Businesses are upbeat about economy in 2008

Dubai: Businesses in the UAE are upbeat about the economy in 2008, but concerns about the dollar's decline, rents, inflation, traffic and operating costs remain high on their list.
The economy looks strong.

The International Monetary Fund (IMF) has estimated that the country's gross domestic product will surge from Dh696.5 billion in 2007 to Dh790.8 billion at current prices in 2008.

According to its data, the inflation rate will gradually fall from eight per cent in 2007 to 6.4 per cent this year.

In recent years the fast pace of growth in the UAE, coupled with capacity constraints, has put pressure on prices, leading to high inflation, which reached 9.3 per cent in 2006. High inflation does not work well for any country as it can undermine the competitiveness and jeopardise its long-term growth prospects.

Yet, economists say the UAE's attractive business climate and ambitious development strategy will continue to drive investments in oil, real estate, tourism, transportation and manufacturing in the medium term.

The Dubai Chamber of Commerce and Industry (DCCI) said the private sector in 2008 will account for 18.6 per cent of investment in the economy, much higher than the government's investment of 3.1 per cent of the GDP.

Meanwhile, the country's external debt, which constitutes mostly foreign liabilities of UAE commercial banks and private institutions, will account for more than half, 58.4 per cent, of the GDP in 2008.

Enshaa Holdings Managing Director Raza Jafar says the prospects for the economy in 2008 are favourable, adding that the property market is still growing and attracting a great deal of investors.

"Supply is catching up steadily, and legislation is being enacted suitably to protect investors, developers and the economy at large. The economy overall is prospering, and we also see opportunities in markets outside our home base here in the UAE," Jafar said.

He credited the leadership of Dubai for sustaining the current favourable business environment, providing first-class industrial facilities and business support services, reducing red tape, streamlining administrative procedures, updating commercial laws to meet international obligations, and ensuring effective protection for investors.

However, Jafar said the weakening of the US dollar is affecting everyone, and so the government needs to act soon to help developers maintain control over costs.

Dr. Shahriar Daneshjoo, Bavaria Gulf chairman, says the real estate sector will grow further by 15 to 20 per cent, as the growing population will require more residential and office spaces in 2008.

However, he said parking shortage, high property rentals, operating cost and labour shortage could limit business operations.

"The high rentals have a direct impact on attracting high-skilled experts from Europe to come to Dubai. Europeans are shocked when they hear about the rents in Dubai," Daneshjoo told Gulf News.

Arzaq Holdings chief executive officer Fahad Al Gurg says 2008 will be a good year for businesses, considering that there are still many excellent opportunities in the UAE and across the region.

Good time

"The UAE economy continues its double-digit growth, and I think it's still a good time for any company with good fundamentals to participate," Al Gurg said.

While high operating cost could affect businesses, he says the public "must be careful not to jump to conclusions about the solutions and ways of dealing with it."

"Rather than looking at the issue in isolation, we should apply context, considering also currency fluctuations, financial markets, economic growth, etc. — and how these affect, and are affected by, the increasing costs of business," he said.

Empire Aviation Group chief executive officer Paras Dhamecha says they're excited about 2008 because business aviation in the region is growing at a very healthy pace.

Still, he cited traffic, keen competition, high operating and transport costs, labour shortage as among the factors that could impact businesses in 2008.

"By default, business aviation is a costly enterprise. You have state-of-the-art aircraft, highly-trained personnel, maintenance costs and increasingly expensive fuel all as part of the mix. I think we have to learn prudence and avoid having any kind of relaxed mentality towards cost control," he says.