Gary Seabrook is busy tripling capacity at the paint business he runs near the Dubai port because he doesn’t want to miss out on any sales.
The general manager of Caparol Paints in the United Arab Emirates and a Dubai veteran of 23 years has seen the booms and bust, and his company is now investing as much as 40 million dirhams ($10.9 million) so it can serve countries across the Gulf and North Africa. Exports by companies based in Dubai increased 15 percent last year, the Chamber of Commerce said.
“We’re going to expand our facility here to make it a regional hub,” said Seabrook, 52, a native of Zimbabwe. “We’re coming out of the downturn and Dubai is coming back. It’s going back to its roots of trade and tourism.”
Less than two centuries since tribesmen settled on the Dubai Creek and 40 years after the creation of the United Arab Emirates, the city may be coming of age. Three years ago it was a microcosm of what went wrong in the world with its property market bust, financial bailout and incomplete skyscrapers as workers departed.
Now Dubai is cementing its role as a stable trading hub in a region marked by violent upheaval over the past year. The stock market gained more than anywhere else in the world last month, its DFM General Index (DFMGI) surging 21 percent as companies improved earnings and paid higher dividends.
Debt default risk perceptions for Dubai, which got a $20 billion bailout from neighboring Abu Dhabi in 2009 to help restructure its debt, have receded this year partly on pledges that the emirate’s main companies will manage to refinance debt this year without government help. The yield on the government’s debt is close to a seven-month low.
“Dubai is an unfinished city with half-built towers and roads that don’t go anywhere,” said Jim Krane, a researcher at Cambridge University’s Judge Business School and author of the 2009 book “City of Gold, Dubai and the Dream of Capitalism.” “It can’t focus on the big and glitzy projects anymore because it can’t afford them. Now it has to move into a new phase that is more sustainable.”
The economy of Dubai may expand as much as 5 percent this year after growing more than 3 percent in 2011, Sheikh Ahmed bin Saeed Al Maktoum, the head of Dubai’s Supreme Fiscal Policy Committee, said on Feb. 15. The city has no need to raise money from international bond markets this year nor get support from neighboring Abu Dhabi, the head of the Dubai ruler’s court, Mohammed Al Shaibani, said in an interview last month.
Best Since 2008
“Dubai’s economy is the best it’s been since 2008,” said Simon Cooper, chief executive officer of HSBC Holdings Plc’s Middle East business. “Growth is not being driven just by real estate, but also by trade and finance.”
Paul Foster was a real-estate executive in Dubai during the boom years that produced palm-shaped islands and the world’s tallest building before abandoning the city as prices collapsed. He’s now back after two years in London and is working with companies including Qatari Diar Real Estate Investment Co. and state oil company Saudi Aramco.
“The geographic location as the center of time zones makes it an ideal place in terms of dealing with Asia and Europe,” said Foster, 46, group head of asset performance and facilities management at consultants EC Harris LLP. “The first time I came here was because of the sheer excitement of the big projects.”
Emiratis make up less than 10 percent of Dubai’s population. The locals enjoy state benefits in the form of subsidies for housing and utilities. While foreign workers have to pay for services, they get tax-free salaries.
The second largest of seven sheikhdoms in the U.A.E., Dubai racked up $129 billion in debt transforming itself into a financial and tourism hub, spawning the record-breaking Burj Khalifa tower and malls housing the likes of Louis Vuitton.
Hundreds of thousands of homes were built, along with offices, hotels and malls along Dubai’s Sheikh Zayed Road as the construction boom intensified after Dubai first allowed foreigners to own homes in selected areas in 2002.
The collapse of Lehman Brothers Holdings Inc. in September 2008 put an end to that as credit dried up. In 2009, conglomerate Dubai World roiled world markets when it sought to delay repaying about $25 billion of debt. Since the global credit crunch, developers across the U.A.E. suspended or canceled around $500 billion worth of projects, twice as much as in the other five Gulf Cooperation Council countries, Arqaam Capital analyst Mohammad Kamal said.
Bank of America Merrill Lynch estimates the city and its state-controlled companies still face about $10.3 billion in debt repayments this year alone.
“There’s still a lot of debt overhang and corporate restructurings to be worked through,” said Khalid Howladar, a senior credit officer at Moody’s Investors Service in Dubai. “Deferral of the problem has been one approach, which buys more time but still leaves a cloud of uncertainty over legacy issues that constrain confidence.”
The civil unrest in the region and rising oil prices have helped Dubai. Oil prices have almost tripled since the end of 2008 and governments across the Gulf pumped money into the economy.
