Dubai diversifies economy to face challenges

Dubai’s economy is the result of a decades-long pursuit of diversification which has brought evolution into a variety of offerings, featuring services, finance, trade and global connectivity that has made the emirate a cross-continental meeting point for commerce. Dubai has felt the impact of the fall in crude prices since mid-2014, but it now has sectors that can thrive regardless of oil market conditions.

Since the global financial crisis the emirate’s economic narrative has been framed by its recovery efforts. Despite little direct exposure to the toxic assets that triggered the meltdown, Dubai experienced external shocks as the global economy suffered. A tightening of standards in credit markets and a drop in revenues due to the downturn led to balance sheet difficulties at several of the emirate’s key state-owned companies.

Looking Forward 

However, Dubai has avoided defaults and managed its debt load, shifting the focus from concerns about the past towards plans for the future. As legacy debts are repaid or restructured new economic potential is emerging, helping to underpin fresh analyses and projections. Dubai will host World Expo 2020, for example, and preparation for this six-month-long series of events is a story analysts are now focused on.

The emirate is also positioning itself as the centre of the Islamic economy, such as financial services and halal food. Abdulla Mohammed Al Awar, CEO of Dubai Islamic Economy Development Centre, told OBG, “The 2015 State of the Global Islamic Economy report reiterates our commitment to nurture a knowledge-based Islamic economy in the emirate and the UAE as part of our aim to develop Dubai as the capital of the Islamic economy.”

In addition, Dubai is a major trading partner with Iran, across the Gulf, and the reintegration of that country into the world economy is creating significant new opportunities (see analysis).

Global Connections 

Dubai’s proximity to Iran is an example of how its economy is strategically located to take advantage of trade between East and West. The emirate is midway between Europe and Asia, and a natural stopping-off point on the journey in either direction. It is also tightly connected to global developments, with external factors such as oil prices and international political issues key contributors to the economic outlook. Real estate prices in the emirate are also exposed to external factors and global currency movements impact trade, as the UAE dirham is pegged to the US dollar. This affects spending power for the many visitors to the emirate.

Despite those risks, properties in Dubai have been a favourite investment for foreigners from the region and beyond. In the past the emirate’s government has even been forced to implement measures to dampen speculative behaviour and build confidence in the real estate market, which it did in 2014 through increased transaction fees and caps on mortgage financing. Government policies work to tie economic growth to a local vision and moderate external factors. For decades, the goal of diversification has shaped the economy. With the foundation for this largely accomplished, policy goals are shifting to next-step strategies, including how Dubai can gain efficiencies, add manufacturing muscle and play a larger role in the global knowledge economy.

Restructuring

In February 2016 the government announced that it would be restructuring several ministries, as well as creating new ones (see Profile chapter). In the same month, Abu Dhabi-based daily The National reported that during the World Government Summit Sheikh Mohammed bin Rashid Al Maktoum, the UAE’s vice-president and prime minister, and ruler of Dubai, said the new positions will include a minister of state for happiness, minister of state for tolerance and a minister of state for youth for the new UAE Youth National Council. The Ministry of Cabinet Affairs and the Future has been tasked with preparing for a post-oil economy.

In addition to the restructuring of government agencies and ministries, the overhaul of the Ministry of Labour as the Ministry of Human Resources and Emiratisation will impact the workforce and will incorporate Tanmia, the national employment authority. A new Council of Scientists will support the UAE’s technology drive by reviewing national policies related to tech and innovation.

Scope 

Dubai is one of seven emirates that comprise the UAE. Policy is shaped both at the federal and emirate level. The federal authorities are responsible for foreign affairs, security, health care and education. Through the Central Bank of the UAE (CBU) and other financial regulators, the country manages its currency, sets monetary policy and oversees financial sectors. One exception is the Dubai International Financial Centre (DIFC), a financial services free zone that has its own legal environment and regulatory authority. Everything else is left to the individual emirates, including ownership of natural resources and economic policy. Therefore, the UAE has a budget and fiscal policy, and Dubai has one as well.

