Dubai Government

Hearing Session on the Government of Dubai’s Efforts to Confront the GFC Effects on Dubai’s Economy

April 14, 2010

In the presence of His Highness Sheikh Ahmed Bin Saeed Al Maktoum, President of Dubai's Department of Civil Aviation and Chairman & CEO, Emirates Group, and HE Juma Al Majed, Chairman of Dubai Economic Council (DEC), the DEC’s Secretariat has recently organized a hearing session about the Government of Dubai’s efforts to deal with the global economic changes and their direct impacts on Dubai. HE Abdul Aziz Al Ghurair, Chairman of the Federal National Council, HE Abdulrahman Al Salih, Director-General of Dubai Finance Department, and representatives of a number of economic activities in Dubai have attended the session. The event was also attended by HE Hani Al Hamli, DEC’s Secretary-general.

HH Sheikh Ahmed stated that the Government of Dubai constantly seeks to sustain the economic development of Dubai and to restore its achievements realized over the last decades.

“The Government has advocated a package of policies and arrangements to mitigate the global downturn”, he said.

HH Sheikh Ahmed pointed out that the media’s reaction on the “restructuring” announcement of “Dubai World”’ was a reflection of Dubai’s resilient location and its companies in the global economy. He also referred this reaction to the confusion amongst Dubai’s partners about the difference between sovereign debts and those of state-owned-enterprises. He indicated that “Dubai World” is listed within the latter. HH Sheikh Ahmed also mentioned that the Government has raised awareness amongst Dubai’s partners to avoid that confusion. “Now, most of our partners are aware of it”. HH confirmed that partners are keen to keep Dubai as a sustainable commercial center in the global map.

Sheikh Ahmed said that the UAE banks were strong enough to provide the various sectors particularly companies in the trade sector with considerable finances before the GFC in 2008. “No countries were immune to the crisis; however, the recent macroeconomic indicators of Dubai unveil clear improvements compared to many countries in both region and global levels”.

In the foreseeable perspectives context, HH Sheikh Ahmed argues that local business entrepreneurs should focus on core business or pivotal sectors that contributed to promote Dubai as an important business center. Those sectors include trade, tourism, and logistics, etc. He also stressed the important role of the private sector in proposing economic policies to enhance the economic development.

HE Juma Al Majed, DEC’s Chairman said that DEC namely one creative initiative of HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, aiming at incorporating the local businesses in crafting the economic policies for the aim of enhancing the economic development. He also asserted the responsibilities of local economic activities in this context.

Regarding the outlook of Dubai’s economy amid the present situation of global economy, Al Majed stated that it is important to direct the economic policies towards boosting the activities through inducing the businesses for more entrepreneurship and innovation, and to increase the productivity for the aim of higher and sustainable economic growth rate. “This can be achieved if the UAE Central Bank and the local banks pursue steps similar to those taken by the banks in the US and Europe” Al Majed stressed.

Al Majed argued that the VAT project agreed among GCC state members to compensate the losses of custom tariffs when signing FTAs with other countries, which will not benefit the UAE’s economy. “Such project needs institutional readiness” Al Majed confirmed. Instead, Al Majed prefers to keep the custom tariffs mechanism to fuel the public revenues with the possibility of revision of the VAT project in the future.

Al Majed asserted the importance of enhancing the main sectors of Dubai’s economy. Regarding the real estate sector and its contribution to the local economy, Al Majed pointed out that the sector links to the rising growth of Dubai over the last years. He also added that the expansion of the real estate over the last few years is attributed to its openness to foreign investments. Al Majed also called for providing an enhanced regulatory framework for foreign investors characterized by transparency in one hand, and to secure the best results for Dubai’s economy on the other hand.

HE Hani Al Hamli, DEC Secretary-General stated that this hearing session stemmed in terms of DEC’s keenness in monitoring the developments in Dubai’s economy amid the present situation of global economy, and to activate dialogue between various economic activities and economic decision-making circles for the aim of proposing policy recommendations that seek to enhance the economic development in Dubai.

The first part of the session includes a DEC’s Secretariat presentation on the global financial crisis and its impacts on Dubai’s economy.

The presentation sheds light on the macroeconomic developments in Dubai in 2009. It shows that the GDP growth rate of Dubai declined over the last two years as a result of sectors slowdown especially in construction and real estate sectors. The liquidity was also reduced to 3.5% in 2009 after reaching the maximum level of 42% in 2007.

Moreover, despite the GFC effects, trade still acts as a dominant sector in the economy. Inflation rate based on CPI (2005-2010) reduced from 11.3% in 2007 to 1.03% in February 2010.

The presentation also covered the latest developments in different sectors. It revealed that the real estate sector was relatively stable in 2009. The tourism sector witnessed relative growth in Q4 2009. Additionally, Dubai’s exports were not significantly affected by the GFC, indicated by an increase of AED 16bn in Q4 2009 compared to AED 8bn in Q1 2007. With regards to re-exports, the figures revealed an increase between Q2 and Q4 2009.

Dubai’s imports are too diversified in terms of trading partner countries unlike exports. Both India and China represented 27% of total imports.

The presentation ended by reviewing the developments in the local financial markets. It demonstrated that both Dubai and Abu Dhabi markets were relatively stable in 2009 in low levels compared to previous years.

HE Abdulrahman Al Salih, DG of Dubai Finance department demonstrated Dubai’s budget in 2010. He indicated the slight decline in operational revenues from AED 28,745bn in 2009 to AED 26,611bn in 2010. He also stated that deficit AED 5,990bn in 2010 budget was a result of investment projects made by the government such as Dubai’s metro and infrastructure. He asserted the decline of this deficit over the next two years.

Regarding the budget policy, Al Salih stated that it based on estimated surplus amounted AED 1,9bn. The deficit will not exceed 2% out of GDP. He defined this as “accepted” level compared to best practices worldwide which exceed 3%.

Al Salih demonstrated the efforts made by the Government of Dubai to reform the public finance and how to fuel expenditures in short, mid and long-terms. He also presented the main characteristics of the finance strategy which includes financial stability and sustainability, rational public spending, revenues improvements and sound government commitments.

At the end of the session, many questions have been raised, focused on liquidity in local markets, business costs, public finance and VAT.

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