Dubai Relies on Foreign Direct Investment To Stimulate Growth
Growth in Dubai and the EAU in general has been subdued during the past year, which has led many in the government to focus on direct foreign investment. In 2018, the volume of real-estate deals dropped significantly declining 21.5% to $60.7 billion according to the Dubai government. The UAE in aggregate saw GDP rise by only 1.94% year over year which was 50% of the expansion the region saw in 2017. To attempt to stimulate growth and buoy the image Dubai has as an economic hub, Dubai has introduced several incentives for foreign investment.
Increasing Investment in Dubai
Incentives started with a move to provide full ownership of businesses to foreigners throughout the UAE. This has been accomplished by offering permanent residencies to large foreign investors which also includes some of the outside free zones. Dubai regulators have also been providing long-term visas to students of foreign investors and have also been revising fees on services and property to incent investment into specific areas.
Dubai is mostly expatriate who have arrived from other countries. Nearly 90% of the population which totals 3.3 million people are expats. More than 70% of the revenue the government derives comes from fees on various different transactions and approximately 30% comes from taxes and company profits. Only 6% of the total revenue generated in Dubai comes from oil.
Dubai is willing to give up revenue to generate incentives for investment. During the period January 2019 through June 2019, the UAE received $12.7 billion in foreign direct investment which was a 135% increase year over year and eclipsing the $10.5 the UEA received during all of 2018.
Debt to GDP is Too High
Unfortunately, the lack of growth has led to a huge public borrowing cost. Dubai has public debt near $123 billion, or 110% of GDP, divided almost equally between the government and state-linked companies. Approximately 65% of the debt will terminate by 2023, which would like create a need to refinance the debt. A maturity this large in conjunction with declining revenues means that Dubai will need the FDI to drive growth.
Dubai GDP
The financial news recently released show that S&P expects Dubai growth to accelerate. Dubai’s GDP is expected to grow by about 2.5%year over year between 2019 and 2022. S&P Global predicts Dubai’s GDP will increase at a rate of about 2.5% with most of the growth driven by economic activity associated with Expo 2020. This compares to the Dubai governments forecast that GDP will rise during the same period by 2.1%W. S&P also forecasts that Expo 2020 will boost tourism in Dubai buoying retail sales which in turn will further stimulate growth. An increase in consumer spending could have a spillover effect ad drive up growth throughout the entire region.
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