There was no room for doubt and, therefore, no surprise at Dubai winning the bid to host the Expo 2020. This victory will be a catalyst for change, growth and development, and is a triumph for the Arab world. As the UAE celebrates 42 years of formation, we can look to a brighter future accompanied by development on all levels — economic, demographic and technological.
Key pillars of trade and commerce are ready to drive the economy forward. The aerotropolis of Al Maktoum International at Dubai World Central will boost the emirate as a major player in the trade, aviation and aerospace markets, as an estimated 160 million passengers a year pass through its terminals by mid-2020. A flourishing tourism sector will see the hospitality market reach $7.5 billion (about Dh27.5 billion) in value by 2016, up 67 per cent on $4.5 billion in 2011, according to an Alpen Capital GCC Hospitality Industry Report published last year.
National GDP has outperformed earlier estimates of 3.9 per cent to grow by 4.7 per cent this year. Over the next four years it is expected to grow at 6.4 per cent annually, crossing 10 per cent in the final years before the Expo, according to Barclays. Domestic investment will rise to 17 per cent of GDP in 2014.
“Winning the bid vindicates the UAE as a global hub for commerce and trade. The outlook for next year is extremely positive. One of the most important factors is that the UAE continues to be viewed as a beacon of peace and economic prosperity in a world rife with unrest coupled with doom-and-gloom economic stories at the global level,” says Avi Bhojani, Group CEO, BPG Group.
He adds that Brand UAE has emerged as focused on the economic well-being and safety of its residents. UAE Vision 2021 sets key themes for the socio-economic development of the UAE, specifically calling for a diversified and knowledge-based economy. The Abu Dhabi Economic Vision 2030 presents a road map for increased GDP contribution from non-oil sectors to more than 60 per cent by 2030, with 12 strategic industries identified.
The funds to fuel this drive appear to be coming from the recycling of petro-dollars, an important driver of non-oil activity, says Bryan Plamondon, Senior Economist at IHS Global Insight. “These revenues are used by authorities for public spending and investment, and are the basis of support for the smaller northern emirates as well. Additionally, Abu Dhabi has funded its massive sovereign wealth fund through its oil income, which has served as an important financial backstop for the UAE overall, as witnessed in the 2009 Dubai crisis. Further expansion of the energy sector will underpin growth in the UAE economy in the years ahead,” he adds.
The UAE’s quick recovery relative to other financial centres is evidence of its position as a key financial hub, says Islamic finance expert Hari Bhambra, Senior Partner at Praesidium. “The UAE has shown its ability to withstand crises, having learnt lessons from previous economic difficulties,” she adds.
Leila Benali, Director — Energy, Middle East and Africa at IHS Global Insight, says the UAE is looking to develop key sectors such as tourism, hospitality, transport and retail, while continuing its work on sustainability.
Our panel of experts provides insight on these sectors.
RETAIL
Hussein Doughan
General Manager at Euromonitor International for the Middle East, North Africa and Turkey
Outlook 2014: Retail sales are projected to show a healthy growth of 5.4 per cent from 2013 to 2014, according to the latest forecast from Euromonitor International. The UAE promotes shopping tourism in particular and a rising number of tourists are arriving as a result of the Arab Spring movement.
Outlook 2020: By that time, we will see the completion of many of the recently announced shopping mall developments, which will add selling space. To give an idea, we expect that in the coming five years the retail selling space is going to increase by approximately 14 per cent. Another area of importance is the growth in non-store retailing channels, such as, the internet. While it’s coming from a low base, we expect that by 2020, more consumers will shop through online websites. Internet subscription is expected to grow by 42 per cent from 2013 to 2020, thus supporting internet retailing.
Significance to economy: Retail will benefit from favourable conditions, as a growing sense of economic stability will encourage consumers to spend more. There will be a further rise in tourists shopping in the country. Growth is expected to be supported by investment from leading players as well as real estate developers, with a number of new mega shopping center projects planned.
Internet retailing is expected to record strong growth, with a predicted constant-value compound annual growth rate of 14 per cent in the next five years.
