The four key sectors of UAE’s economy, Trade, Tourism, Healthcare and Retail continue to grow and gain momentum as we enter a critical period before the Dubai Expo 2020. There is much to be optimistic about as we enter what could be the biggest growth period in the UAE’s history.
The year 2015 was led by solid performance in established sectors of the economy, including financial services, transport, manufacturing and construction, which helped Dubai weather the knock-on effects of lower oil prices throughout 2015.
The emirate is expected to record full-year GDP growth of around 4%, according to estimates from the Department of Economic Development released in early December. Inflation cooled somewhat in the latter half of the year, as the consumer price index fell from 4.68% year-on-year (y-o-y) in May to 3.07% in November.
Looking ahead, Dubai’s drive to create a knowledge-led economy is set to gather further steam, bolstered by legal reforms and project rollouts that took place in 2015 against the backdrop of the UAE’s “Year of Innovation”.
The Public-Private Partnership (PPP) Law, introduced in late October, will give infrastructure development greater flexibility, as projects in preparation for World Expo 2020 gain pace. The law codifies various models of PPP activity, including build-own- operate-transfer and design-build- operate schemes.
Investment in Dubai is also set to benefit from the new UAE Commercial Companies Law released in July, which aims to lower the bureaucratic hurdles for foreign firms looking to expand their footprint in the country.
Despite recent regional tensions, the easing of sanctions against Iran in mid-January signals further good news for Dubai, with the IMF predicting that the resumption of trade with its neighbour, particularly in non- hydrocarbons sectors, will add one percentage point to the UAE’s GDP growth between 2016 and 2018. Dubai could see its trade reach extended further in the coming years, as the UAE continues negotiations on a possible free trade agreement with China.
The emirate also continued to strengthen its position as a global Islamic economic hub in 2015, buoyed by growing investor interest in sharia- compliant finance. Its efforts received a boost in December with the issuing of a law establishing the Emirates Global Centre for Accreditation.
While Dubai’s banking sector recorded 8.7% y-o-y credit growth in the third quarter of 2015, attributed in part to the lead up to World Expo 2020, Moody’s warned in early December that a liquidity crunch was expected in both the UAE and the broader GCC region. The UAE economy has been given a push in the past couple of years by government spending on infrastructure that has included not only airports but other civil projects such as roads, hospitals and museums.
The aviation industry is expected to contribute 32 per cent to Dubai’s GDP by 2020, according to government estimates.
Since June, the price of crude has declined by 60 per cent amid waning demand from emerging markets and an increase in production from North America. Oil revenue pays for some 60 per cent of the federal budget.
Bond prices and credit default swaps saw relatively little movement in 2015, reflecting continuing investor confidence in Dubai’s sovereign debt, though market optimism waned somewhat towards the end of the year. The Dubai Financial Market General Index fell to a two-year low in the second week of December amid concerns over energy prices.
Poised for a theme Park boom
With demand for leisure tourism on the rise, Dubai’s first major theme parks are expected to prove a significant draw when they open for business later this year. Leisure and entertainment (L&E) represents an important segment of Dubai’s tourism industry, with theme parks in particular seen as a high-growth industry due to their wide appeal.
Strong client association with media tie-ins and little in the way of regional competition should put these and other attractions on a sound footing as the emirate continues efforts to increase visitor numbers from 14.2m in 2015 to 20m by 2020, in addition to the 25m visitors anticipated during the six-month World Expo 2020.
Dubai is broadening its tourism offering to make it more appealing to different segments. Younger travellers may have less to spend on accommodation but will be drawn to other experiences on offer, while families are increasingly attracted by the growing number of theme parks and other attractions.
In a report published last year, consultancy PwC concluded that Dubai and the broader UAE had the potential to compete with the likes of Orlando, Florida as a global theme park destination.
Having already channelled funds into developing transport links, accommodation, and the food and beverage sector, the country has laid much of the necessary groundwork to support an expanding L&E segment, capable of attracting up to 45m visitors by 2021, according to PwC. The raft of attractions taking shape in the emirate includes Dubai Parks and Resorts, an integrated theme park resort.
Once completed, Dubai Parks and Resorts will be the region’s largest year-round, theme park resort destination, worth more than Dh10.5bn ($2.86bn). It will offer a variety of attractions in motiongate Dubai, a Hollywood movie-inspired theme park; Bollywood Parks Dubai, the first theme park based on the sights and sounds of Bollywood;
as well as LEGOLAND Dubai and LEGOLAND Water Park, the region’s first water park catering to families with children ages 2-12.
