Is Dubai still good value?

It is dusk and I am drinking a sweet Turkish coffee and smoking a Shisha in Baddaweah, a small local café in Jumeirah. The wind is blowing in from the sea. It is warm and caressing, not cold as it has been for the last few weeks. Just for a second I get that sense that everything is okay with the world. Even the Shisha seems to agree as it bubbles happily, sending small aromatic clouds up into the darkening sky.

You can't put a price on these moments when the world slows, constellations connect and chemicals collide. The conditions for happiness are just too personal and too random to compress into any equation, no matter how clever the econometrist. This is unfortunate, and dare I say a cause of unhappiness for any analyst trying to compare the experience of living and working across different cities.

What can be measured is tangible and objective: how much things cost, how much people get paid. What cannot be measured are the intangibles that really make people happy: Green traffic signals all the way to work; the smell of the sea; houses that don't leak; sausages in general.

However, despite its weakness as a comparative tool, cost of living is a particularly serious matter in a city-state like Dubai. Being a competitive place to do business is critical for the emirate to achieve its goal of diversifying its economy.

As prices rise so too does the cost of doing business. That puts upward pressure on pricing at a time when Dubai's borders are opening up, tariffs coming down, and competition increasing. While the emirate would rightly claim to offer more than just price advantage, many of its once unique selling points are being eroded as its policies are replicated across a region covetous of Dubai's success.

It is also serious because less than one fifth of the local population are nationals. That means for four fifths of the population Dubai is not home. It is an option. At any time the majority of the city's workers can say "Ma'salamaa" and as fast as they can get the visa head for Hong Kong, Singapore or Qatar. The UAE will no doubt remember that as it sets, for example, the level of VAT. Human capital is a critical part of an economy. It needs you to stay.

It is also important for you to remember that while you may have forged attachments and put down roots, Dubai is not responsible for your well-being. You are. If getting good value is your principal driver, you need to monitor how well your adopted city is performing.

The UAE offers a Hobbesean contract of mutual advantage. The country benefits from your participation but neither owes nor offers you long-term allegiance. Your return on the deal is being able to "get on your bike" as one ex UK Chancellor of the Exchequer succinctly put it, liquefy your assets and leave without looking back should better opportunities arise elsewhere.

So should you be greasing your chain?

Anyone who has been in the emirate six months will know prices are rising. They will have felt that personally. How fast prices are rising depends upon the source you quote. The official inflation rate for the UAE last year was 4.1 per cent. Non-governmental sources quote hyper inflationary levels in Dubai of 25 to 40 per cent. Ouch.

What's more rising costs are not uniform, and some of the biggest areas of increase feel like a full frontal Panzer Assault on the quality of life. Rent, a weapon of mass destruction for wage earners, rose by up to 50 per cent last year according to the National Bank of Dubai. A recent survey showed that the total cost of educating a child in London to the age of 18 amounted to $81,750 compared to $146,000 in the UAE.

The flip side in all this is an acknowledgement that inflation is coming from strong growth in the economy. That means opportunities for a better job and, if you're performing and valued, the possibility of a pay rise (hopefully above inflation).

More projects, 100,000 more people a year and more foreign capital are being sucked into the emirate and in so doing building a 22nd century metropolis for the 21st century. Inflation is merely the symptom of an over performing economy in catch up mode.

That partly explains why, according to one of the most recent studies of inflation in Eastern Europe, contrary to perceived wisdom people prefer and feel happier during times of higher inflation than they do during long periods of low inflation. Costs may be rising, but the number and quality of opportunities to get ahead are growing. That, for any dynamic and ambitious human being at least, has got to be good news.

A positive view

As with our September analysis our cost of living overall score was calculated with the help of Economist Intelligence Unit, who kindly gave us the data they collect from cities around the world.

To make the comparison we worked out an average price for each product category in the Gulf News basket across the cities under comparison. For example, if we add the price of a litre of fuel in London, Singapore, Hong Kong, Dubai, Mumbai, Bahrain and Doha and New York, and divide by the number of cities (nine) we see it costs on average 0.81 cents for a litre of petrol. We then divided each city's actual cost of oil by that average.

Where a city scores below 1 for a category, it is cheaper than average; if it scores above 1 it is more expensive.