Federal oversight of the dirham is not as active a task as in many countries because of the policy of pegging its value to the US dollar, minimising the need for policy decisions on a day-to-day basis. Benchmark interest rates track those in the US.

The CBU has not traditionally been viewed as a lender of last resort, as central banks are often perceived in other countries. In the past, banks that needed rescuing have been helped at the emirate level, as has been the case in Dubai.

However, when many institutions in Dubai were facing debt-related troubles after the global financial crisis, the federal government said it would back deposits at any UAE bank, despite the absence of a formal deposit insurance programme, which implied that some measure of federal aid would be available to Dubai when needed. After the financial crisis, Dubai also sought and received financial support from Abu Dhabi to help manage its debt load.

The rise of the dollar against several key currencies has taken the dirham higher as well, creating a challenge for some of Dubai’s major sources of foreign investment. In the fourth quarter of 2015, the currency continued to rise, with the yuan depreciating 3% against the dirham, for example, and the British pound 5.1%, according to the CBU.

Regulating Bodies

Dubai’s Department of Economic Development (DED) and the Executive Council of Dubai are leading policy-oriented agencies. The Investment Corporation of Dubai is the government’s principle investment arm and manages its commercial interests, which are diversified across sectors and include major banks, Emirates airline, developers such as Emaar Properties, free zones and other ventures. Both foreign and domestic investors can also find services, support and licensing authorities across a range of other departments.

Ahmed bin Sulayem, executive chairman of the Dubai Multi Commodities Centre, told OBG, “Dubai has executed a good diversification strategy, with almost every sector of the economy you can think of already being developed. The most important factor in that sense is that the emirate is not shy to jump on big initiatives, which makes it keep pushing forward and getting out of its comfort zone.”

Among the emirates, Dubai and Abu Dhabi are the largest economies. In global comparisons Dubai is often ranked as a part of the UAE. For example, in the World Bank’s Doing Business index neither Dubai, nor any other emirate, is listed by itself, rather the union as a whole is ranked. In the 2016 edition the UAE came 31st out of 189 countries.

GDP 

Dubai’s GDP stood at Dh366.6bn ($99.8bn) at the end of 2015, according to a preliminary estimate from the Dubai Statistics Centre (DSC), up from Dh352.1bn ($95.8bn) in 2014.

By sector, the biggest growth came in restaurants and hotels, which expanded by 8%. It was followed by electricity, gas and water at 5.7%, and transport, storage and communication at 5%. All 14 categories experienced growth of at least 1%, except for construction, which grew by 0.4%.

For the UAE as a whole, GDP expansion in 2014 came in at 4.6%, according to the CBU. Transport and communications grew by 8.6%, and all sectors showed growth except real estate and business services, which saw a drop of 4.1%. In 2014 inflation in the UAE averaged 2.3%, with a general trend of small month-to-month increases. The general consumer price index rose from 1.5% in January to 3.1% in October, then slowed in November and December, according to the CBU’s 2014 report. Housing remains the main driver of inflation, as it counts for 39% of the basket of consumer goods and services that comprise the index. Other notable segments include education, at 4% of the basket, and miscellaneous goods and services, at 5.3%.

Diversified 

Dubai’s diversification policy, in place for decades, came as a result of the anticipated decline in hydrocarbons revenue as the resource was depleted. Oil and gas contributed 55% of GDP in 1981, but by 2013 this had fallen to below 1%, according to a study by accountancy firm Deloitte and the Dubai Economic Council. GDP in the emirate saw steady growth from 1995 to 2003, when the economy expanded by 17%, as well as a further 12% spike in growth during the 2003-08 period.

Big Hitters

The economy is now centred on five sectors that contribute at least 10% each to total GDP. In 2014 the largest single contributor, at 29.1% of the total economy, was wholesale, retail trade and repair services, according to the DSC. Most visible in this sector are Dubai’s malls, many of which have developed into tourist attractions in their own right. The four other main sectors are real estate and business services (15%); transport, storage and communications (14.7%); financial services (11.7%); and manufacturing (11.3%). Tourism is another major element of Dubai’s offering, but is counted across several sectors in the DSC’s reporting categories, such as wholesale and retail trade, and restaurants and hotels, which contributed 5.4% to the total.

