7th APRIL 2015 - Vol.XXXVIII No.018
Business News

An expensive Dubai dream

MANAMA: It is hard to believe that the Gulf was once considered a hardship posting. Skilled expatriates were lured out to the desert with the promise of high, tax-free salaries, impressive villas and excellent packages for schooling back home. As a few remaining salts from the first oil boom will tell you, life in Dubai, the quintessential expat enclave, was anything but difficult back then.

But those lazy days in beach clubs are a distant memory - or an unattainable dream - for the majority of Dubai's workers, says a report in the latest issue of business news and analysis weekly magazine The Gulf published by the Al Hilal Group today.

When it comes down to it, Dubai has become a very, very expensive place to live.

Accommodation costs are on a par with Geneva, and still rising.

Inflation in the UAE has been rising, and this year, with fuel, energy and food prices all on the increase, life in Dubai is likely to be a lot worse.

Rent is the biggest topic of conversation amongst beleaguered expats, even with a 7pc cap keeping things under some semblance of control.

Those unlucky enough to get on the rental ladder in the past two years have seen rents for one-bedroom apartments in good areas pass the 100,000 dirham-a-year mark.

For four-bedroom villas, upwards of 300,000 dirhams is now the norm. But it is the cost of other goods, such as food or fuel, that is fast catching up as a water-cooler topic.

For the wealthiest workers drawn from Western countries, this could be an inconvenience: a high grocery bill might cause one to forego a spa visit here or skimp a restaurant meal there.

For those at the bottom of Dubai's employment food chain, such increases could mean the difference between staying and leaving. Or starving.

Figures from both Abu Dhabi and the Emirates Consumer Protection Society suggest food prices could rise as much as 40pc this year. India, Egypt, Vietnam, Pakistan and China have partially or totally blocked rice exports - at least to the UAE - to protect domestic supplies.

The local cost of rice has jumped 50pc in the past few months, and doubled since 2004. Rice may be just one foodstuff in a basket of many, but it is the staple of 1.4 million Indian workers in the UAE, the very people whom an increase in food prices hits the hardest.

The government response has been indecisive. A clamour for a revaluation of the dirham has fallen on deaf ears. The central bank has reiterated over and over again that it has no plans to depeg the local currency from the US dollar, even as the American economy exports its problems.

Yet its determination to stand by the greenback limits the government's response to control inflation.

Gestures so far have been limited to short-term, populist measures such as rent caps, price controls and subsidies - moves which threaten to distort the market in the long term.

Subsidies do nothing to address the underlying causes of inflation. Indeed, they merely exacerbate the problem. Take food. Maximum prices have been imposed - under the threat of harsh fines - for food items from eggs to sugar to cooking oil.

Elsewhere, rent is capped at 7pc in Dubai; schooling is capped at no more than 20pc over three years; petrol also comes under a state cap (though diesel, which does not, has soared to more than 17 dirhams a gallon, double the price in Abu Dhabi, adding greatly to transport costs).

Meanwhile, the governments of each emirate are still outdoing themselves to announce more and more giant infrastructure projects. While they have plenty of cash in the bank to bankroll these projects, competition amongst the emirates, Gulf states and other emerging economies have driven up the price of everything from cement to labour, which are consequently being passed on through higher housing costs and rents.

Economists warn that drastic measures need to be taken, and quickly, to curb inflation. A revaluation of the dirham is seen by others as a crucial first step, and a slowdown in the flow of new projects a close second. For an emirate that relies on imported labour at every strata of society, it cannot afford to price itself out of the market it professes to lead.

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