Dubai’s current slate of major infrastructure projects will provide one of the UAE’s main sources of non-oil growth in the run-up to 2020.
But they could also be a domestic source of economic risk if not properly executed, according to the IMF.
The IMF has predicted that the UAE’s econonic growth will slow to 3.4 per cent this year, before rebounding to 4.6 per cent by 2020, supported by “the implementation of megaprojects and private investment in the run-up to Expo 2020”.
If not prudently implemented, the biggest projects might “create additional macro-financial risks for Dubai’s GREs [government-related entitites], banks and ultimately the government in light of the debt overhang from the 2008-09 global financial crisis”, the fund said.
Indeed, despite successfully renegotiating a US$20 billion refinancing of Dubai World this year, the emirate’s government and GRE debt “continues to be substantial at around $143bn”.
“Government investments should be preserved relative to non-hydrocarbon GDP to support infrastructure, while the implementation of GRE megaprojects should be gradual, in line with the expected demand,” said the IMF.
The Dubai government’s budget for this year is Dh41bn, and 13 per cent of this, or about Dh5.3bn, has been allocated for infrastructure work.
Given that current spending plans for infrastructure investment include $7.8bn to upgrade Dubai International Airport by 2018, and that the first phase of a $32bn expansion of Dubai World Central is expected to be concluded by 2022, it seems likely that money may need to be raised.
And given GREs’ ambitious projects – such as Dubai Holding’s $6.8bn Mall of the World and the newly-announced Meydan One (due to be connected to the Metro’s Gold and Purple Lines) – it is believed that several external sources of finance will be required.
Sara Carmody, a legal director at the law firm Addleshaw Goddard, said debt financing was usual for large infrastructure projects in the region. Local banks such as Emirates NBD, NBAD and First Gulf are active lenders.
“There is a fair amount of liquidity in the market at the moment,” said Ms Carmody.
Dubai also has the option of selling further bonds or sukuk, but for a major project such as Al Maktoum International Airport, there may not be enough appetite for substantial amounts of new debt. That is in view of the $143bn of debt raised by GREs and government-related companies over the past years. The prospect of the government ceding equity in an asset as important to the local economy as an airport also seems to be unlikely.
Dubai could make greater use of contractor financing, in which a project’s builders fund elements of its construction and are paid over stages after its completion when the project begins to generate income, said Thomas Wilson, the head of Middle East construction and arbitration practices at the law firm Squire Paton Boggs.
The Roads and Transport Authority is understood to have agreed a deal involving contractor financing for part of the Dubai Canal project.
The Dubai World Trade Centre District is the first project where funding from UK Export Finance was used – a £3bn (Dh17.2bn) facility that the British government set up to help UK businesses secure contracts overseas.
UK Export Finance has also reportedly offered up to $2bn to help fund the expansion of Al Maktoum International Airport, subject to the involvement of its consultants and contractors. Export credit agencies and export/import banks from other countries – including Japan and Korea – have also helped to fund projects involving contractors from their countries.
“It can give the contractor who is able to bring funding to the project an edge,” Mr Wilson said. “I’ve heard that Chinese contractors are talking about investing in projects and bringing in contractor financing to support projects.”
Ms Carmody said projects using such mechanisms “will have to find a clear structure at the outset in terms of how the funds are being drawn and how the money will be repaid, because all of the funding will eventually have to be repaid”.
William Jackson, a senior emerging markets economist at Capital Economics, said as long as proper consideration was given to commercial viability, borrowing by governments and GREs need not be problematic.
“Overall, borrowing to invest itself is not a bad thing. The concern is that when investments are made into projects that will not deliver the expected returns, meaning borrowers may struggle to repay the debts. This was very much the problem with the pre-2008 GRE borrowing boom,” he said.
Capital Economics has voiced concern that some of the projects GREs announced in the run-up to Expo 2020 run the risk of falling into that trap, particularly if the spike in visitor numbers that Dubai expects to deliver for Expo 2020 is not sustained after the event.