Strong fundamentals: Dubai is already exhibiting growth year-on-year in retail, due to the attractiveness of the city as a tourism and investment destination, and the Expo will only support this growth.
Expo 2020: It will have a positive long-term impact in terms of tourists, foreign and local investment, especially in Dubai, which is aiming for 20 million visitors by 2020.
REAL ESTATE
John Stevens
Managing Director, Asteco Property Management
Outlook 2014: Positive sentiment coming out of Abu Dhabi has driven sales prices up by as much as 26 per cent this year. Lack of units in quality developments has been the main driver, but the handover of The Gate Towers by year end and tentative delivery of City of Lights by the end of next year will undoubtedly impact growth in the short to medium term. While prices have moved upwards quickly, investors should be confident there is no bubble looming. Similarly, rents have increased by more than 20 per cent in many areas compared to the previous year, including high and mid-level properties, driven largely by the influx of returning government employees.
In Dubai, although recovery is well underway with year-on-year average rental growth of 23 per cent for apartments and 19 per cent for villas, it is unlikely prices will hit 2008 peaks in the short to mid term. An increase in project launches and purchase of off-plan properties is set to continue, but it’s projects with favourable payment plans in good locations that will see the bulk of demand.
Outlook 2020: With the population likely to be around the 10-million mark by 2020, the industry will be considerably larger. Notwithstanding macro economic and political issues, and extraordinary supply-demand dynamics, property prices should continue to rise but at more moderate levels (single digits) than we have seen over the past 18 months.
Significance to economy: The fundamentals driving the UAE market remain integral to the success of real estate. It is a major economic driver, but its success is contingent upon other elements of the economic cycle.
Strong fundamentals: I expect the market to grow, although it will differ in scale and volume growth rates. The fundamentals of the economy are solid and this will reflect in stable prices subject to sustainable growth rates.
Expo 2020: The successful bid means a series of new infrastructure projects, which analysts estimate will cost up to $7 billion. It will undoubtedly boost Dubai’s economy, particularly transport, tourism, trade and real estate.
CLEANTECH
Nimer Abu-Ali
MENA Cleantech Leader, EY
Outlook 2014: The UAE is among the first to establish dedicated organisations to invest in clean technology, locally and internationally, and to develop projects in the sector such as Masdar City and Shaikh Mohammed Bin Rashid Al Maktoum City for solar energy. There was a slowdown post 2008 but we are expecting the momentum to pick up again next year. This is in light of policy framework in place for the Green Growth Strategy of the country. We expect its impact to be positive, giving the private sector the necessary impetus to invest in the UAE. Subject to the finance available, investment in the sector may increase by 10 to 15 per cent next year.
Outlook 2020: In line with Vision 2020, the UAE is looking to diversify its economy and increase dependence on non-oil sectors. Abu Dhabi has targeted 7 per cent of its power to be generated by renewable energy. Dubai plans to improve energy efficiency through demand-side management — the green-building concept is starting next year with a target of 30,000 green buildings.
Significance to economy: The government has invested heavily in different non-oil sectors, cleantech being one of them. Real GDP is expected to increase this year by 4.1 per cent and power consumption is expected to rise by 5.3 per cent until 2020. The government is committed to investing in cleantech to enhance energy efficiency and ensure that supply meets increasing demand. With the introduction of green economy, we have seen a focus on certain sectors, such as green tourism, which is an important concept initiated by the government of Dubai. Based on results of the recent Ernst & Young (EY) Cleantech Survey, solar power, energy efficiency and water management are among top opportunities in the UAE.
Strong fundamentals: Expo 2020 will be a catalyst for the economy in general, including the cleantech sector. A lose would not have had a negative impact on it.
Expo 2020: It is a positive sign for the private sector to invest more in the country and will increase confidence in the economy.
HEALTH CARE
Andrea Longhi
MENA Advisory Healthcare Leader, EY
Imad U Bokhari
MENA Transaction Advisory Services Healthcare Leader EY
Outlook 2014: The UAE has one of the region’s fastest-growing health-care sectors. In 2011, total GDP contribution from health care stood at $12.9 billion, up from $5.1 billion in 2006, and is expected to reach around $17 billion by 2014. The sector is primarily driven by a rapid growth in population, a growing ageing population and the rising burden of disease — especially chronic diseases — and rapidly increasing expectations of the population, such as demand for greater access, better quality of services and a positive patient experience.
