Expats leaving Dubai is bad news for the economy
Wealthy Gulf Arab monarchies have, for decades, depended on foreign workers to transform sleepy villages into cosmopolitan cities. Many grew up or raised families here, but with no formal route to citizenship or permanent residency and no benefits to bridge the hard times, it’s a precarious existence.
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Bloomberg | Updated: June 11, 2020 2:56:05 pm
The Burj Khalifa skyscraper, center, stands beyond an empty road among other office buildings on the city skyline seen from Dubai Design District in Dubai, United Arab Emirates, on Tuesday, June 9, 2020. (Photographer: Christopher Pike/Bloomberg)
It took Sarah Sissons less than a month to call an end to 25 years in Dubai. The 39-year-old moved back to Australia in May with her husband and daughter. She first came to the Gulf business hub as a teenager, when her father was a pilot for Emirates, and never really left.
“Dubai is home for me,” said Sissons, who owned a small cafe and worked as a freelance human resources consultant. But “it’s expensive here and there’s no safety for expats. If I take the same money to Australia and we run out of everything, at least we’ll have medical insurance and free schooling.”
It’s a choice facing millions of foreigners across the Gulf as the fallout from the
pandemic and a plunge in energy prices forces economic adjustments. Wealthy Gulf Arab monarchies have, for decades, depended on foreign workers to transform sleepy villages into cosmopolitan cities. Many grew up or raised families here, but with no formal route to citizenship or permanent residency and no benefits to bridge the hard times, it’s a precarious existence.
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The impact is starkest in Dubai, whose economic model is built on the presence of foreign residents who comprise about 90% of the population.
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Oxford Economics estimates the United Arab Emirates, of which Dubai is a part, could lose 900,000 jobs — eye-watering for a country of 9.6 million — and see 10% of its residents uproot. Newspapers are filled with reports of Indian, Pakistani and Afghan blue-collar workers leaving on repatriation flights, but it’s the loss of higher earners that will have painful knock-on effects on an emirate geared toward continuous growth.
“An exodus of middle class residents could create a death spiral for the economy,” said Ryan Bohl, a Middle East analyst at Stratfor. “Sectors that relied on those professionals and their families such as restaurants, luxury goods, schools and clinics will all suffer as people leave. Without government support, those services could then lay off people who would then leave the country and create more waves of exodus.”
With the global economy in turmoil, the decision to leave isn’t straightforward. Dubai residents who can scrape by will likely stay rather than compete with the newly unemployed back home. The International Labor Organization says more than 1 billion workers globally are at high risk of pay cuts or job losses because of the coronavirus.
Some Gulf leaders, like Kuwait’s prime minister, are encouraging foreigners to leave as they fret about providing new jobs for locals. But the calculation for Dubai, whose economy depends on its role as a global trade, tourism and business hub, is different.
The crisis will likely accelerate the UAE’s efforts to allow residents to remain permanently, balanced against the status of citizens accustomed to receiving extensive benefits since the discovery of oil. For now, the UAE is granting automatic extensions to people with expiring residence permits and has suspended work-permit fees and some fines. It’s encouraging local recruitment from the pool of recently unemployed and has pushed banks to provide interest-free loans and repayment breaks to struggling families and businesses.
A Dubai government spokesperson said authorities were studying more help for the private sector: “Dubai is considered home to many individuals and will always strive to do the necessary to welcome them back.”
Dubai’s main challenge is affordability. The city that built its reputation as a free-wheeling tax haven has become an increasingly costly base for businesses and residents. In 2013, Dubai ranked as the 90th most expensive place for expatriates, according to New York-based consultant Mercer. It’s now 23rd, making it the priciest city in the Middle East, though it slipped from 21st place in 2019 as rents declined due to oversupply.
Education is emerging as a deciding factor for families, especially as more employers phase out packages that cover tuition. Though there’s now a wider choice of schools at different price points, Dubai had the region’s highest median school cost last year at $11,402, according to the International Schools Database.
That will likely lead parents to switch to cheaper schools and prompt cuts in fees, according to Mahdi Mattar, managing partner at MMK Capital, an advisory firm to private equity funds and Dubai school investors. He estimates enrollments may drop 10%-15%.
