Last updated: November 19, 2012 3:55 pm

Dubai hopes revival is built on solid foundations

You feel it in the thickness of the traffic and in the bustle of the hotels and restaurants. You hear it in the rumours of the old guard re-emerging to lead the city’s growth again.

And, to the joy of some and the concern of others, you see it in a slew of announcements of new development projects. Not long ago down and out, Dubai is back, its confidence restored and its ambitions regained.

Last week, officials predicted that the emirate’s gross domestic product will average between 4.5 and 5 per cent through 2015. Writing in the National, the Abu Dhabi newspaper, Sami al-Qamzi, head of Dubai’s Department of Economic Development, sounded a bullish note, declaring that the emirate was emerging stronger and more mature from the global downturn.

“Today, there is renewed confidence on the performance of Dubai’s economy. A resurgence of activity is visible and the city is on track for the next phase of development,” he said.

True, parts of the real estate market, especially on the commercial side, are still struggling, and the emirate has yet to deal with its debt – Standard Chartered Bank says there is $48bn of maturities due in 2014-16. But economists say there is a recovery in housing prices, particularly in popular developed areas.

The emirate has indeed been getting its house in order. Only three years ago it was in the doldrums, its ambitions running ahead of itself, its real estate bubble finally exploding under the weight of massive leverage.

Once the highest-flying city in the Arab world, enamoured with its own success and convinced that it was immune from global turbulence, Dubai shocked the world in 2009 with the announcement that it would not be able to make repayments on time for debt held by state-owned conglomerate Dubai World.

Having already tapped the United Arab Emirates federation for funds, Dubai then sought the help of its oil-rich sister, Abu Dhabi, to avert a default by troubled developer Nakheel, and has since gone through several rounds of restructuring of its $110bn debt pile.

As has historically been the case, Dubai fell back on its real economy, focusing its attention on tourism, trade and transport. And, similarly, it has again benefited from the volatile regional environment.

People fleeing the turmoil (including many of those who were close to deposed regimes) have found refuge in a city that puts the emphasis on business, not politics.

Some Egyptians, Libyans, Tunisians and Syrians have moved their families to the emirate, and sometimes even their businesses.

Yet, even those celebrating the emirate’s revival are worried that as it finds itself on a safer footing Dubai might, once again, get carried away with its dreams.

“The process of development never stops and has no limits,” said Sheikh Mohammed bin Rashid Al Maktoum, the ruler, as he recently approved a series of new projects.

These developments included an expansion to resort complex Madinat Jumeirah and the ambitious extension of the Dubai creek, which threatens to create traffic chaos as the waterway is planned to cut through three of the city’s main thoroughfares.

Some of the projects are said to be creating tensions between the old guard – responsible for the boom-to-bust Dubai – and the new guard, who had been brought in to clean up the debt mess.

Economists, however, say the concerns are exaggerated simply because liquidity conditions, in global markets and within the UAE, are so dramatically different that they act as a deterrent to excess.

Hardly anyone is lending today, notes Marios Maratheftis, regional head of research at Standard Chartered Bank, and credit conditions will remain tight because of the debt maturities coming up. In fact, Mr Maratheftis argues that Dubai is on a healthy path because it is growing and not booming, and the growth is being driven by hospitality, retail and logistics.

“I’d much rather see 3 to 4 per cent growth than 8 to 9 per cent,” he says. “Dubai is moving into a phase of quality growth.”

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