New Dubai projects, GDP growth to spur retail activity

Sector set to flourish

In 2011, the UAE was rated by ‘Forbes’ magazine as the world’s sixth wealthiest nation by GDP per capita income, surpassing most developed economies.

This means the country is on the top in terms of purchasing power, which is playing a crucial role in keeping the domestic retail sector one of the world’s busiest and most vibrant.

With the announcement of new mega-projects in Dubai, with shopping malls and online market services continuing to mushroom, the domestic economy remaining strong and inflation dipping to a minimal level, experts believe the UAE’s retail sector will steam ahead in the next years.

What will give this sector an additional momentum is the sophisticated shopping infrastructure in the country and the so-called ‘Arab Spring’ which is luring more tourists into Dubai and the rest of the UAE.

The UAE’s high purchasing power is reflected in its massive family consumption, which involves individual spending on consumer items and services. Formerly second only to Saudi Arabia in the Arab region, the UAE jumped to the top position in 2010, when family consumption stood at Dh575 billion.

It maintained that rank in 2011 as consumption leaped to nearly Dh640 billion, more than 15 per cent of the total family consumption in the 21-nation Arab League, according to official Arab data.

The steady surge in family consumption in the UAE, mainly a result of the high per capita income, was manifested in the rapid growth in the retail and wholesale sector’s contribution to GDP over the past years.

Trade to GDP

From around Dh67 billion in 2001, the value of that contribution leaped to Dh90 billion in 2005 and Dh134 billion in 2009.
It swelled to Dh138 billion in 2010 before hitting an all- time high of around Dh146 billion in 2011.

The rise boosted the trade sector’s share of the overall GDP to one of its highest levels of around 11.7 per cent to maintain its position as the second largest component of GDP after the hydrocarbon sector.

"The retail sector in the UAE has grown so fast over the past years that it has become a major contributor to the non-oil economy this growth was driven by many factors, including the presence of a sophisticated shopping infrastructure, the organisation of too many events and occasions every year and the opening of scores of malls and other shopping outlets," said Mohammed Al Awadi, a prominent businessman in Abu Dhabi.

"Other factors include the demographic diversity in the UAE as there are nearly 150 nationalities and cultures this means we are talking about 150 different tastes another major factor is the strong tourism sector in the country, mainly Dubai, which has become one of the world’s dominant retail business destinations," said Awadi, who controls a big chain of jewelry shops in the country.

Awadi, a former head of the trade committee in the Abu Dhabi Chamber of Commerce and Industry, said he expected the retail activity in the UAE to pick up in the coming years because of the steady population growth, the high per capita and purchasing power, strong economic growth and plans for new mega-projects in Dubai.

Dubai projects

Awadi was referring to the recent announcement by the  Vice-President and Prime Minister of the UAE and Ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum, of plans to establish a new city within Dubai. The ‘Mohammed Bin Rashid City’ will feature world class leisure facilities including a park to accommodate 35 million visitors, the Middle East’s largest entertainment and leisure centre and the world’s largest shopping mall.

"These projects will ally with GDP growth and other factors to keep the retail sector busy. My expectation is that we will see at least 10 per cent growth in the retail business in the UAE, mainly Dubai, in the next few years."

Another analyst also expects a surge in the country’s retail industry in the next few years.

"The retail sector in the UAE is now contributing by around 14 per cent to GDP our estimates show that it will grow by an average seven per cent between 2011 and 2015," said Costas Verginis, Middle East Leader for Travel, Hospitality and Leisure at Deloitte & Touche, a key UK auditing and consultancy firm.

Retail value

Experts estimated the retail market in the UAE at more than Dh40 billion in 2011, based on the assumption that retail activity accounts for over a third of the wholesale and retail sector in the UAE, the second largest Arab economy.

They quoted official UAE data as showing the wholesale and retail sector stood at around Dh146 billion in 2011, almost double its size of Dh73 billion 10 years ago.

"The retail sector in the UAE has become one of the most important economic sectors following the rapid and steady expansion in domestic retail business over the past few years thanks to the upswing in the domestic economy and other factors," said Mohammed Al Asumi, a Dubai-based Gulf analyst.

"I believe this sector will continue to flourish in the coming years as our expectations are that the UAE economy will record strong performance in the coming period because of strong crude prices, growth in the non-oil sectors and high public and private spending you can say the UAE and other Gulf countries have totally overcome the effects of the 2008 global fiscal distress."

Main factors

Asumi said several other factors would contribute to the steady expansion of retail marketing in the UAE in the next period, including Dubai’s recovery, a steady increase in the number of tourists to the UAE, in particular Dubai, an upturn in foreign investment flow into the country, high population growth and the influx of more foreign labour.

"The Arab Spring is another key factor it has lured more tourists into the UAE, mainly from other Gulf countries, including Saudi Arabia .as you know, tourism plays a crucial part in stimulating domestic business in any country," he said.

"Other reasons include the strong purchasing power in the UAE, low inflation rates, the increase in the salaries of public servants and other employees in the country, and the staging of many events, including shopping festivals and exhibitions."

An investment expert attributed the surge in Dubai’s retail industry for the boom in that sector in the UAE.