On track to open in October 2016, the development will feature more than 100 rides and attractions, supported by a resort hotel, eateries and retail outlets. Dubai Parks and Resorts is targeting 6.7m ticketed visitors and $650m in revenue in 2017, its first full year of operations.
Other theme parks opening this year include the IMG Worlds of Adventure, which is owned by IMG Theme Park LLC. The theme park will stretch over 1.5m sq feet, which will make it the largest indoor theme park in the world.Like Dubai Parks and Resorts, IMG Worlds of Adventure also has a strong media connection through partnerships with entertainment giants MARVEL and Cartoon Network for a range of superheroes and animated characters that will be featured in the theme park. Utilising themes from movie franchises will give Dubai’s new entertainment hubs a useful ready-made connection with their client base. As per IEC estimates, Dubai’s theme parks could generate around $5bn in annual revenue by 2020.
Dubai Safari Park, a 119-ha zoo, is also expected to open by mid-2016. The Dh150m ($40.8m) development will house close to 1000 animals, with more than 350 species of rare and endangered animals.
Related industries, ranging from retail to real estate, could also see knock-on benefits from tourism growth and growth of new tourism segments, including family tourism, experiential tourism and entertainment, generates opportunities in related industries, such as construction, real estate, infrastructure and retail.
Poised for growth
Alpen Capital ‘s ‘GCC Retail Industry’ report expects retail sales in the GCC region to grow at a CAGR of 7.3 per cent from 2013 to 2018 reaching $284.5bn. What are the factors driving this growth?
The retail industry continues to maintain a positive momentum attributed to key factors influencing the market like robust economic growth, rising purchasing power, growing population comprising a large proportion of expatriates, changing consumption patterns and increasing penetration of international retail players. Retail structure in the GCC region is undergoing significant transformation, driven by the social and economic developments that have resulted in an increase in modern retail formats such as hypermarkets and supermarkets. The Gulf is also gearing to host events such as World Expo 2020 and FIFA 2022, leading to a growing influx of tourists and creating immense opportunities for existing and new retailers in the region. The increase of retail sales area, growing e-commerce segment, easy availability of credit and interest payment plans, increasing consumer confidence and government initiatives to promote infrastructure, hospitality and tourism sectors also feature among the other key driving factors contributing to the growth of the retail industry in the GCC.
The airport based duty free sales is projected to grow at a CAGR of 11.3 per cent compared to the GCC retail growth average of 7.3 per cent between 2013 and 2018. This growth is driven by an increase in passenger traffic at the major airports in Dubai, Abu Dhabi and Doha. The upcoming events such as Expo 2020 and FIFA World Cup 2022 are seen as major drivers of tourist inflow into the region. The resultant expansion of the tourism industry is expected to fuel the growth of airport retail sales in the region.
The other category which is promising is the retail sales of hypermarkets/supermarkets which will grow at a CAGR of 9.2 per cent for the same period. Hypermarkets/ supermarkets continue as the fastest growing retail channel in the region. This growth is expected to be driven by increasing disposable incomes and modernisation of the industry.
The report forecasts sale at supermarket and hypermarkets to grow at a CAGR of 9.2 per cent from 2013 to 2018 – a shade higher than the industry average of 7.3 per cent – is this growth expected to come at the expense of other retail formats like the high-street and convenience stores?
While supermarkets and hypermarkets are increasing in appeal as they offer a variety of products under one roof, a hassle- free shopping experience and other value-added facilities, their growth is not necessarily at the expense of other retail formats.
Modern convenience store format is emerging as one of the highly promising segments of the retail industry in the region due to its innovative and customised offerings and ease of access. Customers with a fast moving lifestyle prefer to shop at these stores, typically located in the neighbouring towers, for their daily requirements, even as they visit hypermarkets for bulk shopping on a weekly or monthly basis. The format is gaining popularity in the GCC as convenience stores tend to be less crowded and provide customers with a more pleasant shopping experience. The retailers also find opening these stores attractive as the set-up cost is lesser as compared to large modern outlets. These stores occupy a small area typically between 1,000 sq. mtrs and 2,200 sq. mtrs in nearby vicinity, where rents are typically lower than in the big malls and shopping centers. Also, the stores do not require a large staff for managing daily operations.
