DUBAI - After 10 years of break-neck growth, Dubai has emerged as the boom town of the Middle East and beyond, smashing perceptions that the Gulf region offered little beyond sand and oil.
Between 2000 and 2005 the emirate’s average annual economic growth was more than 13 per cent, outstripping all its Gulf neighbours, China, India, Singapore and the United States. Personal wealth rose an average of 6 per year a year.
Towering visions of prosperity and the allure of affluence have beckoned legions of expatriates to come chase the ‘Dubai dream’ and enjoy the Arabian desert high life the government envisions for the emirate’s multi-cultural future.
But like all economic and tourist magnets, Dubai cannot completely control the soaring cost of living that accompanies rapid growth. Abu Dhabi is no different.
The government is keenly aware of the challenge it faces as it tries to deliver 11 per cent annual growth over the next seven years. A key ‘strategic thrust’ of Dubai’s 2015 master plan is “managing the rising cost of living” as a way of “ensuring and maintaining Dubai’s competitiveness.” State intervention has targeted crucial sectors like real estate, food and education in a bid to control inflation.
If it cannot, the big question is will Dubai, Abu Dhabi and the rest of the emirates become victims of their own success?
Warning signs have appeared recently. Inflation hit 11 per cent last year, the highest in 20 years.
Many residents’ paychecks are being squeezed by the rising cost of housing, food, education, healthcare, entertainment, transportation and imports, which account for 85 per cent of consumer goods sold in the UAE. Increasing numbers of families are seeking loans to pay their bills.
Businesses likewise are coping with higher expenses, particularly for materials, imports, labour and healthcare. And everyone is feeling the effects of global inflation, the credit crisis and the weak U.S. dollar, which has dragged down the dirham and inspired cost-conscious shoppers.
“Earlier, people used to buy reputable brands but now they are seeking quality at reasonable prices,” said Ibrahim Al Bahr, Deputy Director of the Union Cooperatives. He noted that during the past two years, prices for flour and oil had increased 100 per cent, while rice and other essential commodities rose 60 per cent and dairy products 40 per cent.
The Abu Dhabi Department of Planning and Economy reported that consumer spending last year jumped 17.7 per cent, to Dh 319.87 billion, more than double in 2002.
Daily per-capita spending worked out to about Dh99 (US$27) — eight times higher than average daily spending in the rest of the Arab world.
Separately, and perhaps most troubling, data showed that UAE nationals and expatriates are spending more than they are earning. Core spending — housing, groceries, energy, education, leisure — is eating up 60 to 70 per cent of their incomes.
Last year, national families spent an average Dh3,67,000 but earned Dh3,62,000, according to the Abu Dhabi Chamber of Commerce and Industry. The disparity was even worse for the average expatriate family: Dh136,000 spent and an income of Dh118,000.
Inflation was cited as the major cause of increased household spending and reliance on loans.
The widening gap between incomes and spending is also wiping out savings. GulfTalent.com found that 41 per cent of the expatriates in the UAE surveyed reported not saving anything, the highest in the Gulf. The trend worries financial experts.
“Salaries must meet the needs of the employees, such as paying for accommodation and essential commodities,” said Dr Hamam Al Shammaa, an advisor at Al Fajer Financial Studies.
He believes that the UAE must establish salary minimums and change the current labour market rule that forces employees to work in a company without specific and guaranteed annual raises, while preventing the worker from changing jobs unless the employer provides a Non-Objection Certificate.
One major goal is to continue to boost Dubai’s per capita gross domestic product to Dh162,000 ($44,000) by 2015, an increase of 40 per cent from 2005.
Whatever the outcome, a large portion of people’s income will be spent on housing.
A recent study issued by the Department of Planning and Economy, Abu Dhabi, showed that the capital witnessed a 17 per cent hike in rents in the beginning of 2008. Dubai, Sharjah and Ajman are also witnessing huge rises, with Dubai topping the list.
Despite ongoing constructions and completion of several residential projects, economist and real estate expert, Ahmed Al Bannai, predicted that the increase in rents was not expected to slow down.
He attributed this to the high cost of building materials, which was increasing internationally because of skyrocketing fuel costs and the weak U.S. dollar.
Al Bannai said that rents in Dubai, now one of the biggest real estate markets in the world, soared during 2006 and 2007.
That’s why expatriates are finding it difficult to find affordable homes in Sharjah and Ajman, where rents have doubled in the past two years because of an exodus from Dubai.
Educating children in the UAE also has become expensive, depending on the school a parent chooses. Tuition increases used to be limited to 20 per cent in three years. The government lifted that cap in May, however, permitting fee hikes of between 5 and 30 per cent, depending on a school’s previous increase.
Dubai, which has its own education authority, Knowledge and Human Development Authority, has been regulating fees for the past two years and has ensured that fees increased in private schools only by a total of 16 per cent in the academic years 2007-08 and 2008-09.
Despite the control exerted on fees, schools charge anywhere between Dh3000 and up to Dh80,000 annually depending on the curriculum, facilities and if its internationally accredited.
Expatriates doing blue-collar or service work are being hit especially hard by the price spirals.
Many live on shoe-string budgets, scout out supermarkets that are a trifle cheaper or give up leisure activities to stretch their dirhams.
Besides the daily costs, loans, mortgages and car installments eat up at least 15 per cent of salaries, leaving little to save or send to home countries, say residents.
Increasingly, Asian expatriates are sending their wives and children back home in a bid to cut corners. Bachelors, shared accommodations and moving away from a rice diet are becoming the norm.
The local and federal governments are working toward timely interventions.
What’s needed, however, are comprehensive policies in each sector.
Preeti Kannan
Afkar Abdullah
Amira Agarib
Anwar Ahmed
Ahmed Abdul Aziz