In many ways, the UAE is a retailer’s wet dream. The population is growing quicker than almost any other in the world at around 4.5% per annum; consumers have higher disposable incomes than pretty much anywhere else in the Middle East, apart from Kuwait; and in per capita terms, consumer spending in the UAE is miles above other markets in the region.And people here have some solid reasons to be confident when it comes to spending their hard-earned cash: there is no income or corporate tax, there is no VAT, petrol costs a fraction of what it does in most developed countries, and many goods — especially things like electronics or cars — are dirt cheap.
But it’s not that surprising to see some recent signs suggesting that the UAE’s affluent consumers might just be beginning to lose a little of their confidence. A regular survey, which was last conducted in January 2008, asked interviewees to give a score out of 100 for a number of different categories based on how confident they felt for the coming six months.
Compared to the last survey, which was conducted in July 2007, the overall index fell markedly from 88.8 points down to 78.5. The biggest slide was in the ‘regular income’ category, while ‘quality of life’ and ‘employment’ also dropped off.
So what’s making people more worried than they were six months ago? First off, inflation doesn’t show any signs of falling. Officially, it stands at around 7%, but in reality it’s in double-digits: a recent study by Merrill Lynch argued that inflation was in danger of hitting 12% in 2008, which would be a 20-year high. That is still lower than Qatar, but is nevertheless growing at a much quicker rate than salaries
For your average UAE resident, it’s food and housing that have probably experienced the most alarming price jumps. Various local studies found that the cost of basic foods rose by around 27-30% in 2007, and could be rise again by as much as 40% in 2008. This has prompted the government to put artificial caps on the consumer cost of staples such as rice, and to consider stockpiling food supplies in advance to avoid other unwanted price rises later in the year.
Rents, meanwhile, continue to go up in double-digit figures every year. Caps on annual rent increases have been introduced across most of the seven emirates, but only apply to those residents who are renewing their leases, and not to new arrivals, who have to pay the full market value. Great news for investors and speculators, not so good for your average employee.
Moreover, the seemingly endless decline in the US dollar — to which the UAE dirham is still pegged — has made the cost of imports much higher. The UAE has relatively little domestic production capacity in most sectors, keeping it highly dependent on importing most types of goods. With the dirham losing value daily, imports are becoming more and more expensive — with the prices naturally being passed on to residents.
Murmurings about the introduction of tax are also starting to stir up concern. Plans are reportedly afoot to unleash value-added tax (VAT) sometime in the future, although this would seem to contradict other government efforts to keep consumer prices down, and in all probability will not happen for some time. There has also been talk of the (for now unlikely) possibility of income or corporate tax, while motorists are feeling nervous over the prospect of a rise in the price of petrol.
But perhaps more revealing is the decline in the quality of life. This is a more aspect of consumer happiness, but factors such as the crippling traffic in Dubai — which shows few signs of abating despite a series of new roads and bridges — hardly make for an enjoyable working life for many people. What’s more, a recent study found that air pollution in Dubai was amongst the worst in the world.
Although, in the grand scheme of things, consumer confidence is still comparatively healthy in the UAE, companies and the government must be careful to nurture residents’ confidence levels whilst balancing them with corporate profits. The UAE is already a highly transient place, with many people tending to stay a year or two before moving on elsewhere, while in terms of culture, history or entertainment, cities like Dubai or Abu Dhabi simply can’t compete yet with the likes of London, New York or Paris.
So to attract skilled, world-class talent that will allow the country to seriously compete on a world stage, it needs to make sure that expatriates keep getting a sweet financial deal compared to their home countries.
Alex Warren is a Dubai-based freelance consultant and writer.
