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Dubai Analysis



Submitted to:-
Prof. Rajesh Madhwan

Date- 18 Mar 10

Submitted By:-

Tushar Roy
 Uma
Sangwan
 Vivek
Goyal

MAIN STREET OF DUBAI IN
1990
SAME ROAD IN
2003
IN 200
7
AL BURJ DUBAI
The Burj al-Arab
• Population - 1.77 million

• Expats are around 90% and out of which 50% are
Indian.

• Area-4114 Sq. Km

• Country – UAE

• Capital of UAE – Abu Dhabi

• Time zone UAE standard time (UTC+4)

• (1hour and 30 minute behind India)
History of Dubai
• The first human settlement of Dubai was
in approximately 3000 BC.
• first records of the town being made in
1799, when Bani Yas clan established it
as a dependency of Abu Dhabi.
• Dubai became a separate Sheikhdom in
1833, when the Al-Maktoum dynasty of
the Bani Yas clan (initially from Abu
Dhabi) took it.
• The invention of artificial pearls in 1926
and the Great Depression in 1929.
• 1966, oil was discovered in Dubai.
Culture
• The Dubai is a Muslim country.
• Mosques are dotted throughout the
landscape of Dubai and five times a day
the melodious prayer call or "adhan" will
be heard.
• Arabic is the official language, however
English is widely spoken by almost
everyone and all the street signs are in
both English and Arabic.
• Muslim women from the Gulf States typically
dress in a long black robe known as the
"abaya".
• Gulf men wear a loose, typically white robe
called a "dishdasha" along with a white or
DUBAI FINANCIAL CRISIS
§ Dubai was another fallout of the global real estate bubble
§ With global financial markets plunging after Dubai World, the
government investment company burdened with $59 bn
liabilities, requested for deferment of debt to its creditors for
six months, on 25th Nov 2009.
§ Nakheel has a debt of $26bn[ $3.5 bn islamic bond due to be paid
on 14th Dec 2009.
§ The Dubai government’s total debt is estimated at $80 bn.
§ Indian stock markets also plunged with heavy selling witnessed in
banking, infrastructure and realty stocks.

REASONS FOR THE CRISIS

• After 2003- Dubai economic model- More debt & less equity.
• Advantage of
– Political and economic openness,
– Better infrastructure,
– Trade mark of regional and world business hub.
• FDI invited-
– Invested in real estate-Infrastructure,
– Tourism- airway
– Trade
• Mismatch between demand and supply.
• Dubai has accrued debts of approximately US$85-100 billion, or
around 200% of GDP.
• Government restrictions were low.
• Lax lending standards and low interest rates.

ROLE OF THE DUBAI
GIANTS
• Dubai’s main development engine- Dubai world and its real estate
arm- Nakheel
• Issued Nakheel bonds- investors ready to invest as it was state
owned
• Today many bonds are due and cash flows not enough to pay them
back.
– Restructuring effect-
– It has a reported US$60 billion in liabilities, offset by a
calculated US$40 billion in assets
– There is a maturity mismatch- the expected revenue is in
the future while liabilities, including to contractors and
suppliers, are piling up today.
WHY NOT ABU DHABI


• It has oil backing and is loaded with liquid assets.

• It has a diversified portfolio- investment not locked up in one
sector.

• In real estate, demand is there so construction is done.

MAJOR IMPACTS OF DUBAI
CRISES ON ITSELF
1) Impact on Banking.:-

§ Those banks which provided finance to various projects are


feeling pinch of Dubai crises .
§ Understandably their shares have fallen since.

 2) Fall in real estate prices:-


§ Building dream projects like the Palm shaped islands, a new urban
metro, the world's largest tower, a waterfront to the size of Hong
Kong, a leisure park called 'Dubai land‘.

Contd…..
3)Layoffs:-
§ The already reeling construction industry is seeing a
major freefall. Laborers are asked to go home and
whatever little construction projects were on the
anvil, are shelved.
§
4)Drop in demand of Gold:-

§ Dubai does not produce Gold on its own, it seeks


exports from countries like India and re-exports them
to other countries.


Contd..
 5)Immediate drop in oil prices:-

§ There was slight drop in oil prices as oil contributes to 6 % in


Dubai economy.
§ This crisis is a setback pushing Dubai to rely more on oil revenue.
Dubai has to pump more oil out to finance its debt. and
as OPEC is not expected to increase the production quotas,
expecting oil prices to go even lower.
§
 6) Depreciation in Dirham:-

§ The valuation of AED (The local currency of Dubai) saw a drop.


This means the strengthening of the Dollar, by a bit.

IMPACT ON STOCK MARKET
Across Asia banking shares plunges down.