In each of the five main economic sectors, the emirate has identified and sought to capitalise on its competitive strengths. Transport is a natural fit due to geographical positioning. Trade flourishes in part because Dubai has for decades been open to international commerce and has developed strong relationships. In the modern age contributing factors include transport hubs such as Jebel Ali Port, the largest port in the Middle East, and Dubai International Airport (DXB), the world’s busiest for international travel. Al Maktoum International Airport is undergoing an expansion that will make it even larger than DXB. The development of Dubai’s aviation sector has also been driven by the growth of Emirates, which Bloomberg declared the world’s biggest long-haul airline in December 2015.

In financial services Dubai is again capitalising on its own potential as a regional hub and the opening of the DIFC in 2004. It now offers a wide range of services and has attracted several of the world’s largest banks and insurers, among others, many of which have established regional headquarters there.

Rather than going to relevant federal regulators for licensing and supervision, the DIFC offers a legal system based on English common law and its own regulator, the Dubai Financial Services Authority.

“Dubai has been one of the most important growing trading centres in financial and commodity products over the last 10 years, but the UAE is still young and a lot more needs to be done. The gap will eventually be bridged with other hubs for offshore trading, as infrastructure and facilities are being developed at a fast pace,” Gaurang Desai, CEO at financial and commodity derivatives exchange DGCX, told OBG.

Jebel Ali Free Zone is situated next to the port and hosts more than 7000 companies. Sultan Ahmed Bin Sulayem, chairman and CEO of DP World, told OBG that Jebel Ali Free Zone can provide a global model for how a free zone can support economic growth and foreign investment. It offers multi-modal connectivity with sea, road and, soon, rail transport.

Broad Offering 

The emirate’s 21 free zones cater to a wide variety of services, including aviation, IT and tech services, commodity markets, film and media, academic services, environmental sustainability, outsourcing, biotech, automotive, floriculture, health care, financial services, logistics and maritime industries. “Dubai as a city has the highest number of free zones per capita, enabling foreign companies to find among many options those that better cater to them,” Fahad Al Gergawi, CEO of Dubai Investment Development Agency, told OBG.

Dubai Airport Freezone Authority (DAFZA) was established in 1996 for the purpose of import and export. It is the sole governing body that issues trade licences and visas for international firms seeking to conduct business in the emirate’s free zones. It also assists private players that are seeking to incorporate in Dubai or obtain a business licence. According to Nasser Al Madani, assistant director-general at DAFZA, this type of zone is a great asset for any business setting up in the emirate. “The many free zones are competing for the best and this helps improve practices, products and services,” he told OBG. “At the higher level, they all complement each other and provide more choice and different models and environments for customers to choose from.”

Meanwhile, the Dubai Design District development, which is overseen by strategic business enabler TECOM Group, is a free zone offering leasable space and services for designers in creative industries, such as fashion and gastronomy. It offers retail spaces for tenants’ products and ateliers, as well as restaurant space and land for developers looking to create design-led hotels and offer hospitality services. It also includes an academic component to ensure graduates can gain relevant experience.

Dubai Industrial City, meanwhile, is being replaced by Dubai Wholesale City (DWC) and Dubai Industrial Park, creating a global platform to connect manufacturers, buyers and sellers, with 14 sectors represented. “The DWC initiative will increase demand for manufacturing facilities close to trade facilities,” Abdulla Khalifa Bel Houl, CEO of DWC, told OBG.

For foreign investors, the relevant government authorities can vary depending on whether an entity is operating in the domestic economy or in one of Dubai’s free zones, which have been a central element of its economic development strategy. Importing and exporting through them is tax free. These zones host about 19,000 companies and account for around a third of GDP, according to Deloitte’s study.

Real Estate

Growth in Dubai’s real estate sector is largely due to success in other areas of the economy. Dubai’s global connectivity, popularity with tourists and inward foreign investment in commercial ventures have spurred demand for real estate.

