UAE’s united front to guard against financial meltdown repeat

Abu Dhabi and Dubai are working more closely on development planning, says the Minister of Economy.

Abu Dhabi and Dubai are coordinating more closely in development planning to help guard against a repeat of the financial crisis of 2009, says the Minister of Economy.
Sultan Al Mansouri was speaking in Abu Dhabi on the sidelines of the UAE Economic Outlook, the first event of its kind. In previous years, the two emirates have held separate events about their future economic plans.
"Coordination is very important between the federal government and local governments in terms of how projects are being built," he said. "We had our phase prior to 2007 and 2008 and look what happened during that time. That was mainly because there was a lack of coordination between the emirates in areas such as construction. Now we have learnt our lesson and the coordination between local and the federal government is much better."
Dubai required US$20 billion of financial assistance from Abu Dhabi in 2009 after a borrowing-fuelled building bonanza faltered during the global downturn. Since then the economy has recovered strongly, while the government and its stable of companies have worked hard to resolve their debt obligations.
Mohamed Lahouel, the chief economist of Dubai Department of Economic Development, forecast Dubai's economy would expand by 4.7 per cent this year, down from an estimated 4.9 per cent last year.
Abu Dhabi's GDP would expand by 4.3 per cent, down from 6.6 per cent, mainly because of lower oil production, said Shorooq Al Zaabi, a project manager at Abu Dhabi Department of Economic Development.
Mr Al Mansouri said the UAE economy would hit growth in the range of 4.5 to 5 per cent this year, while attracting foreign direct investment of Dh44bn.
Still, concerns have been voiced about the rollout of future so-called mega-projects, especially in Dubai as the emirate prepares to host the World Expo in 2020.
"In the short term, we need to make sure there is a discipline and centralised approach to leverage and projects," said Marios Maratheftis, the head of macro economic research at Standard Chartered Bank."It is positive that we are seeing the introduction of debt management offices and it is positive we are seeing a more centralised approach to new projects."
Dubai's selection in November as the host city for the World Expo is expected to accelerate several planned infrastructure projects, including a new line for the Dubai Metro and the build-out of the Al Maktoum International airport. As much as US$43bn in infrastructure projects will need to be developed in preparation for the event, Deutsche Bank has estimated.
In Abu Dhabi, more than $100bn of infrastructure projects are planned or under way, including a new terminal at Abu Dhabi International Airport and a city-wide metro system.
In a statement released on Friday, following a mission to the UAE, the IMF said such mega-projects would help to support growth.
But, Harald Finger, IMF mission chief, added: "The total cost, pace of execution and financing of the new mega-projects remain uncertain. If not implemented prudently, these projects could exacerbate the risk of a real estate bubble."
They could also add additional financial risks for Dubai's government-controlled companies and the banking system, he added.
Dubai's property market registered growth of 22 per cent last year, according to official data, raising anxieties about the risk of a fresh bubble akin to 2008, as well as the competitiveness of the emirate's economy. Prices also swelled by more than a third in some areas of Abu Dhabi.
In a bid to control the market, the Central Bank in October brought in new caps on the amount of money that homeowners were able to borrow to between 60 and 80 per cent of a property's value. In Dubai, the Land Department doubled property sales fees to 4 per cent from 2 per cent.
"Our aim is to have balance between real estate prices and the income of workers," said Sami Al Qamzi, the director general of Dubai Department of Economic Development.
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