Expo will save Dubai from recession not fuel a boom

15 March 2016

Projects for 2020 will underpin the economy over next three to four years

When Dubai secured the rights to host the BIE’s World Expo in late 2013 the emirate began to gear up for a white knuckle ride rerun of the 2003-08 period of frenetic investment and construction activity.

In 2016 the impact, although arguably more significant, will be more modest as the Expo will prevent a recession rather than create a boom.

For the six months that followed the award of the Expo there were a series of project launches and a slew of construction contract awards. Since mid-2014 the market has slowed. The property market has started creaking as new supply is delivered and lower oil prices have depleted regional liquidity that could have been used to fund new projects.

According to data from MEED Projects, 2015 was the first year of negative growth for construction contract awards since the market bottomed in 2011. There were $21.3bn of contract awards, which was about 18 per cent less than the nearly $25.9bn of contracts awarded in 2014.

As highlighted in November, investment in projects is a key driver of consumption across the region as people working on projects spend money in shopping malls, buy cars, have children at schools, and invest in property. Experience from Dubai in late 2008 and early 2009 demonstrated how strong the link between construction activity and economic growth is.

The impact on the broader economy has now been confirmed. Emirates NBD’s index monitoring the performance of Dubai’s private sector dipped to 48.9 in February, marking the first time in five years that the index fell below the neutral score of 50. The concern now is that Dubai could be descending into a vicious cycle of economic decline.

The good news is the government has been moving to prevent a downturn for over a year. With a currency pegged to the US dollar the government’s options for stimulating the economy with monetary policy are limited, leaving public sector investment as one of the key levers available to policymakers for driving growth.

That lever is being pulled on an almost weekly basis. Over the past year the government and the companies it controls have been busy launching new projects. More recently, new construction contracts have been awarded, and so far this year there have been nearly $6bn of new work secured in Dubai.

More work will be let this year as the immoveable Expo deadline injects urgency. Commercial offers for the contract to design and build the new metro link connecting to the Expo site have been opened, and an award is expected by the end of the first half of this year. That $2bn contract, along with other expected awards for work on projects such as Nakheel’s Deira Islands mall, Wasl’s new tower on Sheikh Zayed Road, the Investment Corporation of Dubai’s Zabeel One tower, and expansion work at both Dubai International and Al-Maktoum International airports are real opportunities for construction companies this year.

These schemes together with specific Expo projects like the three futuristic pavilions for which the design was recently awarded to the UK’s Foster + Partners, Grimshaw Architects and Denmark’s Bjarke Ingels Group (BIG), will keep Dubai’s construction sector active over the coming three to four years.

Providing Dubai has access to the funds to deliver it, this strategy will underpin the economy and prevent it sinking into recession.

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