"I think Dubai leads the retail activity in the UAE given its status as the region’s commercial hub and the sharp rise in the number of shopping malls in the emirate I estimate that Dubai accounts for over half the UAE’s retail market," said Fadi Kiswani, director of the Sharjah-based Alsharhan Investment and Securities.

"Dubai has been the main driving force in the retail business boom in the country the main reasons are its massive commercial activity, open and liberal policies, a sharp rise in the number of malls, and the influx of tourists.

“I believe the Arab Spring was a principal factor in the recent surge in retail activity in Dubai’s malls most Saudis and other Gulf citizens have started to flock to Dubai on holidays as they were scared off by the political unrest in other Arab countries airport figures showed over 25,000 Saudis came to Dubai every day through the airport during Eid Al Adha holiday."

Dubai GDP growth

Official data released last week showed the tourism sector in Dubai is poised for further growth as part of overall expansion in the emirate’s GDP.

The figures by the Dubai Statistics Centre showed the emirate’s GDP at constant prices grew 4.1 per cent in the first half of 2012 to Dh161.5 billion. Foreign trade, including re-exports, rose 11.4 per cent in the same period.

The GDP growth is seen on track to reach the Dubai government’s forecast of five per cent for the year, according to Sami Al Qamzi, Director-General, Department of Economic Development.

He said that key growth drivers were trade, tourism, logistics, foreign direct investment, FDI, exports and re-exports, adding that the hotel and restaurant industry recorded growth of over 16 per cent.

The figures showed tourist arrivals in Dubai grew 10 per cent and hotel revenues 19 per cent during the first half. Altogether, five million tourists visited and stayed in Dubai during the period and another five million are expected in the second half of the year.

Passenger traffic through Dubai International Airport increased 13.7 per cent. By 2015, the airport is projected to handle 75 million passengers, the report said.

Dubai malls

Dubai, the Gulf’s commercial, tourism and business hub, has the world’s largest shopping mall and the highest number of malls in the world relative to its population. The Dubai Mall attracted nearly 54 million visitors last year, around 15 per cent higher than the 47 million visitors in 2010.

The numbers surpass visitor arrivals to all landmark leisure destinations and theme parks elsewhere in the world including Times Square (39.2 million), Central Park (38 million), both in New York; and Niagara Falls (22.5 million).

The number of visitors to The Dubai Mall is also more than the number of annual tourists to New York City in 2011, reported at 50.2 million.
In a recent study, RNOCS of India said the retail sector in the UAE, mainly Dubai, has been one of the fastest growing sectors, adding that the country is emerging as the most attractive retail destination in the world on the back of a strong economy, rising population, increasing consumer confidence, and soaring consumption.

It said favourable government policies and active participation of the private sector have spurred the retail environment.

On the back of these factors, the UAE retail industry is anticipated to grow at a CAGR of around 8 per cent during 2011-2014, it said.

Dubai, which handles around a fifth of the Gulf’s non-oil trade, controls the bulk of shopping malls in the UAE, with the number of such facilities rising from less than 15 in 2000 to 68 malls at the end of 2011. Plans are under way to construct nine major malls in the emirate, indicating the retail industry will remain robust.

"The retail sector in the UAE in general, and in Dubai in particular, has been in a booming state and will remain so in the coming years there are many reasons for this they include the opening of new malls and other shopping outlets, staging of shopping festivals and other events, regular discounts and price offers, GDP growth and strong purchasing power, the steady increase in the number of tourists, the reasonable prices of goods in Dubai and the fact that many Asian tourists come to Dubai for its shopping diversity and proximity to their countries, which make it a better option than to go to Europe or the United States," Suchita Duli, accounts manager at a PR company for the Dubai Malls Group.

Other emirates

Abu Dhabi had around 30 major malls at the end of 2011 and is planning to build six more. Sharjah had 15 malls while around 35 large malls are based in other emirates.

In a recent study, a key Arab League establishment said the UAE has the highest spenders in the Arab world.

The Abu Dhabi-based Arab Monetary Fund estimated the average individual spending in the UAE at around $21,577 in 2010, by far the highest in the region.

The UAE was far ahead of Qatar although that country has remained on top of the region in terms of GDP per capita. Qatar’s domestic consumption stood at around $24.76 billion while its population was estimated at nearly 1.69 million people at the end of 2010. This means its individual spending stood at $14,650.

Saudi Arabia had the second largest domestic consumption in the region at around $157.4 billion. But its population is as high as three times that of the UAE and this means its average individual spending stood at $5,808 for a population of nearly 27.1 million, or just over a quarter of that of the UAE.

Key reasons for the retail business boom in the UAE:

- Upswing in the domestic economy
- Dubai’s openness and free economic policies
- New mega-projects in Dubai
- Sharp fall in inflation in the UAE
- Political stability
- The Arab Spring
- Increase in the number of tourists
- Salary rise
- The spread of shopping malls and online shopping services
- The UAE’s strong purchasing power and high GDP per capita
- High oil prices as well as rise in public and private spending
- High population growth
- Influx of capital and more workers
- Organisation of major exhibitions, shopping festivals and other events
- Price discounts and promotion offers on certain occasions

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