Dubai remains a vital hub for region



Dubai may have taken a harder knock from the global economic crisis than many expected, but it remains a vital hub for a region whose infrastructure and spirit of innovation will lead the Gulf forward into recovery, executives and officials attending the World Economic Forum on the Middle East said.

Falling global trade and receding international credit have put Dubai's open, trade-dependent economy in a vice, squeezing demand for its once booming property market and with it the construction industry that is the UAE's largest employer and source of economic growth. Property prices since the peak of Dubai's property boom in September last year have fallen by roughly a third, while syndicated lending in the first quarter dropped by 85 per cent, forcing Dubai's Government to run its first fiscal deficit and borrow US$10 billion (Dh36.71bn) from the Central Bank to supply developers and contractors with enough cash to survive.

Reports of Dubai's demise, however, had been much exaggerated, officials said. The metropolis that Dubai has built is not sinking back into the Gulf: on the contrary, said the global HR consultancy Mercer, which has an office in the emirate, Dubai now possesses the region's most advanced infrastructure and will maintain its status as a regional magnet for talent and commerce. "Dubai is a hub for a region and has built an infrastructure that is second to none," said Jean-Marie Péan, the chairman of the consulting firm Bain and Co in the Middle East. "Once the crisis is over, Dubai will still be there, with the best infrastructure in the region. The region needs Dubai."

Nasser al Shaikh, the director general of Dubai's Department of Finance, said the emirate had begun assessing the impact of the crisis in the summer of last year. "Back then we thought the effects would be limited," he said. But the meltdown in global capital markets that followed the collapse of the American investment bank Lehman Brothers in September presented Dubai, as it did the rest of the world, with unexpected challenges. "That incident really redefined the state that we live in. All of a sudden, the effect became more apparent."

The crisis confronted the Federal Government with perhaps its biggest challenge in its 38-year existence, Mr al Shaikh said. Its solution, he said, brought officials from Dubai and the Federal Government closer together than ever. The result was the Central Bank's purchase of the first $10bn of Dubai's planned $20bn bond issue. Mr al Shaikh said that roughly half of that money had already been disbursed to government-linked companies.

He declined to say how much had been given to whom, but he said that more was on the way and that the Government was assessing the need to borrow the remaining $10bn. Mr al Shaikh has previously said that money might be borrowed from public investors, rather than the Central Bank. He also declined to respond to questions about how government-owned companies were using the money, or whether they would sell shares or ask creditors to restructure their debt, saying each company was assessing its own response.

While Dubai faced immediate challenges, the emirate was sure to bounce back because of the ongoing co-operation and consultation between the Government and the private sector, observers said. "The beautiful thing about Dubai is that the Government is not stubborn on any issues," said Sheikh Khaled bin Zayed, the chairman of the Bin Zayed Group. "They listen to all the stakeholders." Mr Péan said Dubai's ability to innovate would enable it to emerge in a stronger position than it was in when the crisis began.

The key, he said, would be for Dubai to behave like any company during a recession, focusing on its core competencies, such as transport and logistics, and withdrawing from businesses where it has less of a competitive advantage, such as manufacturing. Dubai's sceptics were probably in for a surprise, experts said. Just as many developing economies around the world had looked to Dubai for lessons before the crisis, so many should watch how Dubai navigates its way through the present turmoil.

"What Dubai's going to be learning from these challenges might be truly valuable to pay attention to," said Mark Fuller, the chairman and chief executive of the Monitor Group, the strategy consulting firm, which has 30 offices worldwide. warnold@thenational.ae smaayeh@thenational.ae

Europe’s rearming plan
  • Suspend strict budget rules to allow member countries to step up defence spending
  • Create new "instrument" providing €150 billion of loans to member countries for defence investment
  • Use the existing EU budget to direct more funds towards defence-related investment
  • Engage the bloc's European Investment Bank to drop limits on lending to defence firms
  • Create a savings and investments union to help companies access capital

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Biography

Favourite book: Zen and the Art of Motorcycle Maintenance

Holiday choice: Anything Disney-related

Proudest achievement: Receiving a presidential award for foreign services.

Family: Wife and three children.

Like motto: You always get what you ask for, the universe listens.

COMPANY PROFILE
Name: Kumulus Water
 
Started: 2021
 
Founders: Iheb Triki and Mohamed Ali Abid
 
Based: Tunisia 
 
Sector: Water technology 
 
Number of staff: 22 
 
Investment raised: $4 million 
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Anxiety and work stress major factors

Anxiety, work stress and social isolation are all factors in the recogised rise in mental health problems.

A study UAE Ministry of Health researchers published in the summer also cited struggles with weight and illnesses as major contributors.

Its authors analysed a dozen separate UAE studies between 2007 and 2017. Prevalence was often higher in university students, women and in people on low incomes.

One showed 28 per cent of female students at a Dubai university reported symptoms linked to depression. Another in Al Ain found 22.2 per cent of students had depressive symptoms - five times the global average.

It said the country has made strides to address mental health problems but said: “Our review highlights the overall prevalence of depressive symptoms and depression, which may long have been overlooked."

Prof Samir Al Adawi, of the department of behavioural medicine at Sultan Qaboos University in Oman, who was not involved in the study but is a recognised expert in the Gulf, said how mental health is discussed varies significantly between cultures and nationalities.

“The problem we have in the Gulf is the cross-cultural differences and how people articulate emotional distress," said Prof Al Adawi. 

“Someone will say that I have physical complaints rather than emotional complaints. This is the major problem with any discussion around depression."

Daniel Bardsley

The five pillars of Islam

1. Fasting 

2. Prayer 

3. Hajj 

4. Shahada 

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Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
 
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
 
Round 3: February 7-9, Dubai Autodrome – Dubai
 
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
 
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia