Special Report: UAE - Dubai downturn forces strategy rethink

17 February 2010

Dubai may not have much oil, but its economy still relies heavily on oil revenues, albeit those of neighbouring Abu Dhabi.

In light of Dubai’s very public financial difficulties, there was little surprise last month when the emirate unveiled spending cuts for its 2010 budget. Government spending is projected to total $9.6bn this year, some 6 per cent lower than the $10.3bn in 2009.

Some economists had expected an even larger reduction, given that the emirate has had to seek $20bn in bailouts from Abu Dhabi since the global financial crisis took hold.

But in drawing up this budget, the Dubai government has sought to find a balance that allows it reign in its spending, while at the same time preventing the economy from stagnating. It has done so by allocating $4.7bn – just under half the budget total – to infrastructure and transportation projects.

Continued investment in infrastructure is considered crucial for the future of Dubai’s economy. If the emirate is to retain its position as the commercial hub for the Gulf region, an integrated transport system is vital.

But perhaps more importantly, by continuing to push ahead with its infrastructure projects, Dubai will be keeping several thousand expatriate workers in employment. As consumers who make an important contribution to the economy, their continued presence in the emirate is another key element that will decide the future of the city state.

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