OPEC was estimated to have earned net oil export revenue of $1.01 trillion last year, according to an August forecast by the U.S. Energy Department. The GCC, which includes the U.A.E. and neighboring Saudi Arabia and Qatar, last month accounted for 51 percent of OPEC’s crude production, according to Bloomberg data.
The Saudi Arabian economy, the Arab world’s largest, expanded 6.5 percent in 2011, the fastest pace in eight years, according to estimates by the International Monetary Fund. Qatar grew 19 percent, the fastest expansion in the world.
“Because of political turmoil you see money coming in to Dubai in search of safety,” Mark Mobius, who says he oversees more than $50 billion at Templeton Emerging Markets Group, said in a March 8 interview in Bloomberg’s Dubai office. “We’ve just expanded our office here. We moved into a larger office and I think you are going to see a lot more other people coming in particular if Saudi Arabia opens up.”
The Dubai Financial Market General Index fell 1.1 percent to 1,667.38 at the 2 p.m. close in the emirate today, bringing the advance from a low on Jan. 16 to 28 percent. Last month, the benchmark surpassed the 20 percent threshold some consider the beginning of a bull market, and had the top monthly gain among benchmark equity indexes worldwide.
As uprisings toppled leaders in Egypt, Tunisia, Yemen and Libya and security forces quashed unrest in Bahrain and Saudi Arabia’s Eastern Province, a record 51 million passengers passed through Dubai’s airport last year. Dubai Airports said on Feb. 27 passenger traffic grew 14 percent in January from a year ago.
Dubai received 9.3 million tourists last year, up 10 percent from 2010, pushing up hotel revenue by 20 percent, the emirate’s tourism department said March 7. The city’s largest malls such as Dubai Mall and Mall of the Emirates are operating at more than 90 percent occupancy rates, according to their owners. Shopping accounted for about 30 percent of Dubai’s gross domestic product last year, Standard Chartered Bank Plc economist Philippe Dauba-Pantanacce estimated.
“Dubai is growing again in transportation, logistics, oil services, tourism and retail and the economy is being better managed and consolidated than a couple of years prior to 2008,” said Ashok Aram, Deutsche Bank AG’s chief executive officer for the Middle East and North Africa. “Both growth in the Gulf region as well as regional political challenges are assisting Dubai in its recovery.”
The decline in the cost of doing business is also making Dubai, a city of 2 million people, more competitive, Aram said.
Office rents dropped more than 65 percent on average, said Craig Plumb, head of research at Jones Lang LaSalle. Those in the Dubai International Financial Center were cut by half in 2010. The number of companies operating in the business park rose 7 percent last year, the center said.
The Department of Economic Development issued 14,360 business licenses last year, an increase of 3.9 percent on 2010.
“One of the department’s strategic objectives is to create a suitable environment that retains Dubai as a destination of choice for investors,” it said in the Feb. 22 statement.
Dubai is also continuing to invest in infrastructure to finish what it started. Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum approved a $7.8 billion expansion plan for Dubai’s two airports to boost annual capacity to 75 million travelers by 2012 and to 90 million by 2018, Paul Griffiths, chief executive officer of Dubai Airports, said in July 2011.
“If you have a job here, Dubai is a great place to be now,” Ruth Sheehy, a graphic designer who lives in Dubai with her husband. “Dubai feels more like a real city where people can settle down. Before we all used the city for job growth and money, but most planned to move on.”
The number of children born to expatriate parents in Dubai jumped 54 percent in the five years ending 2010, the last year for which data is available. At least 17,054 babies were born to expatriate parents in Dubai in 2010, up from 11,067 in 2005, Ministry of Health data shows.
Sheehy, who for years shared a home with two other friends, was one of those who left the city in 2008. She returned in 2011, married and moved into an apartment with her husband, now affordable after the market collapsed.
Seabrook at Caparol Paints, a unit of Deutsche Amphibolin Werke Group, Europe’s third-largest paint manufacturer, employs 70 people at the plant in the Al Quoz industrial area. Caparol began its operations in Dubai in 1999 and currently exports almost as much as it delivers within the U.A.E.
The expanded facilities will include paint manufacturing, a warehouse, research and a color design studio. They will move to Dubai Industrial City next to the new airport.
“I’ve seen Dubai go up and down,” said Seabrook, who is married with two teenage children. “I don’t think it will ever be like it was before 2008, but I think it will regain its regional status for trade and tourism.”
To contact the reporters on this story: Zainab Fattah in Dubai at firstname.lastname@example.org; Stefania Bianchi in Dubai at email@example.com
To contact the editor responsible for this story: Andrew Blackman at firstname.lastname@example.org