“If Dubai is to really achieve the targets for visitors in 2020, it could subsequently be left with an over-supply of hotel rooms, office space and transport infrastructure,” said Mr Jackson.
mfahy@thenational.ae
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Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
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Singham Again
Director: Rohit Shetty
Stars: Ajay Devgn, Kareena Kapoor Khan, Ranveer Singh, Akshay Kumar, Tiger Shroff, Deepika Padukone
Rating: 3/5
COMPANY PROFILE
Name: Qyubic
Started: October 2023
Founder: Namrata Raina
Based: Dubai
Sector: E-commerce
Current number of staff: 10
Investment stage: Pre-seed
Initial investment: Undisclosed
How to get there
Emirates (www.emirates.com) flies directly to Hanoi, Vietnam, with fares starting from around Dh2,725 return, while Etihad (www.etihad.com) fares cost about Dh2,213 return with a stop. Chuong is 25 kilometres south of Hanoi.
Overview
What: The Arab Women’s Sports Tournament is a biennial multisport event exclusively for Arab women athletes.
When: From Sunday, February 2, to Wednesday, February 12.
Where: At 13 different centres across Sharjah.
Disciplines: Athletics, archery, basketball, fencing, Karate, table tennis, shooting (rifle and pistol), show jumping and volleyball.
Participating countries: Algeria, Bahrain, Comoros, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Saudi Arabia, Sudan, Syria, Tunisia, Qatar and UAE.
COMPANY%20PROFILE
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RACE CARD
6.30pm Maiden (TB) Dh82.500 (Dirt) 1,400m
7.05pm Handicap (TB) Dh87,500 (D) 1,400m
7.40pm Handicap (TB) Dh92,500 (Turf) 2,410m
8.15pm Handicap (TB) Dh105,000 (D) 1,900m
8.50pm UAE 2000 Guineas Trial (TB) Conditions Dh183,650 (D) 1,600m
9.25pm Dubai Trophy (TB) Conditions Dh183,650 (T) 1,200m
10pm Handicap (TB) Dh102,500 (T) 1,400m
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Electoral College Victory
Trump has so far secured 295 Electoral College votes, according to the Associated Press, exceeding the 270 needed to win. Only Nevada and Arizona remain to be called, and both swing states are leaning Republican. Trump swept all five remaining swing states, North Carolina, Georgia, Pennsylvania, Michigan and Wisconsin, sealing his path to victory and giving him a strong mandate.
Popular Vote Tally
The count is ongoing, but Trump currently leads with nearly 51 per cent of the popular vote to Harris’s 47.6 per cent. Trump has over 72.2 million votes, while Harris trails with approximately 67.4 million.
Company%20Profile
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The specs
Engine: 2.0-litre 4-cylinder turbo
Power: 240hp at 5,500rpm
Torque: 390Nm at 3,000rpm
Transmission: eight-speed auto
Price: from Dh122,745
On sale: now
Dubai works towards better air quality by 2021
Dubai is on a mission to record good air quality for 90 per cent of the year – up from 86 per cent annually today – by 2021.
The municipality plans to have seven mobile air-monitoring stations by 2020 to capture more accurate data in hourly and daily trends of pollution.
These will be on the Palm Jumeirah, Al Qusais, Muhaisnah, Rashidiyah, Al Wasl, Al Quoz and Dubai Investment Park.
“It will allow real-time responding for emergency cases,” said Khaldoon Al Daraji, first environment safety officer at the municipality.
“We’re in a good position except for the cases that are out of our hands, such as sandstorms.
“Sandstorms are our main concern because the UAE is just a receiver.
“The hotspots are Iran, Saudi Arabia and southern Iraq, but we’re working hard with the region to reduce the cycle of sandstorm generation.”
Mr Al Daraji said monitoring as it stood covered 47 per cent of Dubai.
There are 12 fixed stations in the emirate, but Dubai also receives information from monitors belonging to other entities.
“There are 25 stations in total,” Mr Al Daraji said.
“We added new technology and equipment used for the first time for the detection of heavy metals.
“A hundred parameters can be detected but we want to expand it to make sure that the data captured can allow a baseline study in some areas to ensure they are well positioned.”
Match info
Who: India v Afghanistan
What: One-off Test match, Bengaluru
When: June 14 to 18
TV: OSN Sports Cricket HD, 8am starts
Online: OSN Play (subscribers only)
Thank You for Banking with Us
Director: Laila Abbas
Starring: Yasmine Al Massri, Clara Khoury, Kamel El Basha, Ashraf Barhoum
Rating: 4/5
Company Profile
Company name: OneOrder
Started: October 2021
Founders: Tamer Amer and Karim Maurice
Based: Cairo, Egypt
Industry: technology, logistics
Investors: A15 and self-funded
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