Dubai Rethinks Growth Ambitions

Wall Street Journal:

Dubai’s sky-high growth ambitions are coming back down to earth as it reassesses economic development plans hatched near the peak of its boom five years ago.

Years after the emirate’s property-driven economy hit a wall, Dubai is officially scaling back the double-digit growth goals it set for itself in 2007.

Instead, the emirate, which boasts the world’s tallest building and outlandish development projects such as a palm-tree-shaped artificial archipelago, is turning from reliance on real estate to focus on its position as a regional hub. That means a return to traditional strengths in tourism, trade, transportation and logistics.

What looks like Dubai’s delayed acceptance of reality can be attributed in part to distraction with financial troubles at state-linked companies, said Florence Eid, chief executive of the London-based research firm Arabia Monitor. Flagship conglomerate Dubai World worked out a $25 billion debt restructuring last year, after about two years of sometimes tense negotiations with creditors.

“They had to get past the point of fighting fires before going back to thinking long-term strategy,” Ms. Eid said.

A revised version of Dubai’s 2015 strategic plan scraps goals of 11% growth in gross domestic product, Mohamed Lahouel, chief economist of the Dubai Department of Economic Development, said Thursday. The agency hasn’t revealed its new growth projections. 

The new plan has been sent to Dubai’s Executive Council and is expected to be completed by the end of June, Mr. Lahouel said.

The original strategy “had extremely ambitious growth projections and objectives, and for the first years in 2007 and 2008 that worked quite well,” he said. “Then came the international financial crisis and obviously the objectives and policies had to be revised,” he said.

The crisis took a toll on Dubai’s once-vibrant property market, which was central to its boom and its bust.

GDP declined 4% in 2009 and 2.2% in 2010, followed by modest growth last year and this year, according to data from the Institute of International Finance. “Most of the growth between 2003 and 2008 was driven by the boom in construction,” said Garbis Iradian, an economist at the institute. “Now things have changed.”

The institute expects to grow by 2.5% this year, a slowdown from 2011’s estimated 3.2% rate.