Dubai’s Economy: Collapse or Sustained Recovery?

Mir Mohammad Alikhan (best known by his followers as ‘Mir MAK’ or ‘MAK’) —a Pakistani who is an Investment Banker, Entrepreneur & Capital Markets Advisor, Co-Chairman at AMZ MAK Capital Limited with established business ventures in Dubai wrote an article in 2016 predicting that Dubai is going to see its economic fall by 2018. Now in 2018, the businessman believes his predictions are becoming reality as “Dubai’s economy has started to melt like an ice cone in a hot summer day near Jumeirah beach.” To some degree, this might seem true, as ‘Mir MAK’ –a man who understands the economic environment and its financial structure –lists a few signs of a Dubai economic meltdown:

  • The practice of having unquestioned transactions for example, postdated cheques based on the economic model “I owe you and will pay you later,” is causing domino effect problems as for each bounced check (even unintentionally) a chain of events is set in place that can bring down entire businesses. The urgent task ahead is to keep economic imbalances in check.
  • Dubai property is now being under sold, selling at 25% of its value.
  • Hotels have recently cut their average price to 30% of what they used to charge.

MAK believes that really bad decisions, the lowering of asset prices for homes and hotels as well as the surge in bad checks is contributing to the economic collapse.

However, other analysis suggests that economic growth may not be all that bad, and Dubai is not in such a bad state as MAK makes it. Some analysts say economy is actually not spiraling without control toward collapse noting of the UAE is no longer in an economic crisis as it once was some years ago but, instead, there is currently a period of positive economic progress. A revival has finally been achieved thanks to a number of ambitious new financial and economic initiatives stimulating and sustaining local economic development to end recession and kick-start growth.

Economic recovery is now also on the government agenda. The fifth edition of the UAE Economic Outlook Forum, organized by Departments of Economic Development in Dubai and Abu Dhabi, focused on the role of foreign direct investment and trade in encouraging innovation and productivity. In addition, findings show the country remains a fast-growing economy. There will be a 3.4 per cent growth for 2018 based on a forecast by the Central Bank of the UAE.

Analysts believe that diversification will better place the UAE; for some time now, UAE has sought to diversify where and how it invests its financial assets. And lately, efforts the government has made to diversify its sources of income included a 5 per cent VAT. Also, while the UAE’s dependence is on oil, the Emirates has been successfully diversifying its economy promoting the country as a global trade and tourism hub; this has reduced the portion of GDP from the oil and gas sector.

Another driver of economic growth has been the UAE plans to step up its infrastructure investments in view of Expo 2020. Further boost has been given by further diversification of the economy by increasing foreign trade. Free zones and increased foreign direct investment contribute to the UAE’s economy. Free Trade Zones, for some time now, have been a highly attractive business environment, which has brought in significant ‘Net Inflow of Foreign Direct Investment’ thanks to ‘Ease of Doing Business.’

UAE’s economic development strategy looks more like a good post-collapse recovery plan. UAE’s economy is returning to growth, slowly but steadily, as proved by a recent report by Institute of International Finance (IIF) that makes the country a good location for any settler because of Emirates’ diversified and business safe haven and government programs that aid sustainable economic activities that expand opportunities.

Dubai’s Economy: Collapse or Sustained Recovery?

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