§ Hangsang 3.1%
§ Nikkei 1.8%
§ Shanghai composite index 2.36%
§ Australian stock exchange 3.0%
§ BSE 2.0%

ROLE OF ABU DHABI AS
A SAVER
• D u b a ia ske d A b u D h a b ito b a ilo u t fro m
th is crise s.
• H o w e ve r , it u p to A b u D h a b i, th e
w e a lth y ca p ita lo f th e U n ite d A ra b
E m ira te s h o w it w o u ld like to a ssist
D u b a i.
• A n a lysts a re exp e ctin g A b u D h a b i ( th e
se n io r a n d co n tro llin g E m ira te in th e
U A E ) to h e lp so fte n th e b lo w o f th is
crisis.
• A re ce n t re p o rt b y H S B C co n firm s th a t
A b u D h a b ih a s th e ca sh liq u id ity to
su p p o rt its o w n b a n ks a n d p ro p e rty
03/19/10 Economics Project 18
• T h e re fo re , A b u D h a b iis like ly to u se
so m e o f th is liq u id ity a n d sta b ility
to h e lp p re ve n t a co m p le te co lla p se
o f m a rke ts in D u b a i.
• T h e U A E C e n tra lB a n k h a s a lre a d y
co n firm e d th a t it´s b o a rd h a s
d iscu sse d p la n s to la u n ch fa cilitie s
fo r su p p o rtin g re a le sta te le n d in g in
D u b a i, a s w e lla s in th e re st o f th e
U A E.
03/19/10 Economics Project 19

RAY OF HOPE

• IN sp ite o f a llth e se , exp e rts h o p e


th a t it is p o ssib le to re co ve r. It
co m e s o u t o f p a st exp e rie n ce .
D u b a ih a d fa ce d sim ila r e co n o m ic
crisis in 1 9 9 9 . T h e n A b u D h a b i,
a n o th e r e m ira te in U A E , h a d h e lp e d
D u b a ib y le n d in g a lo a n o f
$ 1 , 0 0 , 0 0 0 . A b u D h a b iis a
fin a n cia lly sta b le co u n try.

03/19/10 Economics Project 20
Legal System
UAE federation
• The UAE federation was between the
rulers of the six of the emirates (Abu
Dhabi, Dubai, Sharjah, Fujairah, Umm
al-Qaiwain and Ajman) and was formed
in 2 December 1971with ‘Sheikh
Zayed’ as president.
• The seventh emirate, Ra’s al-Khaimah,
formally acceded to the new federation
on 10 February 1972.
• UAE federal constitution provides for an
allocation of powers between the
federal government and the
Foundation of legal system
• UAE federal constitution permits each
emirate to have its own judicial authority.
• Dubai has its own independent courts (and
judges), which are not a part of the UAE
Federal Judicial Authority.
• All emirates other than Dubai and Rass Al
Khaimah have brought their judicial
systems into the UAE Federal Judicial
Authority.
• Dubai and all other emirates are dealing
with the most important and fundamental
principles of law, including civil,
commercial, civil procedure, companies,
intellectual property, immigration,
The court system
• Dubai court has a civil division, a criminal
division and a Shari’a division.

• Non-Muslims are required to respect
Shari’a law in Dubai.

• Dubai also has a Labour Court.

• the Dubai courts conduct themselves in
the Arabic language
Free zone
• Free zone includes :
qDubai International Financial Centre (the
DIFC),
q
qthe Jebel Ali Free Zone, and
q
qDubai Media City
qforeign ownership of companies allowed
(compared to 49 per cent. for most
companies incorporated outside the free
zones),
qtax concessions
qno restrictions on the repatriation of
capital and profits and freedom from
Taxation
• There is no federal corporate or income
tax levied in the UAE (except on oil
companies and foreign banks)

• There is no value added tax or sales tax
in Dubai or the UAE

• There are no exchange controls on the
remittance of profits or repatriation of
capital and

Enforcement of law
• Strict law

• buying or selling any drug is a serious
crime in Dubai

• Dubai visitors should also remain
sensitive to Muslim standards of dress
and behaviour, which are generally
more conservative than those in the
West

Continue….

• National bank in UAE are either listed
 on

qAbu Dhabi Securities Market (ADSM) or


q
qDubai Financial Market (DFM)

INDIAN BANKS IN DUBAI

03/19/10 Economics Project 30


INDIAN BANK EXPOSURE
§ Indians bank have a Rs 6500 cr exposure in middle east city.
§
§
§ BOB – 10000 cr for Gulf countries .Bank of Baroda's
exposure to Dubai accounts for 2% of its total
assets.
§
§
§ MD Mallya, chairman and managing director of Bank
of Baroda has pointed out recently that it has an
exposure of Rs 4,000 crore to Dubai.
§
§
§ Counts for 7-8% of total loan book accounts.
§
§
§ Both SBI and BOB has an exposure of $50 million to Dubai
World.
Foreign banks in the UAE : Loan exposure
( in USD bn )