With local and international retail chains opening convenience stores, the format has seen many innovations. Considering the changing buying pattern of consumers, many international players are entering the market with new small stores which might directly compete with the traditional convenience stores. This trend is leading many convenience stores to look at modernising in order to manage the competition.
The GCC region’s retail industry receives an inherent growth thrust from its young, diverse and expanding population base. Retailers are constantly looking at new and easy ways of being accessible to a new generation of consumers. E-commerce is one of the trends that is on the rise. Though still in its nascent stage, this trend is gaining popularity among the youth due to its competitive offers as well as the convenience of shopping from one’s home. M-commerce is another medium gaining popularity with many brands launching their mobile app in order to appeal to the senses of the younger demographic.
In addition, the retail industry also faces some other challenges. Despite the increase in total retail space and expected GLA supply in the coming years, retail rental rates in many Gulf cities have been on an upward trend. Such overhead escalations can have a negative bearing on retailers’ margins. A shortage of skilled local workforce increases the dependence of the industry on the expatriate staff. E-commerce remains highly unexplored in this region due to inadequate online infrastructure and logistics.
The healthcare boom continues
The medical industry in Dubai is set to receive a major boost from the country’s new five-year health care strategy.
Presented by Sheikh Mohammed bin Rashid Al Maktoum, vice-president and prime minister of the UAE and ruler of Dubai, in late January, the Dubai Health Strategy 2021 was developed as a five-year blueprint for improving the quality and cost effectiveness of health services in the emirate, and strengthening collaboration between the public and private sectors.
The government is looking to encourage private investment in medical tourism and related real estate development, along with key e-health services.
Private Health Shift
In recent years the Dubai Health Authority has focused on shifting the provision of health services from the public to the private sector, with a target 30:70 division of funding. A combined Dh12.8bn ($3.5bn) was spent on health care in Dubai in 2014, with the private health sector accounting for roughly two-thirds of the total, at Dh8.5bn ($2.3bn). This represented a 37% increase over the private health care spend recorded in 2012.
Globally, it’s been proven that health care services are more efficient when privatised, though the government should continue to provide health care to those who cannot afford private coverage. The shift towards private health services is being supported in large part by the full implementation of compulsory medical insurance, which is gradually being extended to cover all nationals as well as expatriate residents and workers.
Medical tourism draw
In an effort to building on growth in the local private health care market, one of Dubai Health Strategy 2021’s key objectives is to develop Dubai as a regional and international destination for medical tourism.
By the end of the decade, the country aims to more than triple the number of health visitors from the 135,000 guests posted in 2014 to 500,000 by 2020.
By capitalising on the emirate’s centralised location in the region and offering high-level services, Dubai officials estimate the medical tourism segment could generate up to Dh2.6bn ($708m) per annum by 2020.
Medical tourism is an important sector, and is set to grow considerably in the coming years. Thanks to prior investment, Dubai is well positioned to serve as a regional and international hub for these services. Recognising the potential for medical tourism revenues, investment in the sector has expanded, with 22 new health
facilities – 18 private and four public – scheduled to open in the coming years.
Facilities and hospitality
Private real estate developments targeting the medical tourism segment offer another avenue for investment.Phase 1 of DHCC, which has focused on health care services, education and research, has demonstrated steady growth at both strategic and operational levels. Phase 2 of DHCC, which is currently under way, will achieve significant growth through unique wellness concepts and specialised hospitals with complementary residential offerings.
Human resources and e-health
While development of physical infrastructure continues apace, the emirate is also focused on expanding and upgrading the sector’s human resources and IT capacity.
Stakeholders often identify attracting and retaining top specialists from abroad as one of the primary challenges facing the industry; continuing education on new procedures and treatments is another concern. New government initiatives, including those outlined in the recently unveiled national health strategy, may hold the key.
The government has committed to stepping up investments in training and education, and to further developing human resources. Dubai Health Strategy 2021 also focuses on encouraging local research as a means of driving innovation and efficiency for medical and technical staff.
Alongside training, the emirate also plans to focus on developing stronger e-health infrastructure, ranging from electronic medical records (EMR) to health care apps.
This should grant greater flexibility to patients moving between treatment centres, while also offering opportunities for further private sector involvement. EMR vendors who supply small and medium-sized clinics, polyclinics and pharmacies will find a huge market in Dubai, as we have more than 2000 such establishments. There is significant scope for growth for health information exchange companies and EMR companies, as well as smart app developers.