Strength in real estate is partly a function of Dubai’s growing appeal as a safe haven during times of regional instability. Real estate prices surged in 2013 and the first half of 2014, then cooled in the latter half of 2014, tracking lower oil prices, according to the IMF’s 2015 Article IV consultation for the UAE. By March 2015 residential property prices had slowed and then declined on a 12-month basis. By September 2015 residential prices were 3.1% lower than in September 2014, according to a report on Dubai from Cluttons, a global property consulting firm. In January 2016 news portal Arabian Business cited a Deloitte report that stated residential property prices had fallen by an average of 10% in 2015 and that a further dip was expected in 2016. However, the decline is likely to be less steep than it had been over the past year, and in many ways is a reflection of a transition to a more mature market.

Government Action 

In addition to market forces, which include rising supply, several moves implemented by the government of Dubai have helped moderate prices for residences, according to the IMF. These include an increase in transaction fees payable to the government, caps on mortgage financing limits and moves to reduce the proportion of speculators to end users in the market.

While the IMF had expected further price declines in 2015, based on continued supply growth, prices not only fell in 2015, but the Dubai Land Department’s Real Estate Regulatory Authority’s 2016 rental calculator, which offers suggested price ranges, actually advised lower prices for the year. A January 2016 report from Dubai-based Gulf News showed the leasing rate for a one-bedroom flat had dropped by between 2.3% and 14%. While rents in certain areas remained unchanged, such as Jumeirah Lake Towers at Dh75,000-95,000 ($20,400-25,900) per year, rents in International City fell from a range of Dh42,000-Dh55,000 ($11,400-15,000) in 2015 to Dh38,000-Dh45,000 ($10,300-12,200). Rents have risen in only a handful of communities, including Discovery Gardens, Business Bay and Downtown Dubai.

For the residential market, the reintegration of Iran into the global economy and the unfreezing of Iranian financial assets should become a new source of demand, according to Cluttons. Given the international and investment-oriented elements of the real estate market, it is particularly important that supply be attuned to what residents want.

Real estate and tourism are sectors in which currency fluctuations are playing a key role, according to the CBU. “The fall in the number of Russian tourists had a serious impact on hotel and retail trade activities in Abu Dhabi and Dubai,” its 2014 report said. The CBU expects continued depreciation of the euro against the dollar to discourage tourists from eurozone countries and impact the competitiveness of the UAE’s non-energy exports. In January 2016 The National reported that India had become the largest source market for tourism, with 1.6m overnight visitors in 2015, according to government figures.

In manufacturing – another of the five key sectors – the 2030 Dubai Industrial Strategy was approved by Sheikh Mohammed in June 2016. The strategy will oversee 75 initiatives in an effort to generate an extra $44bn for the emirate’s economy, and is based on raising the sector’s output; improving innovation; making Dubai a preferred manufacturing platform for international firms; promoting energy-efficient manufacturing; and making the city a hub for global Islamic products (see Industry chapter).

Labour Market 

The labour market in Dubai is mixed, with Emirati citizens comprising the majority of employees in public sector positions or the heads of large conglomerates and corporations. Below boardroom level, however, the private sector is largely reliant on foreign workers, with Emiratis accounting for only 0.5%, according to a November 2014 report by The National. The same dynamics are seen across the UAE and the GCC. “The UAE is ranked first country in the world in terms of foreign talent attraction,” Ali Matar, head of Middle East and North Africa at LinkedIn, told OBG. “The main sectors recruiting foreign professionals are IT, services, telecoms and engineering. The main functions are related to sales and marketing.”

Government strategies to encourage nationals to work in the private sector are known as Emiratisation policies, and they include educational efforts to boost the employability of locals at the management level and financing opportunities to encourage them to become entrepreneurs. Emiratisation also happens via encouraging and incentivising private sector companies to do more to attract Emirati workers. However, some suggest that changes must go beyond the labour market. Fadi Hatamleh, CEO of telecoms firm Fastlink Group, told OBG, “The UAE is unique in that there are nine foreigners for every local citizen. So how do we apply Emiratisation in this context? Building human capital would bring more value, but education-wise more needs to be done.”