Outlook 2020: If current conditions continue, health-care expenditure is expected to reach $24-25 billion by 2020. A few private- and public-sector projects are in the planning phase and more are expected in the pipeline over the next 5 to 7 years. By 2020, we expect to see more preventative rather than curative projects, particularly in areas such as public health prevention and promotion, primary and community care, and out-of-hospital disease-management programmes.
Significance to economy: The UAE’s health-care expenditure per capita is one of the highest in the region. Most of the growth in the market is in response to demand for higher-quality services and equipment, improved coverage and better-trained human resources. This is driven by a growing economy, increasing affluence, higher-education levels and the public and private sectors’ ability to respond to this in a swift manner.
Health care offers significant opportunities. There are concepts that are still to be developed, such as VIP mobile-dialysis units, long-term nursing care or assisted-care facilities, retirement homes with medical support for expats, medical malls, wellness resorts offering complementary and alternative medicines.
Strong fundamentals: The sector is primarily driven by a growth in population, which has risen steadily. The sector has also seen a major influx of private capital over the past year.
Expo 2020: The expo will bring renewed attention to Dubai, which will most likely bring in new investors to all sectors, including healthcare.
ENERGY
Abhay Bhargava, Head, Energy and Power Systems Practice, Middle East and North Africa, Frost and Sullivan
Outlook 2014: The UAE is set to double its power-generation capacity, from 23.2 giga watts in 2010 to 45 giga watts in 2020. We can expect to see new opportunities arise in some specific areas, such as smart-grid equipment and services, including smart meters, automation and control systems, demand-response management, software solutions, among others. Solar-power equipment, including concentrated solar power and photo voltaic, balance-of-plant equipment, inverters, storage solutions, etc. will also offer opportunities. Additionally, we expect a strong replacement demand for conventional equipment such as transformers, backed by demands for increased efficiency and green content.
Outlook 2020: By 2020, we expect the UAE to have adopted a number of innovative energy-efficiency solutions into its energy infrastructure. At the grid level, we expect to see an adoption of smart-grid technologies, including telecom infrastructure integration. On the buildings and consumer side, we expect varied implementation of energy-efficiency solutions to reduce consumption. The UAE is likely to have achieved a fair degree of diversification in its energy mix, including solar, nuclear and coal over and above the conventional gas.
Significance to economy: The country is committed to a sustainable and diversified economy, which is less reliant on oil, a distinct agenda of UAE Vision 2021. This is expected to result in an increase in manufacturing activity in the long term, and build-up of infrastructure. Energy plays a vital and critical role in supporting these goals, and all developments in the energy sector play a significant part in the overall development of the Nation.
Strong fundamentals: The current energy planning for the UAE is going to continue.
Expo 2020: Typically, these expos are held for a period of 5 to 7 months, and require a significant ramp up in infrastructure, telecom, hospitality, accommodation and transportation, by the host nation. The last expo, held in Shanghai in 2010, attracted close to 73 Million visitors. Seville in 1992 attracted about 41 Million visitors. Compared to the population of the UAE, this is a large number and will lead to increased demand on the energy sector.
HOSPITALITY
Yousef Wahbah, MENA Head of Transaction Real Estate at EY
Outlook 2014: It is expected to be a year of continued growth for hospitality. Tourism is growing and more investors are looking to enter into hospitality-related projects. Dubai continues to show growth in fundamental industries, such as retail and tourism, and it is clear this growth is not a short-term situation.
Outlook 2020: In 2020, the hospitality industry is expected to look markedly different. The split between five-, four-, three- and below-star hotels is expected to be more evenly split. Small and medium enterprises (SME) and entrepreneurs are expected to bring in new concepts. Entrepreneurs, rather than bring in international brands, may create their own hotel and restaurant brands and concepts. The transaction market will also be more mature, with more hotels and restaurants trading hands rather than new hotel development.
