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Dubai Losing Billions as Insecure Expats Send Money Abroad

Even after 40 years of living in Dubai, Wissam Haroun says his status there isn’t secure enough to invest his savings locally. The emirate’s rulers have an $11 billion reason to make him feel more at home.

“My long term investments here tend to be limited,” because of rules including caps on residency visas, said Haroun, a Syrian who founded Haroun Multimedia FZ LLC, a Dubai-based entertainment and technology company. A pension plan would address the needs of those looking for increased stability, he said. “I would seriously consider investing.”

Most of Dubai’s 2 million people are foreign nationals, and they send 40 percent of their salaries home, according to the World Bank. A pension plan that embraced them -- like the one offered in Singapore, another expatriate haven -- would help lower borrowing costs for an emirate that ran up $113 billion in debt then almost defaulted in 2009 after a property crash.

The system is under scrutiny by Dubai authorities, who asked the World Bank to examine options for handling expatriate savings. Dubai’s Department of Economic Development declined to respond to questions about what it’s planning.

“I would consider the absence of pension funds to be one of the biggest drawbacks that we have,” said Abdul Kadir Hussain, chief executive officer of Mashreq Capital DIFC Ltd., A Dubai investment bank. “It’s one of the reasons why it’s difficult to sustain local currency debt” and equity markets.

Lower Costs

Companies and governments in the U.A.E. have turned to international markets for all their $11 billion of bonds sold this year, with none denominated in dirhams according to data compiled by Bloomberg. While Dubai’s benchmark stock index has risen 21 percent this year, it’s still down about 60 percent since October 2008, when the global crisis tightened liquidity and property prices began to tumble.

A pension plan would “potentially lower borrowing costs” and help companies and the government obtain financing, said Nick Stadtmiller, head of fixed-income research at Dubai-based bank Emirates NBD, in a phone interview.

Foreigners working in the United Arab Emirates sent 41.2 billion dirhams ($11 billion) out of the country last year, up 6.2 percent from 2010 and more than double the 2004 level. Expatriates can’t get permanent residency and are given a limited period to quit the country after leaving their jobs.

Dubai bond yields surged after November 2009 when government companies announced delays in debt repayments. Even now, it pays more for credit than Gulf peers.

‘Trickles Out’

Dubai sold 10-year debt in April to yield 6.45 percent. That’s more expensive than similar bonds sold by Bahrain in June, though Bahrain has been racked by sectarian violence since last year while Dubai has been spared the wave of Arab unrest.

Dubai’s government has $29 billion of directly held outstanding debt, including interest payments, according to data compiled by Bloomberg. That doesn’t count money owed by the state-owned enterprises such as Dubai World and Nakheel PJSC which rescheduled debts after the crisis.

The high remittances make it hard for Dubai to apply stimulus when needed, because “cash spent by the government trickles out of the economy, not down through it,” said Liz Martins, senior economist at HSBC Holdings Plc in Dubai.

Aided by a bailout from neighboring Abu Dhabi, Dubai is rebounding from the crash. House prices reached a 2 1/2-year high in August. The $80 billion economy will grow about 4 percent this year, up from 3 percent in 2011, the government forecast last month.

Still, Dubai depends on imported talent and needs to take the initiative to retain it, said Jean-Michel Saliba, an economist at Bank of America Merrill Lynch in London. Cracks appeared in the system during the financial crisis, he said.

‘Work, Leave’

The growth in expatriate residents slowed to 4 percent in 2009, less than half the annual average of 10 percent in the previous four years.

“People come to work and leave, they don’t have any benefits or anything holding them there,” Saliba said. “They have no rights.”

A pension plan for expatriates is on Dubai’s agenda, state newspaper Emarat Alyoum said in September, citing Ali Ibrahim, a senior official at the Department of Economic Development.

The World Bank proposes three options: retirement savings accounts; mobility savings, offering jobless expatriates monthly payments until they find work and allowing them to extend visas; or improvements to the current system, in which workers leaving their jobs get a lump sum based on length of employment.

Singapore has a Central Provident Fund, a mandatory savings scheme for citizens and foreigners with permanent residencies, offering above-market interest rates. “That money gets funneled back into the economy,” offering cheap, long-term funding for projects, Mashreq’s Hussain said.

Tomorrow Insecure

Steps in that direction from Dubai would improve Karthik Balasubramaniam’s peace of mind.

“I feel insecure because I don’t know if tomorrow I’m going to have a job, and then I’ll only have a few weeks to sort out my investments before I have to leave the country,” said Balasubramaniam, 30, an Indian national who works at a media design company and has lived in Dubai for four years. He sends money to India every month.

“If I felt secure here, I’d want to keep my money in Dubai,” Balasubramaniam said.

To contact the reporter on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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