Dubai's World Expo win may fuel boom, risk bust

Wed Nov 27, 2013 2:04pm EST
 
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By Andrew Torchia and Nadia Saleem

DUBAI (Reuters) - Dubai's success in bidding to host the 2020 World Expo will trigger billions of dollars of investment in the emirate, but it may risk a repeat of the boom-and-bust cycle which nearly caused financial collapse just a few years ago.

After competing against three cities, Dubai was awarded the world's fair by the Bureau International des Expositions on Wednesday, setting the seal on a dramatic economic recovery.

Four years ago, the emirate of 2.2 million people nearly defaulted on its debt after a real estate bubble burst, causing property prices to crash over 50 percent between 2008 and 2010.

Now a boom in trade, tourism and finance is repairing the damage and Dubai again has the resources to plan big projects. But some businessmen fear the additional investment for the Expo may be hard for the economy to absorb.

Hopes for a successful Expo bid have already contributed to speculation in the property market, where prices are up some 20 percent over the past 12 months, and the stock market, where the index .DFMGI has soared 79 percent this year.

Further large rises could start to hurt Dubai's economic competitiveness by raising its cost base - and conceivably set the emirate up for another crash down the road.

"(The Expo)...is a powerful symbol of Dubai putting the 2009 bust behind it and of the world recognizing the strengths of its political stability and its open, export-oriented real economy," said Simon Williams, chief Middle East economist for HSBC.

But he added: "The key challenge policymakers now face isn't generating growth but managing it, making sure it's sustainable and well-balanced. Policy decisions over the next 12 months will determine how successful Dubai will be in avoiding a repeat of the boom-and-bust cycle further down the line."   Continued...

 
People celebrate after Dubai won the right to host the 2020 World Expo, in front of the Burj Khalifa in Dubai November 27, 2013. REUTERS/Mohammed Omar