Significance to economy: Hospitality is fundamental to the UAE economy. It not only provides jobs across all levels, but also offers a collection of entrepreneurial opportunities for SMEs, such as fast-food chains, wellness centres, small boutique hotels and bed-and-breakfasts. With the new announcement of municipality fee easement for three- and four-star hotels, this segment is expected to grow. Furthermore, on the food and beverage front, there is an opportunity for home-bred entrepreneurs to cultivate unique hospitality concepts from the UAE itself rather than bringing brands from outside.
Expo 2020: The Expo 2020 will certainly have a positive impact on Dubai. The ripple of economic effects that the Expo is expected to bring will also benefit the leisure industry. It is obviously expected to push traveller and visitor numbers.
TECHNOLOGY
Jonas Zelba, Senior Research Analyst, Information & Communication Technologies Practice, Middle East and North Africa, Frost & Sullivan
Outlook 2014: The telecommunications market in the UAE continues to grow due to investments from du and Etisalat to improve the mobile network coverage, fixed-line infrastructure and development of new technologies like 4G. Overall, Information and Communication Technologies (ICT) spending in the UAE in 2013 is expected to reach $54 billion and Frost & Sullivan expects this to grow by 7.4 per cent in 2014. The UAE is positioning itself as a science and technology hub in the Middle East with a strong focus on knowledge-based industries and technologies. Hence, the large scale technology investments will continue and the ICT industry will maintain offering tremendous business opportunities in 2014.
Outlook 2020: There are a lot of new developments and innovations happening globally and the UAE is likely to be one of the first countries to adopt and utilise them effectively. This is due to Government initiatives to drive Information and Communications Technologies adoption and high investments dedicated to this sector.
Significance to economy: The UAE is a major IT hub in the Middle East , due to the large-scale investment made in the country.
Expo 2020: The winning of Expo 2020 would boost the ICT investment and further development of the technology sector. Major reason for that is the investment from the UAE Government to improve the overall infrastructure that would consequently have a positive impact.
AVIATION
Saj Ahmad
Chief Analyst, Strategic Aero Research
Outlook 2014: For the UAE aviation industry, it’s a case of “more of what you delivered last year” and I expect that this will lead to double-digit traffic growth. We’ve consistently seen Abu Dhabi and Dubai airports report robust traffic figures each month. It is likely that the biggest and busiest airport, Dubai International, will get closer to the 75 to 80-million passenger mark. Of course, this could be set back by how long the runway repair work takes next year, but overall, the UAE will continue to see strong demand.
Outlook 2020: With regards to the overall outlook for the aviation sector, the omens look immensely promising. With the current Dubai airport on track to reach 100 million passengers by 2020, and with the completion of Al Maktoum International by 2020 offering a capacity of 160 million passengers a year, there is plentiful growth, which is driving this airport-expansion investment. Dubai will knock Heathrow into second place in the airport rankings and it’s clear that the aggressive growth at Emirates and flydubai are key catalysts.
Significance to economy: The aviation policy is unique in the UAE. As an extension of government policy, air-traffic growth has helped Dubai recover from the financial crises faster than its US and European counterparts, and with Emirates Airline poised to launch the 777X, it’s clear that aviation growth is fuelling economic growth too. That in turn creates leisure, retail and tourism jobs, and other services such as more taxis, catering and hotels. All in all, it’s a vital piece of the wider UAE jigsaw. The biggest challenge is making effective use of available air space. With the Gulf Cooperation Council (GCC) countries growing so fast, despite some regional turmoil, all this new airport and airplane investment is useless unless the air-space capacity is raised to cater for that growth. While there is no pan-GCC convergence on how to liberalise and drive efficiency in air-space usage, this will be the biggest obstacle to the sector.
Strong fundamentals: Dubai hasn’t based its long term future on Expo 2020, nor is it dependant on the bid being successful. Naturally, winning the Expo will yield major dividends, but when you look at the fast and frenetic pace that Dubai has already been growing at, this is one bid that they could afford to lose and still keep on growing.
Expo 2020: Winning the bid means Dubai has not only cemented its place on the map as a true international centre of commerce, it also breaks down the perceptions and opinions of the wider world that the Middle East is no place to do business in.
