by Madhav Kapoor
Dubai - A city of skyscrapers and artificial archipelagos. A global hub of free movement of trade, people, and money. A symposium of luxury shopping and lively nightlife. All this is in the past and Dubai’s economy is flagging.
Dubai’s economy is fueled by the tourism, hospitality, real estate, and oil industry, which add to contribute to 52.5% of the Gross Domestic Product (GDP). But since 2014, these sectors have seen negligible growth.
The tourism industry has seen a fall of 14% since 2014, which accounts for 12% of the GDP. The hospitality industry has also seen an 11% decrease.
Dubai is also heavily dependent on the oil sector to bolster its economy, but all-time low global oil prices have just made the situation worse. All these factors indicate one thing- a depleting economy.
The economic situation has not been helped by the ongoing geopolitical tension in the region, not least in terms of the threats to shipping passing through the nearby Strait of Hormuz.
Dubai has taken a notably cautious position on that, pushing for more dialogue with Iran and softer rhetoric in a bid to calm things down, even sending a delegation to Tehran last month for talks on maritime security.
The authorities in Dubai clearly don't want to risk pressure on their already dwindling economy.
And all of this was before the Covid-19 pandemic shocked the entire world. Since then, businesses have been cutting the salaries of employees as well as are sending them on unpaid leaves and decreasing staff.
Dubai is also heavily reliant on its 80% expatriates (people who live outside their native country.) population to shop and eat out, but due to the ongoing pandemic, most of these rich expatriates have left for their home country.
Dubai owned aviation companies, Etihad and Emirates have also seen its operations grounded.
The world’s tallest skyscraper, the Burj Khalifa, The Dubai Mall, The Palm Jumeirah, and The Dubai Gold Souq are all in the bits of despair with business shutdown during the citywide lockdown.
47% of Dubai’s internationally known hotels and restaurants are likely to go out of business in the next month, according to the Dubai Chamber of Commerce. 74% of travel and tourism businesses will put down their shutters in the next month.
Dubai’s real estate, is crumbling to the ground. Residential property prices are down 30% since their peak in 2014. On the commercial side, i.e., hotels and restaurants have reported a 25% decrease in revenues since they peaked in 2015.
In 2019, Dubai’s GDP growth rate stood at 1.2%, which was the worst performance for the economy since the global financial crisis in 2008. Dubai and its vast web of state-owned industries are facing billions of dollars in ballooning debt repayments.
So, for the foreseeable future no oil money, no tourism, no foreign funds, and no big real estate deals. To add to the misery, Dubai still faces a public debt of $123 billion, or 110% of its GDP, divided almost equally between the government and state-linked companies. And about two-thirds of the public debt is set to mature in 2023.
All these factors can lead to a default in debt repayment, which may trigger a recession in the emirate.
Thus, Dubai is likely staring at an economic collapse. One of the world’s most popular tourist destinations is feeling the fault lines like never before.
No tourists, no oil money, and the pandemic have left Dubai scrambling for money. If nothing is done, most of Dubai’s businesses will shut down in the next 6 months.