5 numbers prove strong recovery

The global economic crisis may have taken the steam out of an accelerating – some might argue overheating – Dubai growth in the past couple of years, but there are clear signs that the city-state is back in the race for a rapid recovery.

In fact, if things remain on the fast track, the emirate may handsomely surpass conservative expectations. Let’s look at some of the numbers that are bound to make investors vote with their wallet sooner than later:

47.5 million: That’s the total passenger movement recorded in 2010 by Dubai International Airport and marine transport. And that number is 15.6 per cent more than the 41.1m passengers recorded in 2009. A 15 per cent-plus growth in a year written off for all practical purposes by most analysts is not a small feat. Moreover, considering the fact that travel and tourism contribute about a third to the emirate’s GDP, a similar growth this year would further strengthen the recovery process.

Adding to that organic growth story is the socio-political unrest in the region, which, even if it sounds counter-intuitive, is diverting as lot of tourism and traffic towards Dubai, and is bound to reflect on the financial front at least in the first couple of quarters this year. As summed up recently by Paul Griffiths, the Chief Executive of Dubai Airports: “I don’t think the unrest in Egypt or other parts in the Middle East and North Africa is having any negative effect [on passenger movement at Dubai International Airport] at all. Actually, I think it is quite positive,” he told Reuters.

“Some people that were considering other areas are coming to Dubai because they are seeing it as a very stable place to be,” he said. Year-on-year comparisons prove him right. Passenger numbers at Dubai International Airport jumped by 10 per cent to 4.25 million in January from a year ago, and by 5.2 per cent year-on-year in February to 3.83 million.

Asked how much the airport and its associated industries would contribute to Dubai’s GDP in 2011, Griffiths said: “We believe the number will be between 20 and 25 per cent... 98 per cent of all visitor arrivals to Dubai are by air. The contribution towards GDP is significant.”

3,224: That’s the number of new licenses issued by Dubai’s Department of Economic Development (DED) in the first three months of this year, 6 per cent more than the last quarter of 2010. License renewals stood at 21,667, while another 12,362 licenses were amended by the DED in the same quarter. The numbers clearly reflect that private businesses – the lifeline of any economy – are stuttering back to life after a lull in the previous few quarters.

Additionally, the total number of commercial permits reached 14,503 in Q1 2011, a 33 per cent increase compared with the previous quarter. Moreover, the total number of ‘Trade name reservation’ transactions – an indication of the imminent new license applications – reached 12,211 names. The growth in the number of licences issued by DED highlights the performance of the economy, reflects investor confidence, and drives inward investments.

371: In basis points, that’s the mid-spread for a five-year Dubai CDS (credit default swap) – or, in easier terms, the cost for insuring Dubai government debt is 3.71 per cent of the debt. While that’s still high, and Dubai remains one of the top 10 riskiest sovereigns in the world, the CDS is down from a peak of about 1,000 points in February 2009, and 652 basis points in the same month of 2010.

In the global market, the CDS goes up with the ‘probability of default,’ i.e., when investors or speculators fear that a given entity may default on its due debt.

Correspondingly, the CDS rate falls when the speculation regarding an entity’s ability and/or intent to repay the debt wanes.

With the signing last month of the Dubai World debt restructuring agreement with its lenders, the clouds of uncertainty regarding the debt repayment of a major Dubai government-related entity have cleared, and with it has declined the CDS rate, reaffirming global investor confidence in Dubai.

The Dubai Government’s successful $1.25b bonds issue in the fourth quarter of 2010, and the interest in its recent mandate for raising $800m through monetising future Salik payments are clear indications that global and regional investors believe in the Dubai growth story.

54.7: That’s the number for the UAE’s Purchasing Managers’ Index (PMI), as measured by HSBC bank. And it’s at a 20-month high. In fact, the PMI, which measures the performance of the UAE’s manufacturing and services sectors, is at its highest level since the HSBC series began in August 2009. The index stood at 54.3 points in February, holding above the 50-point mark that separates growth from contraction, the survey of 400 private sector firms showed.

Simon Williams, MENA Chief Economist at HSBC, said the readings were positive and continued to point to an economic recovery that is slowly regaining speed. Echoing Dubai Airports’ Griffiths’ sentiments, Williams too believes that the UAE’s safe haven status amidst a region in turmoil is good news for many of the country’s business sectors. “Long-term, the UAE’s standing as the region’s business hub is likely to be enhanced by the problems elsewhere,” he said in a statement.

In a note issued earlier this month on the UAE’s socio-economic scene, international research agency Economist Intelligence Unit (EIU) too reckoned that the unrest, especially in Bahrain, might mean a lot of financial services business will get diverted to the country. “The UAE is likely to benefit from the unrest in Bahrain as financial service companies including banks will probably relocate operations and staff to offices in Dubai and Abu Dhabi,” the EIU said.

50.4 per cent. That’s the drop in the blended average rate for Dubai residential property in two years between Q3 2008 and Q3 2010, as measured by Colliers International’s House Price Index. A crash in property prices is usually a symptom of economic malaise, and it is indeed the case  Dubai too, but the positive side of the story is that the (now largely stabilised) decline has made Dubai competitive once again – not just for residents to live in, but for businesses to operate and offices to function.

During the peak of the real estate bubble, Dubai was in serious danger of driving away businesses and population due to the soaring rentals and property prices. Now, the crash – the worst seen by any city as measured by Knight Frank – has thankfully brought sanity to the market and residents and businesses are once again flocking to the emirate.

While these are but a few numbers that reveal just a small part of the Dubai growth story, anecdotal evidence – scarcity of slots for kids in schools, the gradual resurfacing of peak-hour traffic despite an increase in the number of roads and Metro services in the emirate, an increase in telemarketing calls by credit card companies and an increasing number of advertised vacancies in the classifieds sections of the local dailies – all points out that Dubai is in the fast-track lane of the road to recovery.

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