Sarah Azba, a teacher, lost her job when
social distancing measures forced schools online. That deprived her of an important benefit; a free education for her son. So she and the children are returning to the U.S., where her 14-year-old son will go to public school and her daughter to college. Her husband will stay and move to a smaller, cheaper home.“Separating our family wasn’t an easy decision but we had to make this compromise,” Azba said.
For decades, Dubai has thought big, building some of the world’s most expansive malls and tallest buildings. From the desert sprang neighborhoods lined with villas designed for expat families lured by sun and turbo-boosted, tax-free salaries. New entertainment strips popped up and world-class chefs catered to an international crowd. But the stress was building long before 2020. Malls were busy but shoppers weren’t spending as much. Residential properties were being built but there were fewer buyers. New restaurants seemed to cannibalize business from old.
The economy never returned to the frenetic pace it enjoyed before the 2008 global credit crunch prompted the last bout of expatriate departures. Then, just as it turned a corner, the 2014 plunge in oil prices set growth back again. The Expo 2020, a six-month exhibition expected to attract 25 million visitors, was supposed to be a reset; it’s now been delayed due to
Covid-19.
“Dubai, like the rest of the Gulf, is reliant on foreign workers. Policy makers have been reluctant to stimulate the economy with direct spending, perhaps preferring to preserve their cash in exceptionally uncertain times. But this could lead to an exodus of expatriates that would prolong the virus-induced slowdown,’’ said Ziad Daoud, Bloomberg Economics Chief Emerging Markets Economist.
Weak demand means recovery will take time. Unlike some Middle Eastern countries, the UAE isn’t seeing a resurgence in Covid-19 infections as it reopens, but its reliance on international flows of people and goods means it’s vulnerable to global disruptions.
Emirates Group, the world’s largest long-haul carrier, is laying off employees as it weighs slashing some 30,000 jobs, one of the deepest culls in an industry that was forced into near-hibernation. Dubai hotels will likely cut 30% of staff. Developers of Dubai’s man-made islands and tallest tower have reduced pay. Uber’s Middle East ride-hailing unit Careem eliminated nearly a third of jobs in May but said this week business was recovering.
Dubai-based Move it Cargo and Packaging said it’s receiving around seven calls a day from residents wanting to ship their belongings abroad. That compares with two or three a week this time last year. Back then, the same number of people were moving in too. Now, it’s all outward bound.
Marc Halabi, 42, spent the past week reluctantly sorting belongings accumulated over 11 years in Dubai. Boxes line the rooms as he, his wife and two daughters decide what to ship back to Canada. An advertising executive, Halabi lost his job in March. He’s been looking for work that would allow the family to remain but says he can’t afford to hold out any longer.
“I’m upset we’re leaving,” Halabi said. “Dubai feels like home and has given me many opportunities, but when you fall on hard times, there isn’t much help and all you’re left with is a month or two to pick up and move.”
70% of Dubai companies expect to go out of business within six months due to coronavirus pandemic, survey says
PUBLISHED THU, MAY 21 20209:55 AM EDTUPDATED THU, MAY 21 20202:19 PM EDT
Natasha Turak@NATASHATURAK
KEY POINTS
- Almost half the restaurants and hotels surveyed by the Dubai Chamber expected to go out of business in the next month alone, with three-quarters of travel and tourism companies expecting to close in that time.
- The Dubai Chamber of Commerce in late April surveyed 1,228 CEOs across a range of sectors during the city’s strictest lockdown period.
A picture shows the closed compound of the Dubai Mall amid the COVID-19 coronavirus pandemic on March 23, 2020 in the United Arab Emirates
Giuseppe CACACE | AFP via Getty Images
DUBAI, United Arab Emirates — A staggering 70% of businesses in Dubai expect to close their doors within the next six months as the coronavirus pandemic and global lockdowns ravage demand, a survey by the Dubai Chamber of Commerce revealed Thursday.
The Chamber surveyed 1,228 CEOs across a range of sectors between April 16 and April 22, during the emirate’s strictest lockdown period. Nearly three-quarters of those surveyed were small businesses with fewer than 20 employees. Of the respondents, more than two-thirds saw a moderate-to-high risk of going out of business in the coming six months: 27% said they expected to lose their businesses within the next month, and 43% expect to go out of business within six.
Dubai, which has one of the most diversified and non-oil dependent economies in the Gulf, relies on sectors like hospitality, tourism, entertainment, logistics, property and retail. Its hotels and restaurants are internationally acclaimed, but nearly half the restaurants and hotels surveyed by the organization expected to go out of business in the next month alone. Some 74% of travel and tourism companies said they expected to close in that time, and 30% of companies in transport, storage and communications expect the same fate.
