Dubai needs to diversify for stable growth

Eugenio Berenga, managing director of Alixpartners' enterprise improvement practice in Dubai, talks about the economic prospects of the emirate and the region five years on from the Dubai World crisis.

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AlixPartners is a global consultancy known for its work on corporate turnarounds and restructuring. Eugenio Berenga, managing director of the company’s enterprise improvement practice in Dubai, talks to Sean Cronin about the economic prospects of the emirate and the region five years on from the Dubai World crisis.

What are the biggest challenges facing regional corporates in the current economic cycle?

This region is a growing economy that has invested significantly in its basic industries. Many companies have grown very fast and have become very profitable. But now many of them face a different paradigm because if they want to grow faster they need to go international, and that is a completely different ball game. If you look at the economy here, it is not very diversified. A significant portion of the economy is driven by oil and gas and there is another big portion driven by construction and real estate development. The third element is consumer goods trading. All of the large organisations have developed on these three main sectors. The more people who get involved in this, the fewer opportunities there are. So they need to diversify into different industries.

Is there a danger that Dubai re-leverages to excess again?

I think there is a general concern but I think measures have been but in place, especially since the announcement of Expo 2020. However, Dubai is really in the middle of a portion of the world that is going through very complex changes and geopolitical tension. They have been able to create a very secure environment so that has attracted a lot of resources from countries where people no longer want to live because of security or because of changes in regimes and democracy.

What about the debt repayment obligations of the next few years that emanated from the 2009 Dubai World restructuring?

The companies that were involved in the previous debt restructuring are now trying to anticipate the refinancing needs that are coming up. So it looks like they are working ahead of schedule. I think the lesson has been learnt, and they need to protect their environment in light of 2020.

How successful has Dubai been in diversifying its economy in the last five years?

Jebel Ali Free Zone has been pretty successful and copied by other countries. Maybe in terms of logistics, Saudi Arabia is better placed, but Dubai has definitely developed as a hub for trade and I don’t honestly see how this can be challenged in the short term.

Has shale gas changed the narrative of industrial development in the region?

In the US maybe we are seeing a second industrial revolution and I think this has helped North America become more detached from the region from a political standpoint because they are almost independent in gas and oil. Although there has been some shale investment in the region; it is still in an early stage. Oil prices will most likely decrease unless there are geopolitical tensions. Regional economies need to think how to use their energy resources better. If they do not invest in energy efficient initiatives they will have less and less resources going forward.

Is there potential to take some of the emerging regional family industrial groups public?

The ones I see going public now are mainly real estate or retail driven. The real question for me is whether companies are ready to go public. The need to be transparent and show results every three months requires a lot of work and preparation. Many companies see going public as a way to solve generational change issues, but I don’t think this is necessarily a solution.

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