Dubai: The hosting of Expo 2020 in Dubai will reshape the way business is being done in the UAE and the region and the developments leading to the event will have a long lasting impact on the country’s economy, according to economists.
Expo 2020 will add at least 1.5 percentage points per year to Dubai’s real gross domestic product (GDP) growth over 2014-2020, leading to annual growth of 5.5 per cent, according to Institute of International Finance (IIF) a Washington based association of 450 global banks and financial institutions.
The International Monetary Fund has projected Dubai’s economic growth would average a healthy 5.6 percent in the next six years, boosted by big real estate projects and preparations to host the Expo 2020 in its annual consultations with the UAE in July this year.
“There is no doubt that Expo 2020 will have a significant impact on Dubai and act as a catalyst, further energising some of the pillars of its economy such as hospitality, leisure, retail and consumer businesses. We expect these developments to have multiplier effect of job creation, consumption and investments,” said Dr. Garbis Iradian, Deputy Director Africa and Middle East Department of Institute of International Finance.
Dubai is the first city in the Middle East and North Africa (Mena) region to host the World Expo, the highly celebrated international exhibition, the third largest global non-commercial event, following the Olympic Games and the Fifa World Cup.
In the near term the Expo win is widely expected to boost investor sentiment and confidence of the UAE’s economy. In the medium term, Dubai and the UAE would benefit from an estimated $6.9 billion (Dh25.3 billion) earmarked for infrastructure projects around the event. The centerpiece of development is a 438-hectare site at the southwestern end of Dubai next to the Dubai Word Central close to Jebel Ali port. Dubai’s construction market is already seen benefitting from the influx of new activity, but other sectors including travel, tourism and retail would also benefit.
According to a report from alternate investment firm Al Masah Capital, Expos in the past have aided physical redevelopment of host nations and cities. Expo Montreal 1967, for instance, led to the construction of structures such as the Décarie Autoroute and the Louis-Hippolyte Lafontaine Bridge and tunnel, which were essential to Montreal’s subsequent growth.
The 1988 Expo in Brisbane, Australia, witnessed the laying of nearly 2,000 kilometres of telecommunications wire. Expos have been useful for branding of the host country/city. For instance, the Eiffel Tower, one of the most recognisable structures in the world, was built as the entrance arch to the 1889 World Expo in Paris, France.
Expectations are high in UAE too. Business leaders and senior executives say at the macro level the country’s economy has already started benefiting from the preparations and the optimism surrounding the hosting of the event.
“Expo 2020 is already having a strong and positive impact on economic activity in the UAE and on GDP growth. Expo 2020 is also boosting global investors’ confidence in the UAE economy and in its long term potential as reflected in the performance of the local stock and bond markets,” said Adel Afiouni, Managing Director of Credit Suisse in the Investment Banking Division and Head of Europe Middle East and Africa.
Rising business confidence is reflected in the private sector business activity. The UAE’s October Purchasing Manager’s Index (PMI), a composite indicator of UAE’s non-oil economy showed that the non-oil private sector of the UAE signalled the strongest improvement in business conditions in the five-year history of the index.
Business activity at non-oil private sector firms in the UAE rose at the fastest pace in the five-year survey history last month. This mirrored a record rise in the level of incoming new business, with survey respondents reporting strong underlying demand. New export business also rose at a marked pace while both input prices and output prices showed upward trend.
“The pickup in prices pressures captured in this month’s data is of concern but the dominant story is one of a UAE economy in full growth mode. The performance is all the more impressive given the decline in oil prices over the same period, and the continued downturn in emerging markets elsewhere,” said Simon Williams, Chief Economist for Middle East & North Africa at HSBC.
Data showed firms have been increasing employment since the beginning of the year which accelerated at the sharpest rate on record in October to meet increased output requirement.
“The latest PMI data supports our view that the non-oil sector in the UAE has been the main driver of overall GDP growth this year, as oil output has been broadly unchanged year on year. We retain our 5 per cent growth forecast for 2014,” said Khatija Haque, Head of MENA Research at Emirates NBD.
Oil prices have declined sharply since June on concerns about weaker global growth and increased supply. The Opec reference oil price has declined nearly 24 per cent since its June peak. According to Emirates NBD’s estimates even if oil prices did average $80 in 2015, the UAE would run a balanced budget with the estimated 2015 break-even price of $78.
At the time of falling oil prices, the UAE’s underlying strengths such as a diversified economy, large accumulated surpluses and economic confidence driven by capital inflows linked Expo 2020 is expected to keep the growth high.
“I see the EXPO 2020 will have an impact on the economy generally. I see a lot of development and a lot of participation and broadening of appeal of Dubai,” said Shehab M. Gargash, chairman and founder, of Daman Investments.
