Economies in Scale



Economies in Scale

Dubai posted its best economic performance in five years over 2012, spurred on by its strong hospitality and manufacturing sectors.

In 2012, Dubai was able to accelerate economic growth on the back of its robust tourist and industrial matrix as well as inject renewed confidence into the real estate market. As revenues grow, the government has also succeeded in narrowing its budget deficit and allocating resources for further infrastructure development.

Dubai’s economy grew by 4.4% in 2012, up from 3.6% in 2011 and 3.5% in 2010. While neighboring Abu Dhabi posted a growth rate of 7.7% on the back of growing oil prices, Dubai’s expansion was powered by its hospitality and manufacturing sectors, which grew by 17% and 13%, respectively. Nominal GDP stands at $84.7 billion, with the retail and hospitality sector accounting for the largest chunk of GDP, at 33%, while the logistics and supply chain business remains vital to growth in the country, accounting for 14% of the UAE’s GDP in 2012. In 1Q2013, GDP grew 4.1%, with 4.7% the expectation for the first half.

In terms of commerce, Dubai had a good year, despite a one-third fall in trade with Iran, posting growth of 13% in 2012. According to Dubai FDI statistics, foreign investment grew by 26.5% to AED29.4 billion in 2012 compared to 2011. Inflation remained low in 1Q2013, rising only slightly to 0.6% compared to the same period of 2012. The UAE dirham maintained its currency peg, at AED3.67 to the US dollar. The unemployment level stands at 4.6%, although this figure is far higher among nationals, at over 20%, than for expatriates at 3.2%. The UAE has managed to create 1 million jobs since 2009, however, and a commitment to Emiratization in the private sector is likely to have a positive impact on employment among nationals, who have traditionally preferred to work in government positions.


According to the Dubai Economic Council (DEC), the government’s budget deficit fell from AED1.8 billion in 2012 to AED1.5 billion in 2013 thanks to increased revenues, which were up around 7.2% from AED30.6 billion to AED32.6 billion. Although balancing the budget now seems possible, the government has instead favored increasing public spending by 6% over 2013.

Government fees represented 62% of total revenues in 2012, up 9.8% on 2012. The rise is due to the development of government services and overall economic growth as opposed to an increase in government fees. Tax revenues represent 23% of government income, with customs and foreign bank taxes showing an increase of 15% in 2013 over 2012. Net oil revenues also witnessed a rise of 11.8% in 2013, due to higher international oil prices.

Jobs for Emiratis were high on the agenda during 2013 budget discussions, with salaries to account for 39% of government expenditure over the year, and with measures to ensure the creation of 1,600 jobs for nationals also in place. General and administrative expenses represent 24%, subsidies and grants, including for housing, sports, and non-profit organizations, represent 11%, up 67% on 2012, while 16% of the budget has been allocated to infrastructure projects. While the figure marks a 4.8% decrease on 2012, this is due to the completion of several large projects. There will be project contracts to go around, however, as the government supports the World Expo 2020 bid through the development of additional infrastructure.


The UAE ran a trade surplus of AED36.3 billion in 2012, up from AED16.6 billion in 2011 on the back of growing exports and increased investment revenues. Dubai itself recorded 13% growth in trade in 2012, slower than the 22% jump recorded in 2011. Trade with Iran took a hit over the year, with US sanctions taking their toll on commerce between the two economies—two-way trade fell 31% from AED36 billion in 2011 to AED25 billion in 2012. The drop in trade with Iran didn’t hinder Dubai’s non-oil exports too severely, however, as they increased 47% to AED163 billion in 2012, while imports also grew by 12%. Re-exports grew 5% to AED334 billion in 2012, a slowdown from the 18% rise in 2011.