Necessary Changes 

The IMF considers encouraging more working citizens to shift from government jobs to the private sector a key objective for further economic progress. In a study across the GCC’s six member countries, it found that government policies could also be used as a disincentive to rely on public sector jobs. “Measures could include reorienting public spending, strengthening the role of private sector competition, developing backward and forward linkages across sectors with a comparative advantage, and implementing labour market reforms,” said the December 2014 IMF report “Economic Diversification in the GCC: Past, Present, and Future”. However, conditions in the labour market are also shaped by private employers’ goals, the report said. “For firms, producing goods and services to meet the consumption and investment needs of the domestic market while relying on low-wage foreign labour is a more reliable income source than attempting to enter riskier export markets.”

Dubai has a large number of small and medium-sized enterprises (SMEs) engaged in the importing and services segments. The emirate’s government provides the SME sector with incubator services for promising entrepreneurs, encourages the adoption of global best practices for operations and strategy, and promotes access to finance.

According to Alexandar Williams, director of business development at the DED, the goal is to help them move on from a business model that is focused on cost control and adopt new ones based on innovation. “Whoever hires the cheapest labour tends to survive in the short term,” he told OBG. “We are now seeing SMEs starting to understand that to grow you need to have systems and you need to do it in an organised way. They are looking for consulting and advisory services to help them develop strategies.”

FDI: Foreign direct investment (FDI) has been a key element of Dubai’s development. According to Dubai Investment Development Agency, the emirate attracted Dh28.6bn ($7.8bn) in greenfield FDI in 2015. The top sector by capital invested was electrical power generation, transmission and distribution, followed by management and representative offices, accommodation and food services, construction, and logistics and transportation. These five sectors attracted 65% of the total. Saudi Arabia, the US and the UK were the top sources of FDI.

For foreign investors, there are several stipulations to bear in mind, primary among them that foreign ownership of any onshore entity in the UAE is capped at 49%. Investment in free zones is not subject to local ownership requirements. “A business that needs to operate in the Dubai mainland should not be established in a free zone,” said John Martin St. Valery, founding partner of Links Group, which partners, protects and enables companies to maintain ownership and control in the region.

The foreign-local ownership split was reiterated in a new Commercial Companies Law, which came into force in July 2015. This surprised some foreign investment professionals, as expectations for the long-awaited law had included a relaxation of those standards to allow foreigners to hold a larger share.

In June 2016 the UAE Cabinet approved a proposal to extend the period for existing companies in the UAE to comply with the Commercial Companies Law by one year, to June 30, 2017. Companies established before the issuance of the new law were originally given until June 30, 2016, to amend their memoranda of association and articles of association in compliance with the provisions of this law. Companies will be fined Dh2000 ($544) per day of delay calculated from the day following the expiry date of the applicable period. Sultan bin Saeed Al Mansouri, the minister of economy, said that the new deadline is in line with government efforts to facilitate business, enhance the role of the private sector and achieve a smooth transition to the new Companies Act.

However, a change in favour of foreign investors may still come, at least in some sectors. The National reported in spring 2015 that a foreign investment law in the planning stages could allow full foreign ownership of ventures in some sectors of the domestic economy, and that the law would be aimed at promoting innovation and technology transfer projects in industry. Other sectors that could see a lifted cap include education and health care, areas in which demand for foreign investment is more pronounced. Investors can also look forward to opportunities in 2016 as the Dh46.1bn ($12.5bn) budget for the year makes job creation and Emiratisation key priorities.

Legal Changes 

With lower oil prices a challenge for the UAE and the wider region, expectations are that attracting FDI will become a greater priority as governments look to new sources of funding to maintain their economic development plans.

Another change that has already been implemented in Dubai is a new law legalising public-private partnerships (PPPs) in areas beyond utilities. The government has already passed this law, which will provide foreign investors the opportunity for deeper involvement in projects with the government or government-related entities (see analysis).

