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Sustaining prosperity or exhausting it?


30-04-2014
English | العربية

Mohammad Fadhel Al Obaidly

Advisor, Public Opinion Research Center


Tag: Dubai economy UAE
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On November 2013, TV cameras recorded some unique scenes when many expats were seen celebrating, following the announcement that Dubai had won the right to host Expo 2020. People were dancing in joy around Burj Khalifa. This may raise a question: What motivates expats from so many countries show such joy on the achievement of a country where they just earn a living?
The answer may go beyond easy interpretations and to understand the reaction of foreign residents towards exceptional events, we should ask what attracts people of more than 200 nationalities to work and live in Dubai in the first place?
The answer is simple: A prosperous economy that generates thousands of jobs, good wages, a good standard of living, friendly environment for investment and most importantly, one that is a tax free haven. And while many countries struggle hard to recover from the consequences of global economic crises and others live under austerity measures, Dubai has turned out to be a safe haven for investors and for those who are just aiming for a job and a decent life. As such, the success of Dubai is not just confined to its government and people, but it is a matter of significance to all its residents, irrespective of their nationality. People everywhere admire any kind of a successful model that offers them the basic needs: Good jobs and a decent life. The accurate explanation for such feelings shown by expats is that they express a strong commitment to the continued success of Dubai. Expats are not willing to contemplate any failure of any kind; they want Dubai to remain a safe haven.
Among many elements of economic prosperity is the cost of living. It is crucial and a decisive factor in the competition between countries and cities seeking to attract investors, talent and manpower. For talented, knowledge workers, it all depends on a simple calculation: The cost and benefit  how much can they send back home, how much can they save. At the end of the day, everybody will choose between many rival cities and go for the one that has a competitive advantage in terms of cost of living. High wages are available everywhere, but who will enjoy high wages while knowing very well that this advantage will be eroded in the next five years?
 
Cost of living looks like the hidden code nowadays in Dubai. Those who cheered spontaneously after Dubai won the Expo 2020, dragged their calculators and conducted that simple calculation of cost of living again, because landlords reacted in a different way towards that historic event. They celebrated in their own way, by unjustifiably hiking residential rents  even up to 55 per cent in some cases.
All the details are now exposed and maybe more can be said about this madness. Alarm bells are now ringing, warning about where this unjustified trend may lead to.


Do these words sound diplomatic and courteous? Absolutely, because economists are warning actually about another bubble waiting to burst if these hikes go further.
Does this sound like some sort of exaggeration? Not at all. There are no economic reasons to justify this increase in rents. Furthermore, it is not a result of a normal growth in demand that exceeds supply, but vice versa. The supply of housing units still exceeds demand, according to economists and traders in the real estate market and some landlords deliberately keep their units vacant, waiting for more increases in rent levels. Many link this hike to Dubai winning Expo 2020, but this is senseless. If we agree on this alibi just for the sake of argument, that means rents will continue to increase for the next five years, going to an unimaginable level by 2020. Is this really what we want? Although logic suggests that Dubai will witness the construction of more housing units to meet the needs of hosting the Expo 2020, which is expected to balance supply and demand, the trend of increasing rents seems like a proactive act towards this expected equilibrium.
High rents mean a rise in cost of living and the first sign came by the end of the first quarter of the year, with official statistics now showing a rise of 2.95 per cent in the consumer price index in Dubai.
What strikes me is the comparison between two types of reactions towards a single event. They are diametrically opposite those who want continued success and those who act in the opposite direction. Both kinds of reactions just reflect their understanding of the relation with the country that hosts them.
What is more important is the question whether one should try to sustain the elements of prosperity or deplete them by means of seasonal speculations to reap a quick profit. Or whether the cost of living should be kept at an appropriate level, retaining a stable level of demand that lasts longer, or whether one should rush to make quick profits to the detriment of sustainable demand.
In other words, what is needed is to consciously maintain the sustainability of prosperity and the competitive advantages of the economy not depleting the advantage in the short-term because speculation only produces crisis.

 

Mohammad Al Obaidly is a media analyst and consultant at b'huth.

Reach out to Mohammad via twitter: @mfadhel

 

Originally published in Gulf News April 29, 2014

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