Dubai has emerged from the global financial crisis and the collapse of its property market with renewed vigour, evidenced by its enthusiastic revival of old, stalled projects and the fresh influx of investment ploughing into new infrastructure developments.

The renewed dynamism of Dubai is increasingly attracting the eye of international governments and investors eager to win a share of the emirate’s projected growth.

A strong pipeline of new real estate and infrastructure will help Dubai achieve its ambition of being a regional trade, logistics and tourism hub. These projects are needed to both host the World Expo event in 2020 and fulfil the requirements of the emirate’s 2030 vision.

Funding gap

Although Dubai will directly fund many of these projects, the government and its related entities still have a backlog of unpaid debts left over from the financial crisis and will not be able to meet all funding requirements alone.

The newly recovered and liquid local banking market will have a key role to play in supporting these projects, but is likely to exercise greater caution on lending after running up large debts during the global slowdown.

Fortunately for Dubai, international governments and investors are stepping in to plug this funding gap. 

Even before the allure of the Expo win in late 2013, foreign direct investment (FDI) in Dubai was on the rise and has accelerated in recent years. Official statistics for 2012 report that FDI rose by 11.5 per cent compared with the previous year, reaching AED171.6bn ($46.5bn).

Foreign direct investment into Dubai

This year alone Dubai has welcomed numerous trade missions from China, the UK, South Korea and the US. Their respective governments have all bought into Dubai’s vision and want to ensure their country’s companies are primed to win lucrative contracts supporting the anticipated growth of the emirate.

Seoul partners

South Korea is the latest country to see its government sign new export and investment-related deals with Dubai’s authorities, building on already strong ties with the region.

The country’s engineering and construction companies have won several contracts throughout the Middle East region in recent years, and its trade flows with Dubai exceeded $10bn in 2013.

In mid-August, the sovereign wealth fund of the emirate, Investment Corporation of Dubai (ICD), signed a preliminary agreement with the Export-Import Bank of Korea (Kexim) pledging to work together on investment projects in Dubai, as well as in Asia, the rest of the Middle East and Africa.

Kexim is a government-backed trade finance agency providing export finance and support for overseas projects involving South Korean companies.

As well as investing in Dubai, one of the primary focuses of the deal is to foster joint cooperation and investment on projects in sub-Saharan Africa.

It is not only Dubai’s internal growth that is the attraction, many governments and investors see the emirate as the ideal springboard into other attractive markets.

Chinese interest

China is also looking to capitalise on Dubai’s projected growth, with the emirate’s GDP projected to rise by approximately 4.7 per cent in 2014.

In early July, a Chinese delegation from the state-backed China Development Bank (CDB) met the Dubai Economic Council (DEC) to discuss trade and investment ties.

The delegation visited numerous entities including Dubai Airports, Dubai Electricity & Water Authority (Dewa) and the Jebel Ali Free Zone. It was also revealed the Chinese bank is considering opening a UAE branch in Dubai.

This year’s meeting follows a partnership agreement signed in 2013 between the DEC and CDB, under which the DEC would help the Chinese bank find projects to finance. 

Other Chinese banks have found opportunities for business over the past year.

Industrial and Commercial Bank of China (ICBC) has provided a AED737.6m project financing in January this year to support the construction of a new Dubai hotel, the Viceroy Dubai Palm Jumeirah.

It is the first time ICBC has provided a project finance facility for a hotel project in the Middle East. The deal reflects the bank’s ambitions to increase its presence in the UAE, particularly in the real estate sector.

Japan support

Japan’s government has a long-standing relationship with Dubai, having supported Japanese companies winning contracts in Dubai’s transport sector, among other areas.

It was the Japan Bank of International Cooperation (Jbic) stepping in to fund the Dubai Metro in 2010 that helped resolve pay disputes between Dubai’s Roads & Transport Authority (RTA) and Japanese contractors building the network during the financial crisis.

UK connections

The UK has embarked on a particularly strong campaign this year to promote the country’s interests in Dubai; in turn helping to drive increased investment flows into the emirate.

“[Dubai is] a hotbed for us to concentrate on,” said Shakir Khaja, a high-value opportunity specialist at UK Trade and Investment (UKTI), at the Dubai event earlier this year. “The money that is being spent in a small area, you can’t compare this [to] elsewhere around the globe.”

In March, UK-based construction firm Carillion announced that its Dubai-based joint venture company, Al-Futtaim Carillion, secured a $102m contract from Dubai World Trade Centre (DWTC) to build the first phase of the Dubai Trade Centre District (DTCD).

Artist rendering of Dubai Trade Centre District Phase 1

Artist rendering of phase 1 of the Dubai Trade Centre District

The deal followed a previous transaction signed by the contractor in 2013 for work on The Avenue retail development for Dubai-based developer Meraas.

Both contracts were funded with bank finance, backed by a guarantee from the UK’s export credit agency, UK Export Finance. These are government-backed guarantees that provide cover of up to 85 per cent of loans extended to the Dubai-based buyer.

By using these guarantees, the foreign buyer can also reduce the cost and extend the length of the financing, as lenders base their pricing on exposure to UK government risk, as opposed to the credit risk of the foreign buyer. 

US backing

The Americans are also competing to win work in Dubai for its exporting industries. In April, the Export-Import Bank of the United States (US Exim) signed a memorandum of understanding (MoU) with Dubai Economic Council in Washington DC.

The accord could see as much as $5bn-worth of export credit support approved by the US bank to finance US exports in Dubai, which will support major infrastructure developments.

At the time of signing, the bank’s chairman, Fred Hochberg, said the agreement would keep US exports competitive.

“The MoU… helps ensure that American exporters are not disadvantaged by foreign companies relying upon state-driven capital,” he said.

His comments reflect how competitive the Dubai market could become as more foreign companies and governments pile in to capitalise on the emirate’s vision.

The increasingly competitive environment, however, will only help Dubai achieve its goals, as international companies vie to offer its developers and companies increasingly attractive financing terms, backed by government guarantees.