Expo Win To Provide Decade-Long Boost For Dubai

BMI View: We have raised our already bullish forecast for Dubai's economy on the back of the winning the nomination for the World Expo 2020. Hosting the Expo will provide a significant boost to the emirate's construction, real estate and tourism industries, whilst also having the less tangible effect of boosting Dubai's cultural profile globally. We now forecast Dubai's real GDP growth to average 4.3% over the period to 2017, from our previous estimate of 4.1%.

We have raised our forecasts for Dubai's economy on the back of the emirate winning the nomination to host the World Expo 2020. We now forecast Dubai's real GDP growth to average 4.3% over the period to 2017, from our previous estimate of 4.1%. The government in Dubai say the Expo 2020 will bring in around US$23bn over the coming decade and create around 277,000 jobs. These figures are difficult to verify but would represent a significant boost to the already booming economy as GDP for the emirate is currently around US$130bn and total employment stands at 1.3mn people. We expect Dubai to increasingly become the key driver of the UAE's economic growth in the coming quarters as the emirate's non-oil sector expands substantially, especially given the economic boost of holding the Expo. In contrast, we expect Abu Dhabi will see GDP growth constrained by moderate increases in oil output and lower oil prices.

Minimal Immediate Impact On Stocks

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Dubai - Real GDP Forecast & Growth (RHS)

BMI View: We have raised our already bullish forecast for Dubai's economy on the back of the winning the nomination for the World Expo 2020. Hosting the Expo will provide a significant boost to the emirate's construction, real estate and tourism industries, whilst also having the less tangible effect of boosting Dubai's cultural profile globally. We now forecast Dubai's real GDP growth to average 4.3% over the period to 2017, from our previous estimate of 4.1%.

We have raised our forecasts for Dubai's economy on the back of the emirate winning the nomination to host the World Expo 2020. We now forecast Dubai's real GDP growth to average 4.3% over the period to 2017, from our previous estimate of 4.1%. The government in Dubai say the Expo 2020 will bring in around US$23bn over the coming decade and create around 277,000 jobs. These figures are difficult to verify but would represent a significant boost to the already booming economy as GDP for the emirate is currently around US$130bn and total employment stands at 1.3mn people. We expect Dubai to increasingly become the key driver of the UAE's economic growth in the coming quarters as the emirate's non-oil sector expands substantially, especially given the economic boost of holding the Expo. In contrast, we expect Abu Dhabi will see GDP growth constrained by moderate increases in oil output and lower oil prices.

Upgrade To Growth
Dubai - Real GDP Forecast & Growth (RHS)

Minimal Immediate Impact On Stocks

In line with our expectations, the effect on the stock market was small. We had previously highlighted that in the event of Dubai being awarded the Expo a large bounce in the Dubai Financial Markets General Index (DFMGI) was unlikely as we believed much of the impact was already priced in (See: Expo Presents Significant Upside To Dubai's Growth November 19).The DFMGI opened 4% higher this morning, breaking the 3,000 level for the first time since 2008. However, the index has pared back its gains and is currently trading 1.2% higher than yesterday's close. In terms of companies, we expect those involved directly in the tourism sector - namely Emaar, Emirates and Air Arabia as best placed to benefit. As well as a boost to tourist figures in the year of the Expo, the added prestige and publicity of winning the bid will have implications before and after the event.

Already Priced In
Dubai - Dubai Financial Markets General Index, Weekly & Inter-day (RHS)

Boon For Infrastructure

The awarding of the Expo to Dubai looks set to act as a catalyst for growth in the emirate's construction industry, as new projects are set for approval and construction at ongoing or stalled projects looks likely to be expedited. It has been our view that should Dubai win the Expo, then the recovery of the construction industry will be supported a great deal. This looks set to be the case with an estimated US$6.9bn earmarked for infrastructure projects around the event. In addition, we believe that the confidence in the market that comes with hosting a major world event will bring with it further opportunities in the real estate sector as investors seek to take advantage of the spotlight on Dubai. Also, 30% of the jobs created by Expo 2020 expected to be in construction. As such, as timescales for project implementation become more apparent, we will look to upwardly revise our forecasts from 2015 onwards. We currently see average real growth at 4.6% over the 2014 to 2020 period.

Set To Benefit
DFMGI - Emaar Properties (LHS) & Air Arabia, (AED)

The main event for the Expo 2020 will focus around the planned 438-hectare site, the largest ever created for a World Expo. Located in Jebel Ali, the proposed site for the Expo 2020 is expected to cost is understood to be between US$2bn to US$4bn. The site will feature 180 purpose-built pavilions, an underground service rail network and a photovoltaic canopy capable of producing 50% of the site's power. The master plan for the site will not receive approval until the end of 2015, with work expected to commence shortly afterwards with completion for 2019. Given the centrepiece role of the project, we see few risks in its realisation.

Some Caution Warranted

One area of caution we highlight is how the Expo will be financed. The emirate says financing for the six-month event will cost a total of US$8.4bn, with much of this used on extending the emirate's metro and road infrastructure to meet the expected demands of an additional 30mn tourists over the coming decade. We therefore expect most of the investment for the Expo will be financed by debt issuance of borrowing from banks, with government-related entities (GRE) bearing the brunt of the expected construction work. GRE's debts currently stand at approximately 90% of Dubai's GDP and were a significant cause of the emirates' crisis in 2009. Much of the GRE's debts were re-scheduled in 2009 to mature in 2015, however, recent reports indicate that further restructuring is likely. The extent to which this debt is manageable is unclear, however, the emirate could be storing up problems in the latter part of the decade.

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Sector: Country Risk
Geography: United Arab Emirates
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