Moving away from oil
Oil production, which once accounted for 50% of Dubai's gross domestic product, contributes less than 1% to GDP today. The transformation of the economy accelerated as oil surged to a record $147 a barrel in 2008 and continued in the aftermath of the financial crisis when oil plummeted to a low of $26 in 2016, according to data compiled by Bloomberg. The building boom persisted even as Dubai World, the government-owned holding company, sought a "standstill" on debt repayments while it restructured $25 billion of debt in November 2009 and some borrowers fled the emirate as a result. The credit crunch and ensuing slowdown made Dubai even more determined to overcome the Mid-east oil legacy. Energy officials in 2016 said renewable energy will account for 25% of the emirate's needs in 12 years. Sheikh Mohammad Bin Rashid Al Maktoum, vice president and prime minister of the UAE and ruler of Dubai, a year ago said that the renewable percentage will rise to 44% by 2050. That's when Dubai aims to produce 75% of its energy requirements from clean sources. The strategy for making the emirate a green economy included a policy of expanding infrastructure. Even as oil prices declined 50% in 2014, construction continued unabated for Expo 2020, which aims to showcase "opportunity, mobility, and sustainability" with a specific focus on education, financial capital, logistics, natural ecosystems, and biodiversity, among other themes.Proof is in the pudding
All of this is reflected in the stock market, where Dubai is unique in the Persian Gulf. Historically, equity prices of Middle Eastern companies rise and fall with the price of crude. Not in Dubai. Since 2003, when oil began its five-year march to all-time highs, the correlation between share prices of its real-estate companies and the oil price declined to 0.3 from 0.7, a transition statisticians characterise as "moving in a similar direction" to "no relation." Between 2009 and 2012, when oil doubled its value, the Dubai stock market appreciated 14% and its real-estate companies gained 48%. With oil down 37% since 2013, the Dubai stock market is up 155% and real-estate firms are 135% more valuable. Corporate Dubai is represented by the Dubai Financial Market General Index, consisting of 36 companies. Since 2003, the seven companies that make up the real-estate and construction sector of the index produced a 789% total return (income plus appreciation), beating the benchmark's 417% as well as the 250% return for the 242-member Bloomberg World Real Estate Index. No other market in the Persian Gulf comes close to replicating the performance of Dubai real-estate. Dubai now is poised to be the growth leader among the six countries in the Gulf Cooperation Council, with GDP expanding 3% or more this year and in 2019, according to economists surveyed by Bloomberg. Saudi Arabia, which outperformed Dubai in growth in five out of the six years before 2016, remains the laggard.Matthew A Winkler is a Bloomberg View columnist and editor-in-chief emeritus of Bloomberg News. This article previously appeared on The Bangkok Post.