Dubai's Outlook for 2010

Dubai's economy is forecasted to remain in a recession for 2010. This will be the second year in a row that Dubai will experience a negative growth. A 'UAE Vision 2010' report stated that Dubai's economy would contract by 0.4% this year, following a 5% contraction last year. This will be mainly due to the declines in residential sale prices fallen by 61%, and Dubai's population fallen by 10%. The real estate market is expected to drop another 10%, which will result in a continued decline in population.

A resolution of Dubai's world debt will be the main catalyst for economic growth within the country. Dubai's government is trying to look at the broader picture when doing negotiations and trying to look at the effect it will have on their economic growth. Dubai is also trying to strengthen their reputation with International Capital Markets and local banks.

Downward Sprial

Dubai's economy is one of the most unique and unusual in the world. It is an entrepot (free port), and there are no taxes on imported goods. It is also a free trade zone, which allows 100 percent foreign ownership and sales. The companies earnings and private income are exempt from any form of taxation. Because if this it is home to many companies such as Arabia, Cisco, Compaq, Hewlett Packard, IBM, Microsoft, and Oracle.

90 percent of Dubai's population is foreign workers. Because of the financial crisis Dubai is now facing, many of the foreign workers are being laid off and having to leave the country. People here are losing their work visas and then they most leave the country with in a month.A local newspaper in Dubai reported that the government was cancelling 1,500 work visas every day. Many of the foreigners are fleeing Dubai, and they could be imprisoned if they failed to pay their bills before they fled. Right now Dubai's economy is in free fall, creating many vacant houses and lowered real estate prices. Loads of Dubai's major construction projects have either been suspended or cancelled.

Dubai's government has been unwilling to provide any data about their suffering economy. They are trying to create a media law where it would be a crime to damage the country's reputation or economy, punishable by fines of up to 1 million Dirham's ($272,000). Dubai was once hailed the economic superpower of the Middle East, but if things continue the way they are going it will end up ghost town.

Dubai's Debt Increasing

On Friday, Dubai announced that they are at their highest level of sovereign debt they have ever been in. Out of all the emirate's they are in the most debt. Dubai's five year credit-default-swap spread (measures credit risk) rose from 0.5% to 6.32% on Friday. According to the Wall Street Journal, these elevated levels makes Dubai one of the riskiest sovereigns in the world behind Argentina, Venezuela, Ukraine, and Pakistan. The increase in sovereign debt is due to massive debt buildup, over reliance on short term debt, and relying too heavily on help from more wealthier neighbors.

Dubai is struggling with a debt close to 80 billion dollars . In December, Abu Dhabi (Dubai's neighbor) gave Dubai 10 billion dollars to repay an Islamic bond 4.1 billion dollars.The remainder of the money will be used to meet their financing needs. Dubai has asked creditors to freeze their payments of 21.8 billion dollars of debt for six months, so that they could try and get caught up.

I feel that Dubai is not only is debt because of the World Financial Crisis that all countries today are facing, but it is also due to other factors as well. One factor may be because they are trying to build up their country to make it a tourism epicenter, which will help their economy when they completely run out of oil. Dubai is also facing empty buildings, falling property prices, and suspended construction projects.

Dubai

Dubai has an open economy with a high per capita income, and a pretty good annual trade surplus. Although Dubai has reduced their GDP based on oil and gas output by 25%. This could be due to them trying to conserve their oil outputs or due to them just running out of oil and gas. The GDP has also dropped 4% because of the global financial crisis, falling oil prices, and deflated asset prices. They have made successful efforts at making their economy diverse in tyring to make up for this deficit. Dubai has increased job creation by trying to expand on their country. Due to the high Standard of living, jobs have opened up to expand on infrastructure expansion. Dubai also has Free Trade Zones, which offers 1005 foreign ownership and zero taxes, trying to attract foreign investors.

Out of all the United Arab Emirates, the global crisis has hit Dubai the hardest. It lacked the sufficient cash to meet its debt obligations, so it launched a twenty billion dollar bond program so it could meet its obligation. Dubai's dependence on oil has been a significant long-term challenge. They are trying to focus on diversification and creating more opportunities.