In terms of openness to foreigners, the UAE’s trade rules have fewer restrictions than those that apply to direct investment. A Customs duty of 5% is levied on the basis of cost, insurance and freight at ports of entry, with some exemptions. It does not apply to companies in free zones. There are no other taxes on imports. Importing goods is a relatively smooth process, requiring five documents, seven days and $625, according to Dubai Chamber. Exporting involves three documents, seven days and $665.

According to government figures reported by The Khaleej Times in March 2016, imports accounted for most of Dubai’s direct foreign trade in 2015 at Dh796bn ($216.7bn), followed by exports (Dh132bn, $35.9bn) and re-exports (Dh355bn, $96.6bn). Total non-oil foreign trade hit Dh1.28trn ($348.4bn). China remained the emirate’s largest trading partner at Dh176bn ($47.9bn), followed by India at Dh96bn ($26.1bn). However, when factoring in both imports and exports India led two-way trade. The US came third (Dh82bn, $22.3bn), followed by Saudi Arabia (Dh57bn, $15.5bn) and Germany (Dh46bn, $12.5bn).

Lastly, the long-awaited Federal Law on Bankruptcy was approved by the UAE cabinet on September 4, 2016. The new legislation enumerates four ways insolvent firms can avoid bankruptcy, and has been welcomed by industry bodies, who have been calling for such a law for a number of years.

FOREX Factor

Currency fluctuations are a concern in India and China, with the dollar taking the dirham higher against the rupee and yuan. By February 2016 the rupee had dropped to an all-time low of INR18.70 against the dirham. India’s government had long been attempting to defend its currency, in part by limiting and discouraging outward investment. As a result, the CBU signed a currency swap deal with the Reserve Bank of India to further strengthen the already close ties between the economies. The UAE traditionally runs a significant current account surplus, but this narrowed as lower oil prices impacted Abu Dhabi’s petroleum exports. Despite the drop, the surplus still measured 13.7% of GDP in 2014, according to the IMF. “Gross inflows into the banking sector and foreign direct investment remained steady, reflecting the UAE’s perceived safe-haven status and its competitive business environment,” its 2015 Article IV report stated.

Greater Offerings 

Additional capital markets products in Dubai are emerging to help mitigate risk. In the private sector, banks are increasingly offering banking services in relevant currencies. At the Dubai Gold and Commodities Exchange, one of two derivatives trading platforms in the emirate, the most frequently traded derivatives contracts are for rupee futures, which account for 85-90% of volume.

For traders using yuan, the DIFC is looking into the development of offshore trading in the currency, according to Deloitte. This would benefit not only trade between the UAE and China, but also facilitate Chinese investment in Africa. It is estimated that 60% of Chinese trade with Africa and Europe is routed through Dubai. That means China-Africa deals sometimes involve exchanges of yuan, dollar and a local African currency. Establishing Dubai as a hub for yuan trading could eliminate the dollar from transactions and remove one element of currency risk. Bin Sulayem told OBG, “There are historical strong commercial relations between Dubai and Africa. From the UAE’s government commitment with Egypt to that of private companies such as Emirates and DP World with other markets, cross investment between the regions will continue to grow.”

There is also a demand for more financial services in a greater variety of currencies. Sultan bin Kharsham, managing director of the Wall Street Exchange Centre, told OBG, “Money remittances are an important segment in the financial services sector in Dubai due to the large expatriate population. However, there are no banking services for citizens from such countries as Somalia or Afghanistan, as banks do not want to send money there. This is an important concern for some citizens, and the World Bank is trying to find solutions.”

Budget 

Dubai’s 2016 budget calls for expenditure of Dh46.1bn ($12.5bn), up 12% on 2015, and forecasts an operating surplus of Dh3.4bn ($925.5m). Fees and fines are expected to account for 74% of revenue, followed by taxes at 19%. Wages are budgeted to account for 36% of spending. The majority of expenditure is slated for infrastructure at Dh16.6bn ($4.5bn), a rise of Dh1.8bn ($490m) over 2015.

