It's what life in Abu Dhabi is all about: lying on beautiful beaches, sipping cool drinks at luxury hotels and shopping like there's no tomorrow. But in the place where the sun shines all day and taxis are still more common than tax, no amount of expatriate hubris can cover up the fact that living in the UAE is getting unmistakably harder. Soaring levels of inflation - currently pushing 12 per cent a year - are to blame for the rising price of everything from the cost of food in the supermarket to your weekend massage. And just as the reasons for the rate of inflation, one of the highest in the developed world, are myriad - from the rising cost of oil to increased demand for housing - its effects are complex, too.
For some, rising prices simply mean eating out less or taking fewer trips to the spa; for others it means scrimping and saving on life's essentials. Yet for everyone involved, the effects are significant and possibly pivotal when it comes to the kind of lifestyle they want to lead and where they choose to lead it. Sarah Green, the marketing manager for an international law firm, said that, ultimately, rising prices could drive her to live somewhere else. Green, 30, from Canberra, Australia, is commuting to Dubai each day from Abu Dhabi because she cannot afford to give up the rent-controlled apartment she was given when she arrived to work at the firm's Abu Dhabi office in 2006. "Obviously when I accepted my package, it was great. Now, my accommodation allowance amounts to half what it would cost to rent a flat on the open market. My job has changed now and I need to be in Dubai but I can't afford to move."
The crisis in the supply of accommodation in Abu Dhabi has partly been caused by the fact that until recently expatriates were not allowed to purchase property; now that they are, demand is such that there is virtually nothing available to buy. In Dubai, accommodation shortages have been exacerbated by "flipping", a process whereby overseas property investors can buy apartments off-plan but then sell them on before completion, leaving fewer flats available for residents.
Green said most of her friends were sharing accommodation, not only because of the cost of living alone but because of the shortage of rooms. "I know lots of people who have had to take in friends as lodgers either because they can't make ends meet or because their lodgers can't find somewhere to live. Some people also come here to work for short periods of time, but it's impossible for them to find somewhere to stay other than a hotel, so they end up staying with friends."
Green says she has noticed a sharp increase in the cost of food in supermarkets over the last 18 months. "When I first came here I would spend about Dh150 a week on shopping but now it's at least Dh300. This place is fantastic but the cost of living is very high and it's becoming less and less workable. I love working here and I love the job I do but costs are rising. I am eating out less. I used to go for brunch every week but now I only go once a month because the price is just going up and up. The cost of using the beach at some hotels has doubled - where it used to cost Dh60, now it's 110 or 115. I suppose it's supply and demand but I am also trying to pay off my house in Australia and as soon as I am no longer able to do that I will think about leaving." Green has also been put off the idea of buying a car. "I used to think it was cheap to buy a car here but I've been back to London, where I was working before, and to Australia, and it doesn't seem cheap any more."
As long as the monetary benefits of working in Abu Dhabi provide for a lifestyle which outweighs the difficulties of living abroad, people are content. Elsewhere in the world, the balance has already tipped. In America and Britain, the "credit crunch" has already severely curtailed the spending of people who had borrowed too much on mortgages and credit cards long after the link between wages and inflation was broken. Elsewhere in the Middle East, the extraordinary rise in the cost of food and other basic goods is hitting the region's middle classes and, in countries where governments are cutting food and fuel subsidies, there have been riots and strikes.
In the UAE, too, the scales appear to be tilting. For Green, the increasing cost of living has only served to magnify difficulties she had previously overlooked. "When you hear talk of a possible council tax style tax or VAT being brought in, being separated from family and friends becomes a bigger issue," she said. "I am definitely travelling home less than I used to. I've just told my parents that I can't afford to go home for Christmas this year. It is hard living here and things aren't simple. Getting a driving licence or doing anything is difficult. There are still a lot of benefits and there is a great outdoor life but I could have that in Australia and I'd also have my parents and my friends. I love the job I'm doing and will make the most of it while it lasts but there is a tipping point and I can see it coming faster and faster."
Dr Kristian Ulrichsen, a research fellow on the Kuwait Research Programme at the Centre for the Study of Global Governance at the London School of Economics, said rising inflation in the UAE would inevitably make the country less attractive. "Countries like the UAE which are pegged to the dollar are basically importing inflation. The Gulf states have a much higher rate of inflation than other countries in the developed world, although the rising price of food is a worldwide phenomenon." Most seriously, Dr Ulrichsen argues, there is a large disparity between how citizens of the UAE are affected by rising inflation and how expats are faring. "People born locally tend to own their own land and property, but expats have no safety net to cushion themselves against rising prices."
Dissatisfaction with the reality of the rising cost of living was shown recently in Dubai when residents of the Palm Jumeirah development complained that multimillion-pound villas have been squeezed together "like Coronation Street" and air conditioning bills, not included in the rent, are hitting Dh6,000 ($1,600) a month. Ultimately, Ulrichsen says, "rising inflation means that the UAE won't be seen as a luxury destination any more."