The good news is that, compared across all the cities we review, Dubai remains price competitive. Rental costs remain a concern, but the truth is increases have come from a low base and the city is still in catch up mode. A two bedroom flat unfurnished flat is considerably more expensive to rent in Hong Kong, London, New York, Jeddah and Singapore. Only in Bahrain, Mumbai and Qatar is renting cheaper.

And it is not just rent. Dubai's overall score of 0.9 shows that, overall, the city's prices are below average.

However, if we adjust the viewing lens slightly and compare only against regional peers Dubai does not perform so well. In fact, in the Middle East, it is the most expensive city on review.

The balancing undercurrent

Outgoings are one part of the story. The other part is how well Dubai's citizens are remunerated versus their peers from across the world.

This quarter we have taken our analysis one step further by creating a matrix with an average city cost of living calculation on one axis, and national GDP per capita on the other. GDP per capita divides a country's total GDP wealth by its population. We're using it as a proxy for individual income. This is far from ideal. We explain why in a moment.

According to the City satisfaction matrix, Dubai is doing pretty well in providing an environment where salaries are keeping pace to the rising cost of living. More than fine in fact. On the matrix, any of the cities above the central diagonal is doing well, and the distance between the diagonal and the line indicates how so (see chart, top right).

Dubai comes third in our comparison just behind Doha and New York, and third equal with Hong Kong. Mumbai and London come a long way behind for two contrasting reasons. Mumbai has a low cost of living, but GDP per capita is even lower; GDP per capita in London is higher, but cost of living much, much higher.

Both cities suffer statistically because we compare national GDP per capita figures as opposed to city based GDP per capita. GDP and disposable income in both London and Mumbai will be considerably higher than their country average.

If we accept the matrix what it shows is that so far Dubai has managed its growth pretty well, sustaining fast upward momentum while allowing the working population to maintain a standard of living and reap the benefits of a modernising economy. Even on this comparison it is no longer a leader, however, in terms of offering high wages in a low cost environment.

Lies, damn lies and statistics

The biggest problem with the matrix is with the notion of GDP per capita as a proxy for the general well being of individuals. While studies prove there is a correlation between the two, GDP is not spread evenly, and there is mounting evidence that the rich and very rich are gaining in Dubai's fast moving economy, at the expense of the middle and lower classes.

A study by the Abu Dhabi Chamber of Commerce and Industry revealed that in Dubai's closest neighbour the family budget deficit in the emirate this year was Dh1,368 a month, compared with Dh607 in 2004. Monthly spending by families is said to be Dh16,943, while the average monthly income is Dh15,575. There are no comparative figures for Dubai, but the two emirates tend to enjoy comparable economic conditions.

Gulf News also managed to gain information from the global human resource company, Mercer Human Resource consulting, a company that runs the 'Global Pay Summary' and 'Total Remuneration Survey'. It gave us the average pay for four job titles in five of the cities we have included. What the figures show is that while the UAE's GDP per capita figure is competitive, actual salaries lag.

A skilled production worker in Hong Kong can expect to earn $18,904 per annum, a distant dream for his cousin in the UAE taking home $2,746. Things are better for the Marketing Manager but there is still a significant difference in earnings. In the UAE the average salary for the marketer would be $45,810 per annum, half the amount she would earn in London.

While tax evens this out to a degree (40 per cent in the UK on earnings above £32,400) one of the principal advantages of Dubai is its tax free status. At the moment, however, employers are 'sharing' much of that advantage by factoring it into salaries offered.

Final destination

The Dubai economy is growing and is infinitely more complex and sophisticated than it was even five years ago. It should be no surprise therefore that the notion of there being a single answer to whether Dubai offers good value will also become more complex.

Clearly, the city offers no significant cost of living advantage to the average person. It is merely competitive. Dubai is no more an obvious place to come and save money for a better tomorrow. It is increasingly a city to come, live, smoke shisha and dance for today.

As the city becomes bigger and more sophisticated, so there will increasingly be bigger winners, and an even greater number of people who struggle. How Dubai chooses to tackle the phenomena of diverging wealth will go a long way in shaping the future personality of the city state.

Those in the middle need to recalibrate how they see Dubai. Rather than being a place to enjoy a tax free salary Dubai should more accurately position itself as a young, vibrant city where opportunities abound. The extent to which you see those opportunities, and then take them, will answer the question: Does Dubai offer good value for you.