Relentlessly bullish and upbeat the Dubai Government shows no sign yet of reigning back its ambitious expansion plans in the wake of the collapse in oil prices to below $50. For older hands it is reminiscent of the forward charge in 2008 in the face of a fall in oil prices to the low $30s as the global economic crisis polaxed the local real estate boom.
Only when the money ran out was the city forced to drastically scale back as the economy hit a ’sudden stop’ in 2009. That year ended in a debt crisis over the inability to repay $25 billion in loans.
Absent Russians
Visitor numbers to the Dubai Shopping Festival are likely down if the hotels are anything to go by, with occupancy significantly lower than a year ago. Last year’s biggest spenders the Russians have stayed away due to the collapse of the ruble as a result of the oil price crash and Western economic sanctions over the annexation of Crimea.
The absence of Russian buyers is also being felt in the Dubai real estate market. Villas and apartments are selling more slowly and for lower prices than a year ago. Still parts of the local business are resolutely upbeat about propects this year.
Freshly capitalized from its initial public offering, new retail start-up group Marka is planning five acquisitions with the first being Retailcorp, a sports retailer currently owned by an arm of the Dubai Government. It’s targeting sports retail, fashion and food and beverages with the Taste of Italy by Michelin-starred Heinz Beck due to open mid-March.
At a presentation over lunch today CEO Nick Peel, a 25-year retail veteran told journalists he was convinced that there was now so much development in the pipeline in Dubai that the sector would continue to prosper regardless of the oil price and changing global economic circumstances. He was not working in Dubai in 2009.
Ghost of 2009
Then high-end retail took a big hit, albeit it did bounce back strongly, particularly after the opening of the Burj Khalifa gave the Dubai Mall a huge global marketing lift. To be fair to Mr. Peel he was talking about a three-to-five year business development plan and over that horizon Dubai should indeed be able to make a come back from whatever assails the local economy in 2015.
Dubai has $18 billion in debts coming due in 2015 and under the financial circumstances that have prevailed in the past three years this would not be a problem. But it certainly could be if some of the more pessimistic forecasts about emerging market debt come true this year. A surge in the cost of re-finance would be a major issue.
It’s true that Abu Dhabi would almost certainly come to Dubai’s rescue again. However, with oil prices down by 50-60 per cent Abu Dhabi is not going to be in great financial shape this year itself, unless oil prices snap back sharply. UAE business is putting on a brave face but 2015 is looking a lot more challenging than 2014.
