which has been under discussion since the early 2000s and under construction since around 2010, was pushed back to 2021 from 2018 due to declining oil prices from mid-2014. Nonetheless, work has progressed considerably across the region in recent years, despite economic pressures.

In the UAE Abu Dhabi-based firm Etihad Rail has led work on the project. The UAE’s portion of the project has developed relatively quickly compared to many of its neighbouring countries. Phase one of Etihad Rail’s three-phase development plan was completed in 2015, with commercial freight operations beginning at the end of that year. The 264-km line runs from Shah and Habshan to Ruwais. Phase two of the project, which will stretch for 628 km and link Abu Dhabi to Saudi Arabia at Ghweifat and Oman at Al Ain, was suspended by Etihad Rail in January 2016 until further notice. Completion of the national network is set at the new end-date of 2021.

Wave Of The Future

Dubai also recently took the lead on a new transport technology, when DP World invested $50m in US-based company Hyperloop One. The firm is working to develop a network of closed, low-pressure tubes through which passenger and cargo pods will move at very high speed. Dubai has committed to hosting what will likely be one of the world’s first functional hyperloop systems. The RTA and other government entities are working with Hyperloop One to help plan the network (see analysis).

AIR: The city’s air traffic has grown rapidly in recent years. DXB, both the emirate’s and the UAE’s largest airport, reported 374,361 flight movements in the first 11 months of 2017, latest data available. This was down 2.4% from 383,589 y-o-y from 2016. However, passenger traffic was up 5.8%, reaching 80.4m, in the first 11 months of 2017, from 75.9m y-o-y. DXB has one of the fastest passenger growth rates worldwide.

For international traffic, the airport retained its status as the world’s busiest for the third year in a row in 2016 with 83.6m passengers, a number that is expected to reach 89m, when the 2017 numbers are tallied. DXB “is closing the gap on Atlanta and Beijing for the top spot in overall traffic,” Paul Griffiths, CEO of Dubai Airports, told local media in January 2017. Atlanta, US, is currently in first with 100m passengers.

A principal factor in DXB’s success in recent years has been the emergence of India and China as major sources of visitors. Dubai is well positioned to serve as a hub for itineraries that begin in Asia and end in Europe or North America, and vice versa. In 2016 India was DXB’s single largest destination country, due in part to the launch of new flights between the airport and the sub-continent via Indian carriers SpiceJet, Jet Airways and Air India. Some 11.44m passengers en route to India stopped over in Dubai over the course of the year, up 10.1% from 2015. Other popular destinations from Dubai International in 2016 included Saudi Arabia, with just over 6m travellers, and the UK, also with a little more than 6m travellers. The top three destination cities were London, Doha and Mumbai. DXB has also recorded a rise in passengers from Eastern Europe, many of whom have benefitted considerably from international currency shifts in recent years.

Keeping Up

Central to DXB’s expansion in recent years has been the government’s ability to keep up with rapidly rising demand from airlines and passengers alike. Under the Dubai Airports Strategic Plan 2020, the operator plans to invest some $7.8bn to boost DXB’s capacity to 90m passengers by the end of 2018. However, even this target would likely leave the airport constrained in terms of landing slots.

Consequently, a significant number of flights will eventually be shifted to DWC, which is currently in the midst of a major expansion as part of the Dubai South development project. In mid-2017 DWC reported just 550,000 passenger movements in the first half of the year, marking an increase of 35% y-o-y. However, the authorities have a long-term goal of an over 220m-passenger capacity, making it the largest in the world. The first phase includes two satellite buildings and will accommodate 120m passengers. In late 2016 the government of Dubai put planned expenditure on the airport and an attached logistics hub at $35.7bn over the coming years (see analysis). “Our capacity for growth and service quality improvements are vital to preparing for the coming two decades,” Dubai Airport’s Riley, told OBG. “By 2034 the data indicate that there will be an additional 1.7bn new passenger journeys from Asia alone. We are preparing for this growth today.”

Carriers

Central to Dubai’s rapid growth as a major air hub over the past decade and key to the emirate’s future are its two home-grown airlines, Emirates and flydubai. Both firms are owned by the government and headquartered at DXB. Since launching with two leased aircraft in 1985 Emirates has become one of the world’s largest carriers. Between 2009 and March 2016 Emirates doubled both the number of passengers it carried annually and its annual profits. During FY 2015/16 the carrier moved almost 52m passengers, up from 48m in FY 2014/15 and 44.5m in FY 2013/14. In FY 2016/17, however, Emirates reported challenging economic headwinds, in large part due to fluctuations in international currency markets. In the annual report for that year the company reported that while passenger numbers grew from 51.9m to 56.1m, operating profit dropped by 70% to Dh2.4bn ($653.3m). The airline has more than 230 aircraft and flies more than 1500 flights from Dubai per week, serving six continents.

The low-cost carrier flydubai operates out of DXB’s Terminal 2. Like Emirates, flydubai has successfully navigated a number of economic hurdles in recent years. In 2016 the firm carried some 10.4m passengers, up 14.4% on the previous year, and reported profits of Dh31.6m ($8.6m) on total revenues of Dh5bn ($1.4bn).

Maritime

Dubai has long been a centre of maritime activity in the region and a key destination for ships from around the world. This long-standing reputation has been expanded upon under the DMCA, which is implementing a long-term strategic development plan for the sector. Known as Maritime Vision 2030, the plan is subdivided into shorter, medium-term plans, the current iteration of which is the 2012-17 Dubai Maritime Sector Strategy (MSS). Under the MSS the DMCA has set a handful of growth targets and regulatory upgrades and improvements. Key to the strategy has been a focus on implementing technology at all levels of the maritime industry, which is no small feat for a sector that has long been driven by analogue mechanisms and human labour. Under the Dubai Maritime Cluster Office (DMCO), which was formed in mid-2016 to oversee implementation of the MSS, the government has begun to invest in maritime research and development. In October 2017 it launched an initiative known as “Innovation Quay”, which aims to tap into innovative technology and ideas and strengthen the maritime industry’s international competitiveness. Another key goal of the MSS involves the reworking of UAE Maritime Law, which dates to 1981 (see Maritime chapter).

Outlook

Dubai, with its long-standing reputation as a key economic centre in the region, is well positioned to outperform most of its neighbours in the coming years. In December 2017 the government released budget figures for 2018, which included a 19.5% increase in state expenditure over the previous year, much of it targeting transport-related projects. The jump in government-led investment, driven in large part by preparation for Expo 2020, is breaking ground on major expansion projects of roadways, airports and metro lines, as well as driving innovations in logistics and in new technologies related to the sector. The total investment for the coming expo is estimated to be Dh25bn ($6.8bn), while the expenditure for the metro expansion project is projected at approximately Dh10.6 ($2.9bn).

“The critical point is the focus and increase on infrastructure spending,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, told local media in December 2016. “We also expect to see an acceleration in investments by government-related entities, including on the utility and transport fronts.”

A further example of the city’s ambition is the Dubai South development, one of the largest projects under way. The eight-district, 145-km site will include over 15,000 residences, tree-lined boulevards and a considerable number of transport-related initiatives, requiring major expansions of the emirate’s air, road and port infrastructure. “The government has played and will continue to play a key role in facilitating the continued development of the transport sector,” Nawfal Al Jourani, chief officer and director of communications at the DMCO, told OBG. “This leadership has turned the sector into a major economic contributor in the emirate. Transport’s importance to the local and regional economy will only continue to grow in the coming years.”