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Expo set to generate $35b in extra revenues

Dubai will require around $43 billion to significantly upgrade its infrastructure for Expo 2020 that may generate additional revenues in the range of $25-35 billion, studies by two leading financial institutions show.

The spending will account for 47 per cent of the estimated gross domestic product for Dubai in 2013, while the revenues will be 25-40 per cent of the emirate’s 2012 GDP, separate researches conducted by Deutsche Bank and Global Investment House reveal.

The upswing in revenues will push up Dubai’s GDP by around two per cent over the coming years. Over the next six years, the Expo is expected to generate employment in the range of 250,000-300,000 of which roughly 30-40 per cent would be permanent.

Deutsche Bank said a bulk of the $43 billion spending would go into expanding the hotel and leisure industry, while around $10 billion will be spent to improve transportation infrastructure. The biggest beneficiary should be the real estate sector, which has to cater to the increased demand for new hotel and infrastructure projects. The sector should continue to attract strong investor interest.

The Al Maktoum International Airport, the newly developed airport near the Expo site, when fully completed will be able to handle 12 million tonnes of cargo and 160 million passengers annually, making it the largest international airport by some margin. Besides this, Dubai has also initiated an expansion plan for its existing Dubai International Airport to increase its existing capacity from 60 million to 90 million passengers per year by 2018.

The bank said increased tourist arrivals and an upbeat business climate are positives for the hotel and leisure industry as well as the retail sector. About 25 million visitors are expected for the World Expo 2020 event, 71 per cent of which will be non-domestic visitors.

The Kuwait-based Global argued that the multiplier effect of government spending would ripple throughout the economy. It would also be an opportunity to showcase UAE companies to potential customers and investors.

“The Expo would be a wonderful opportunity to position the UAE as an important player on the international stage. Emirates could show the business world that the country is an open, tolerant, affluent place to do business.”

Standard and Chartered said in a report that the expo would have positive implications on three key parts of the economy: housing, infrastructure and hospitality. “First, the event is likely to lift confidence in Dubai’s housing sector by supporting long-term demand dynamics and underpinning fundamentals as the key driver of the property-market rebound. Second, it will involve infrastructure spending to build the supporting facilities to host the event. Third, on the hospitality front the authorities estimate that 25 million people are likely to visit the Expo, of which 70 per cent will come from outside the UAE.”

Standard Chartered pointed out that a key focus for Dubai would be to maintain tourist inflows afterwards to prevent an oversupplied hospitality sector.

The bank said Dubai’s housing market is already on a recovery path. As of third quarter 2013, sales price have increased by 20 per cent for apartments and 11 per cent for villas. Rents have risen by 15 per cent year on year for apartments and 14 per cent for villas. “We expect price rises to moderate in the medium term, particularly in prime areas, as the market price moves closer to tenants’ reservation price.”

“As supply increases — we expect close to 45,000 units to be added to the market by 2015 — prices should be supported by growing demand as a result of Expo-related jobs created in the years leading up to 2020.”

With the Dubai Air Show preceding the Expo announcement, local carriers that have placed huge new aircraft orders are ready to accommodate an inflow of passengers.

Standard Chartered argued that hotel sector would be a significant beneficiary of Expo 2020. “We see the hotel sector as one of the main beneficiaries of growth generated by the event. To accommodate the significant inflow of tourists, the hotel stock will have to expand. Since 70 per cent of the 25 million visitors are expected to come from outside the UAE, Dubai will need to accommodate 17.5 million tourists in the months around the Expo.”

Dr Amina Al Rustamani’s memo said hosting Expo 2020 would be a catalyst for the ongoing diversification and development of Dubai’s knowledge economy. “We are likely to see the benefits in three distinct phases. There will be an immediate shot in the arm in terms of economic confidence. This will be followed by the planned infrastructure and project investments taking shape over the next six years during the preparation stage, which will offer growth opportunities across a range of industries — from manufacturing and media to tourism and education. Once the event is complete there will also be a strong legacy that the event leaves behind, which businesses will be able to take advantage of.”

Moad Touhami, head of Distribution at Natixis Global Asset Management, said the most obvious sectors that are set to receive a boost from the Expo win are aviation, hospitality and other travel and tourism related sectors.

“The win creates a virtual road-map for Dubai over the next six years. The public and private sector will in effect have a deadline to complete a number of ambitious projects.”

“With the Expo 2020 being a six month-long event, unlike a World Cup or an Olympics, Dubai will have a relatively long period of time to showcase the Emirate’s achievements.

“From a business perspective, Dubai is already an exciting place to be based and the Expo 2020 win adds even more of a buzz around the Emirate. I believe Dubai remains well positioned to continue attracting world class companies from a variety of different sectors,” said Touhami.

“With both S&P and MSCI confirming that the UAE will be upgraded to Emerging Markets status in 2014, local stock markets could be set to benefit from increased capital flows over the next five to six years leading up to 2020.”