Emma Towers, 27, an associate at a British law firm in Abu Dhabi, can testify to this. She arrived in Abu Dhabi 18 months ago but fears she will not be able to afford to settle down. "When I came here a year and a half ago my accommodation was within my allowance. Now it's a completely different story. I wouldn't be able to find a villa within my allowance and if I want to settle down here and have children, there's going to be a problem." Towers said many people's salary packages had not changed in five or six years. "Luckily rent increases have been capped at 5 per cent, but you still end up topping up your allowance, which isn't why people are here."
Towers said other aspects of her lifestyle had also been affected. "A weekend up in Dubai is getting more and more expensive. Hotel rates are becoming outrageous and any 2 for 1 deals now only seem to apply during the week. Taxi costs are increasing, beach clubs also have waiting lists and I'm going to have to miss the weddings of friends of mine over the summer because of rising air fares. What used to be a £350 trip home is now more like £500 and then you have the local travel costs and the cost of buying a present. I simply can't afford to go back."
Expatriates have also complained of the increased cost of boat moorings and long waiting lists, and that rising rents have pushed up the price of hiring nannies and cleaners. Yet it is the shortage of accommodation which is creating the biggest headache. Dr Nasser Saidi, the chief economist at the Dubai International Financial Centre, said the current pressure on housing had contributed to rent inflation, but that the effect would be temporary. "Higher rents will produce more construction which in time will bring rents down," he said. But when exactly will this happen, and do salary packages need to be increased to keep expatriates in the UAE? "There is a time lag in Abu Dhabi so the accommodation supply will take a little more time to respond. But I don't believe that people base their long term decisions on short term inflationary increases. Salaries cannot be increased at the same rate of inflation because then they would have to be reduced later."
Dr Saidi argues that the depreciation of the US dollar "is mostly behind us now" and that "although people complain about commodity prices it matters more to the poorest people who spend a greater proportion of their income on food. The impact is mainly for low-income budget households." While this is true, even middle-income earners in Abu Dhabi are feeling the pinch. Salahuddin Saddiqui, an airline manager, and his wife Salma, a teacher, who live on the seventh floor of a Khalidiya apartment block, came to Abu Dhabi 30 years ago. He said: "The price of everything on the shelf and of services has been continuously increasing for the past two years. People were managing up until then but now it has become very difficult for everyone, especially those in the low and medium income groups, to cope. The disparity between income and the cost of living is increasing."
Mrs Siddiqui, who serves me dinner in a beautifully tailored red shalwar khameez, says she has noticed the rising price of food more than anything, although she hasn't scrimped in her sumptuous offering of mutton pulao, bhuna gosht, nargisi kofta, fried chicken and tandoori nan, followed by freshly made rasmalai and halwa sweets, served at the table of their large dining room. "Food prices have almost doubled in a year. Most of the increase seems to have gone on to packed food but mutton was Dh15 per kilo and now it's 24. A five kilo bag of rice from the supermarket was Dh18 or 20, now it is Dh35 or 36. And the price of some items like fresh fruit and vegetables seems to vary day to day, depending on the supply. For example, sometimes cucumbers are 85 fils per kilo and the next day they are Dh1.75 or two or even up to Dh3.50 per kilo. Before we never used to look at the prices, we'd just look at our favourite brand and pick it off the shelf. Now you look at the prices before you look at the product and then do a comparison between the different brands."
Families in Abu Dhabi, Mr Siddiqui said, were most vulnerable to rising food prices. "Thanks be to God, all our three children are now settled and live on their own. But although our requirement for food and other services is less than before, our expenses are still high due to the increased prices and rent, so our financial situation has not improved." Most worrying for Mr Siddiqui is the fact that people are still being encouraged to borrow large amounts of money from banks in the UAE, without any end in sight to their financial pressures. The credit crunch, which is curbing spending in other parts of the world, appears not to have even begun here. Expatriates are given credit cards even before their residency visas are approved, and constantly offered increased loan amounts and higher credit card limits. Some banks do not offer debit cards, forcing customers to rely on credit.
"I think the increase in the price of fuel, real estate and government fees leads to inflation. When prices go up your income effectively goes down. Since the income of many is not increasing in line with inflation, people are forced to change their lifestyle. "Some are choosing to send their families back to their country, some sacrifice their privacy and comfort by sharing accommodation and compromise on the quality and quantity of food, clothes, household goods, holidays, savings and retirement plans, and even on their children's lifestyles and education.
"In most countries, accommodation costs take up about 20 per cent of a person's salary. Here it is almost 50 per cent, which is very, very difficult." So what, other than finding a cheaper country to live in, can be done about rising prices? For Mr Siddiqui, the answer is simple: people should instigate their own credit crunch. "Don't use credit cards and don't go to shopping malls. We never go to malls unless we actually want to buy something. We prefer to go to a park or the seaside with our friends. The problem with plastic money is it soon becomes a liability rather than a facility. I always prefer to pay cash and only pay my telephone and electricity bills with a card. People use them all the time for shopping and outings, but if you get into the habit of paying with a card you never know how much you have spent unless you are keeping a very close record. People should pay 100 per cent of the amount due, even if they have to squeeze their budget."