§ HSBC Bank Middle East Limited


17.0
§ Standard Chartered Bank
7.8
§ Barclays Bank Plc
3.6
§ ABN-Amro Bank N.V. (RBS)
2.2
§ Arab Bank Plc
2.1
§ Citibank N.A.
1.9
§ Bank of Baroda
1.8
Workers productivity
• The UAE’s per capita income has more
than doubled from around Dh76,600 in
2006 to Dh162,000 in 2007
• The reason being nominal gross domestic
product rocketed from Dh624 billion to
Dh729 billion in the same period
• National Employment
• Programmes undertaken in 2008 the
national recruitment initiative, of its
website www.ershaad.ae
FISCAL POLICY
Fiscal policy is very simple in Dubai.
Taxes are zero in free trade zone,
including with holding tax. It tries to
avoid dual tax liability by signing lot
of agreements with certain countries.
The taxes which are applicable in

areas except free trade zones are:


 PERSONAL TAXATION
Individuals have to pay extra taxes like

service charge on food purchased from


restaurants. Individuals has to pay such
extra taxes.
 CORPORATE TAX
Companies are required to pay tax on

their earnings. The sliding scale up to


maximum of 55per cent.However in
practice only oil,gas and petrochemical
companies and branch offices of foreign
banks are required to pay tax.
 PROPERTY TAX
An annual property tax is payable to

all residential properties.The amount


of tax payable depends upon the
employment status of the tenant. It
is the tenant’s obligation to pay the
property tax.
INFLATION
Inflation rate in Dubai fell to 1.3 per
cent in january,2010. The cost of
living rose by just 4.1 percent last
year, far less than the 11.3 percent
increase in 2008.
In 2008,the rate was 11.3 per cent, on

the back of a surge in local rents and


food prices due to higher global
commodity prices and a sharp
increase in its import bill due sharp
increase in its import bill due.
Last year strong drop in rental

accommodation, commercial real


estate and warehousing made Dubai
an investment platform. This will
certainly have positive implications
in further coming years for doing
business.
Monetary Policy
Currency is pegged with US dollar.

The Central Bank (CBUAE) manages money supply


growth by aligning interest rates.

By following interest rate cuts in US, interest rate in


UAE also witnessed several cuts in its key interest
rates.

The central bank has lowered its interest rate on
repurchase of Certificates of Deposits (CD).
Continued…
The 3 month inter bank rate witnessed sharp
decline.

Sharp cuts in repo rate at a time of surging liquidity


in the economy resulted into steep decline in
deposit rates in the country.

The real lending interest rate falls into negative


zone in past couple of years.

Solid growth in money supply and modest growth in


quasi deposits.
INTREST RATES
GDP
Subject Descriptor Units Scale 2006 2007 2008 2009(E)
2005 2006 2007 2008
Gross domestic product, U.S. dollars Billions 164.165 180.180 262.150 228.578
NOMINAL
current prices 135.3 164 200.5 272
GDP ($
Gross domesticPERproduct 33.9
U.S. dollars 38.8
Units 38,818 44.8
40,147 -
55,028 46,583
BILLION)
CAPITA
GDP
per capita, current prices 8.2% 9.4% 6.1% 7.4%
GROWTH
RATE
Gross domestic product Current Billions 154.405 168.892 185.287 187.851
based on (PPP) international
dollar

Gross domestic product Current Units 36,510 37,631 38,893 38,283


PPP per capita GDP international
dollar

Population Persons Millions 4.229 4.488 4.764 4.907


Subject Units 2007 2008 2009 2010 2011 2012 2013
Descript
or
GDP, U.S. d. 180.18 262.15 228.57 256.17 275.54 298.84 326.17
current 0 0 8 9 8 8 5
prices
(IN
Inflation, Annual11.11512.260 2.549 3.318 3.700 3.891 3.870
BILLIO
av. %
N)
consume
r prices
Current % of 16.08715.674 -1.566 5.221 8.760 11.436 12.244
account GDP
balance
ENTRY
&
EXIT
BARRIER
S
Capital market &
availability of capital
Reasons to Invest in the
Dubai (UAE)
• Economic and political stability 91.40%
• Entrance to regional markets 90.00%
• Geographical location 87.10%
• Great investment opportunities 87.10%
• Gateway to international markets 82.30%
• Availability of qualified local partners 77.10%
• Looking for new markets 69.90%
• Easy investment procedures 64.80%
• Suitable use of space for activity 58.40%
• Looking for strategic assets 54.20%
• High market value of shares 44.90%
• Low cost 28.50%
• Suitable rental value 28.10%

Three sectors to invest
 Infrastructure

 Banking

 Service to extreme needs of sheikhs
CULTURE OF FREE ZONE
• The Dubai International Financial
Centre (DIFC)
• Dubai Internet City
• Dubai Airport Free Zone Authority
• Dubai Media City (DMC)
• Dubai Knowledge Village
• Dubai Healthcare City
• Dubai Studio City
• Jebel Ali Free Zone

Thank you