(MENAFN - Khaleej Times) Direct expenditure of 7 billion forecast but share in the total economy may be small
estimates suggest new opportunities worth 36 billion arising in the area of infrastructure and facilities development projects over the next seven years. — kt file photo
preparing for expo 2020 will provide a stimulus to the economy during the construction phase of 2015-2020 enhancing dubai’s global brand and further reinforcing its position as a regional hub.
“... we caution against overstating the economic benefits of hosting the expo. we expect direct expenditure of 7 billion on the event to amount to around one per cent of gdp per year between now and 2020” citi bank’s middle east macro monthly report said.
other estimates suggest new opportunities worth 36 billion arising in the area of infrastructure and facilities development projects over the next seven years.
according to the report the “expenditure is not very large and in the context of the 670 billion of projects under way in the uae is not a significant stimulus”.
moreover it said the effectiveness of the impact of this expenditure on the local economy was likely to be limited and short-lived as the majority of contractors and workers preparing and managing the event would be foreign.
“we think the government expenditure directed towards the expo will need to be diverted at least in part from other areas of spending to avoid an excessive build-up of debt” said farouk soussa the bank’s chief economist for the middle east.
the event will be held during the peak tourism season between october 2020 and april 2021 and the authorities are expecting around 18 million foreign visitors.
at the current rate of growth dubai’s existing tourism infrastructure including hotels and transportation will be capable of accommodating this level of visitors particularly as abu dhabi will provide additional capacity.
“in our view the visitor numbers will not be a net increase in tourism — much non-expo related tourism is likely to be squeezed out by the event” the report says.
effectively the expo should mean a bumper tourism season of close to 100 per cent occupancy but dubai runs at remarkably high occupancy levels during the peak season anyway so the overall impact should be somewhat less than the visitor numbers imply. according to data from ernst & young occupancy barely dips below 80 per cent on average throughout the year.
there are significant declines to 50 to 60 per cent occupancy during the hot summer months of july and august but these are almost immediately followed by strong rebounds back to the 80 per cent territory for the rest of the year.
public sector leverage in the emirate remains high at over 100 per cent of gdp according to the imf but the successful debt restructurings of the past few years have smoothed out the repayment schedules for this debt which had previously been highly concentrated and short term. while making the debt burden more manageable this does not however remove all refinancing risk in the emirate citi bank’s report said.
the pushing out of maturities in many instances is designed to afford time for dubai’s holding companies to see a recovery in their underlying asset values. repayments are to be made using the proceeds of asset sales when this happens.