At the federal level, the IMF forecast that the UAE budget would turn from surplus to deficit in 2015, as the country as a whole faces greater exposure to oil prices than Dubai as an emirate. The UAE reined in the deficit at an estimated 2.1% of GDP for 2015. According to The National, the deficit ran at Dh21bn ($5.7bn) for the first half of 2015, well below the Dh124bn ($33.8bn) projection. Total UAE revenue fell 5% from Dh582.9bn ($158.7bn) in 2013 to Dh553.9bn ($150.8bn) in 2014, according to the CBU. The fiscal surplus overall dropped from 10.4% of GDP in 2013 to 5% in 2014, the CBU reported.

Lower oil revenues have increased interest in new taxes across the region. The members of the GCC have agreed on implementing a value-added tax that would be similar across the region (see analysis). Other revenue-raising changes are either under consideration or, in the case of fuel subsidies in the UAE, already being implemented. In mid-2015 the federal government slashed petrol subsidies, leading to a 24% rise in prices at pumps in August 2015 to Dh2.14 ($0.58) for a litre of 95-octane fuel. The move is expected to save the UAE government $7bn, as per Standard Chartered Bank estimates. Fuel prices were last raised in 2010, according to the IMF, which recommended eliminating subsidies to encourage more efficient consumption, for both utilities and consumer fuels. The 2010 increase made UAE fuel prices the highest in the GCC. Under the new policy a specially appointed committee will review fuel prices every month to ensure gradual change.

Subsequent price reviews have seen what Emiratis pay at the pump fall, with prices in February 2016 decreased to Dh1.37 ($0.37) per litre for diesel and Dh1.47 ($0.40) per litre for 95-octane fuel. Hatamleh told OBG, “Industries are interconnected and a change in the price of one commodity has a cascading impact on others. So the government should not lift subsidies entirely, but reduce them gradually.”

Government Shake-Up 

The UAE government’s measures in February 2016 to outsource many government tasks to the private sector and reduce the number of ministries will also have a major impact. Sheikh Mohammed announced that the government will form a single Ministry of Education and dissolving the Ministry of Higher Education and Scientific Research. However, the changes are not simply a reflection of lower oil prices and the need to re-evaluate budget priorities, but also reflect the government’s desire to ensure Emiratis are able to meet the challenges of a post-oil economy. Sheikh Mohammed said, “Governments must be flexible. We don’t need more ministries but more ministers capable of dealing with change. We want a young and flexible government that will fulfil our youth’s aspirations and achieve our people’s ambitions.”

The changes also include innovative answers to social issues. For example, a UAE Youth National Council will be established and tasked with advising the government on issues relevant to youth. The council will be led by a female minister of state for youth. A new Ministry of Cabinet Affairs and the Future will be charged with preparing the country for a post-oil future. New positions will also include ministers of state for happiness and tolerance, with the former intended to align government policy in order to ensure social well-being and satisfaction.

Outlook

With oil prices unlikely to bounce back to pre-2014 levels in the near future, expectations for 2016 are for moderate growth. The long-term outlook for Dubai is being shaped by the emirate’s and the UAE’s responses to this new environment. With the implementation of subsidy cuts, taxes and PPP legal infrastructure, both governments are looking boost foreign investment to help fuel growth.

New projects for World Expo 2020, and the tourism opportunities it will create, are an event-specific element of forecasting, but discussions among economic leadership are also addressing long-time concerns like labour reform. The goal of moving into advanced and innovative activities, such as complex industries or research and development, is seen as intertwined with the need to de-emphasise low-cost labour as a core proposition for the Dubai model. “Dubai has grown on the back of labour-driven policies, but you can only increase productivity so much with unskilled workers,” Williams told OBG.

As Dubai’s government studies potential for the future, it is increasingly benchmarking the emirate against Hong Kong and Singapore. Like both, Dubai is situated in a single urbanised area and is a regional centre for financial services. It is apparent that any existing gaps are in innovation and efficiency. The UAE ranked 47th of 141 countries in A.T. Kearney’s Global Innovation Index 2015, compared to seventh for Singapore and 11th for Hong Kong. So while Dubai has succeeded with its economic vision of diversification, the future looks like an exercise in moving into complex areas of the global knowledge economy and attracting the talent required to do so.