The UAE’s major export partners over 2012 were Japan (‚¬31 billion), India (‚¬26.7 billion), and Iran (‚¬21.2 billion), which represented 13%, 11.2%, and 8.9% of total exports, respectively. This was followed by Thailand (4.7%), Singapore (4.7%), and South Korea (4.5%). China, the EU, Oman, and Pakistan made up the remaining top 10, which represent 57% of overall exports. In import terms, the EU was the UAE’s major partner in 2012, with goods worth ‚¬37 billion sourced from the bloc, 18.6% of the total. This was followed by India, China, the US, and Japan with 15.7%, 12.7%, 9.7%, and 3.8%, respectively. Commerce between the UAE and Africa is anticipated to grow, too, over 2013, and reach $50 billion by end-2013, an increase of 27%.


Dubai’s increasing attractiveness for investment was behind the growing flows of FDI over 2012. Foreign investment surged 26.5% to AED29.4 billion compared to 2011, according to Dubai FDI. The flow of FDI into the UAE at large also grew by 21%, reaching AED32.9 billion, suggesting that Dubai was the destination for approximately 90% of incoming investment. FDI in the greater GCC region rose just 13.8% over 2012, once again highlighting Dubai’s appeal with foreign firms. The Emirate’s top sources of FDI were the US, the UK, and India in 2012, with the US increasing its contribution to 24.6% from 22% in 2011. Other significant sources of FDI included Germany, France, Saudi Arabia, China, and Qatar. In terms of investment opportunities, the CEO of the Foreign Investment Office of Dubai, Fahad Al Gergawi, believes that, “tourism is one of the most important sectors, especially with His Highness Sheikh Mohammed’s new Vision 2020.” Al Gergawi also points to Dubai’s transport and logistics sector as a gateway for further FDI, commenting that, “we see trade and logistics as the strongest contenders [for FDI] because Dubai is a trading city.”

The Emirate is likely to continue pulling in FDI in the coming years, boosted by the UAE’s recent upgrade to Emerging Market status by MSCI, effective as of May 2014.


Having grown by 17% and 13%, hospitality and manufacturing were the fastest growing sectors in 2012, contributing to overall GDP growth of 4.4%. The tourism sector is currently governed by Dubai’s Vision 2020, which seeks to attract 20 million tourists per year, up from 10 million currently. There is certainly demand, with the average occupancy rate hitting 90% in 2012, up from 85% in 2011. The industrial sector, meanwhile, excluding the extractive industries, contributed 16% to Dubai’s GDP in 2012. The Emirate hopes to boost this figure to 25%, in line with the UAE’s Vision 2030. Dubai’s oil reserves continue their slow trot to depletion, with wells expected to run dry in 20 years. The Emirate produces 50,000-70,000 barrels of oil per day (bbl/d), with revenue from the oil and gas sector accounting for just 7% of Dubai’s total revenues. With demand for energy high, the Emirate is a net importer, having once been a net exporter of oil. In that regard, the Dubai Integrated Energy Strategy 2030 outlines the diversification of energy sources and the promotion of green initiatives.

With the return of confidence in the economy, construction cranes, too, have returned by the score to Dubai’s skyline. Over 23,200 building permits were issues in 2012, up from 14,800 in 2010. The real estate sector, currently enjoying a rise in prices that reached 21% in 1Q2013, will also remain vibrant over the coming years thanks to the announcement, in November 2012, of Sheikh Mohammed Bin Rashid (MBR) City, a mammoth multi-use urban development that will include an open green area 30% larger than London’s Hyde Park. The transport and logistics sector is also a hive of activity, with large-scale developments underway to boost road, rail, air, and maritime transport capacity for both passengers and freight. The most significant projects include the construction of a new motorway between Dubai and Abu Dhabi to support the E-11, as well as a rail project, developed by Etihad Railways, to link cities and industrial hubs and provide a connection to Saudi Arabia and Oman. The project is expected to be fully finished by 2018 at a cost of AED40 billion. Al Maktoum International Airport will also open its doors to passengers in 4Q2013, having been running cargo operations for the last couple of years. When fully functional, it will have a passenger capacity of 160 million and a cargo capacity of 12 million tons, greatly surpassing Dubai International Airport. The Emirate’s principal port, Jebel Ali, is also undergoing development to boost capacity to 19 million TEUs, making it one of the largest ports in the world.