“Full and partial city-lockdown measures are bringing demand in key markets to a standstill ... The double-shock impact is pushing economic activity down to levels not seen even during the financial crisis,” the Dubai Chamber wrote in its report released Thursday, entitled “Impact of Covid-19 on Dubai Business Community.”
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A Dubai Chamber spokesman later on Thursday qualified some of the survey’s results, saying in a statement that “Dubai Chamber surveyed 1228 out of 245,000 companies in Dubai in April when the lockdown measures were in the most strict phase ... their sentiments were based on the expectation that the strictest lockdown phase would be prolonged.”
“We anticipate that business confidence will improve significantly in the coming weeks and months as businesses return to more normal operation.”
A population contraction?
But amid the current uncertainty, businesses in UAE’s seven emirates, as elsewhere across the world, are slashing salaries, putting employees on unpaid leave, and reducing staffing levels.
The UAE has just over 26,000 confirmed coronavirus cases, with 233 deaths as of Thursday. Dubai, the country’s commercial and tourism hub, imposed a
strict 24-hour lockdown on its population of 3.3 million for about three weeks beginning in early April.
I so far think we’re looking at a minimum population contraction of 10% for the year.
Nasser al-Shaikh
FORMER DIRECTOR GENERAL, DUBAI DEPARTMENT OF FINANCE
While the lockdown has been loosened through the Muslim holy month of Ramadan allowing malls and some businesses to open at a 30% capacity, demand is slow to return and company layoffs are continuing. Most hotels sit empty and tourism is nonexistent: there have been no inbound passenger flights for non-UAE nationals since March 24.
For a country that relies on an 80% expatriate population for much of its economic activity, the stakes are even higher: if residents can no longer find work, they will likely return to their home countries, depleting the consumer base needed to enable any economic recovery. More than 150,000 Indian nationals and 40,000 Pakistani nationals had already left or registered to leave the UAE by early May, according to those countries’ diplomatic missions.
“I so far think we’re looking at a minimum population contraction of 10% for the year,” Nasser al-Shaikh, former director general of the Dubai government’s department of finance, tweeted earlier this month.
The Dubai Chamber added in its report: “Though this is a temporary shock for most markets – with recovery to gradually kick in as soon as restrictions are eased – trade with GCC markets is particularly challenging as they suffered double oil price / COVID-19 shocks.”
Stimulus packages
In late March the Dubai government announced a 1.5 billion dirham ($408 million) stimulus package aimed at enhancing liquidity and cushioning the blow of the virus lockdowns, which included a raft of fee refunds and reductions, and reduced utility costs. Abu Dhabi in the same month announced a $27 billion emergency stimulus plan to aid private sector businesses and banks.
The UAE’s central bank also deployed a $70 billion package to help commercial banks provide debt relief. But many businesses still need more support, or are hesitant to take on new debt given the shaky outlook for recovery,
according to reports.
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The Dubai Chamber report notes that in March, “banks seem to have increased lending to SMEs which saw a 5.3% y-o-y growth, to reach a value of AED93.4 billion ... This improvement was mainly due to the government stimulus package announced in March.”
“Dubai Government continues to monitor and offer support where necessary to help all of Dubai’s business community during this time,” a Dubai Chamber spokesman said in the hours after the survey’s release.
Economy already slowing pre-Covid
The coronavirus crisis follows a number of years of declining revenues for some of the emirate’s most important sectors, primarily real estate and hospitality. Residential property prices had already fallen 30% from their 2014 peak amid oversupply and weakening demand, and revenue per available hotel room was down more than 25% since 2015.
Last year Dubai’s economy grew at just 1.94%, its slowest pace since the dark days of its near economic collapse in 2009. That crisis, more than ten years ago, was sparked by a property crunch that forced Dubai to seek a $20 billion bailout from its wealthier and more conservative neighbor, UAE capital Abu Dhabi.
But the global pandemic will likely exact a toll on Dubai far greater than the downturn of a decade ago. The Chamber’s report warned: “The impact of COVID-19 crisis on the world economy during 2020 is projected to be greater than the 2008-09 financial crisis.”
https://www.cnbc.com/2020/05/21/cor...-companies-expect-to-close-in-six-months.html
