Saturday, May 30, 2009

Making Dubai competitive again

Fairly regularly over the past three-plus years of this blog I've talked about Dubai becoming a less and less desirable place to do business and the disaster that would be.

It's a huge problem for the future of Dubai, which is totally reliant on commercial success just as its past has been. From its very beginnings Dubai has relied on business for its success.

But over the past several years it's become harder and more costly for businesses to operate here, for a variety of reasons.

Inflation, although we haven't had reliable official figures, has been by popular concensus 20% or even 30%. In particular, accommodation costs have gone through the roof. Commercial rents have soared, adding hugely to the cost of operating a business. And exploding residential accommodation costs have had an adverse effect on businesses too. Expat packages have seen 'accommodation provided' disappear. In some cases an accommodation allowance has been included but usually not enough to pay the rents being asked so the employee has to top it up. That's made the 'tax free' salaries less attractive to lure good expat talent here, and of course individual companies and the overall economy rely on expat guest workers

The slow internet service offered is also adversely affecting productivity, with hours wasted in businesses all over the city while staff stare at their computer screens waiting for pages to open.

Then the chaos on the roads is costing huge amounts in lost productivity. The RTA says it's managed to cut the annual losses from Dh5.9 billion to Dh4 billion. A welcome improvement, but still losses of Dh4 billion.

And in spite of being promoted as a tax free economy there are huge costs involved in opening and operating a company. All kinds of fees for licences, for getting staff visas and Labour Cards, for doing anything, changing anything.

I remember when I first arrived in Dubai I asked my boss whether I had to pay for something or other. His reply was 'You pay for everything in Dubai' and that was way back in 1977, but it's a problem that's increased dramatically in recent years.

Businesses don't have to operate from Dubai, other emirates or neighbouring countries are eager to host them, so being competitive and offering a desirable location is critical.

It's something I've regularly said the government needs to get on top of, to make Dubai again a desirable place to set up and operate a buiness.

So I'm pleased to see that there are ongoing initiatives to get us back on track.

On inflation, the rent cap helped to stabilise accommodation costs to a degree. It wasn't as successful as intended but least it was an acknowledgement and an attempt to get on top of a major problem. Negotiations with suppliers have resulted prices of some basic food items being frozen. Transportation costs are being kept under control because fuel is still heavily subsidised.

Last week Etisalat announced not only that it would more than double its bandwidth capacity, even that costs would be coming down. It's good news, although I'm not holding my breath on that one because we've had extra bandwidth/faster speed promised before with no noticeable improvement.

The roads and public transport infrastructure, even though there are serious questions about some of the decisions and some questionable planning, is starting to come into place. That's helping to ease the losses caused by gridlock on the roads.

Now there's a hugely important decision by Sheikh Mohammed Bin Rashid, the freezing or reduction of government fees and charges.

WAM reports:

Vice President and Prime Minister of UAE and Ruler of Dubai HH Sheikh Mohammed bin Rashid Al Maktoum has ordered government departments in the emirate of Dubai not to increase any government fee. He also ordered to cut down a number of fees levied by the emirate's government by 20 to 30percentage.

The decision mirrors the Ruler's keenness for bolstering the economic competitiveness of Dubai and enhancing the governments support to the investment environment for the benefit of the community as a whole.

They also give some example of the fees businesses have to pay:

The Ruler's order to cut down certain fees by 20 to 30pc applies to fees levied for government services to facilitate economic and investment activities. These include, among others, fees for the issuance and renewal of trade and professional licences, licences for business promotions, property ownership certificates, termination of tenancy contracts for ownership, fee for transferring buildings into hotels or serviced apartments and fee for making alterations to commercial buildings.

A screaming headline in the print edition of today's EmBiz247, taking up three quarters of the front page, is 'Fee cap decision to boost business confidence and competitiveness' and while the presentation is more than a little over the top I agree with them.

These various initiatives will, I'm sure, give confidence to businesses that making Dubai competitive again is taken very seriously by the government. But not only in the vague area of confidence, they're also having a direct positive effect on the cost of doing business here.

WAM report is here.
Gulf News have a report here.
EmBiz247 is here.


Dave said...

Probably the big wake-up call that Dubai needed. I am sure it will actually benefit in the long run, although their is still some financial pain to go through yet.

a question of a question said...

Seabee, would like to read ur thoughts on the attack on Indian students down under.

Sorry for being off topic.

Seabee said...

QofQ you read my mind. I'm reading up on it at the moment because I planned to post about it later today.

marhabahomes said...

Dubai has become the costly place to live and do business. But it is their intelligence to convert desert in to investment hub.