Dubai Expo 2020 Win Stokes Bets of Faster Economic Growth

Dubai, the emirate that teetered on the brink of default in 2009, was picked to host the World Expo 2020 exhibition, becoming the first Middle Eastern city to win a bid in the event’s 162-year history. The city’s benchmark index surged to its highest in five years.

Dubai beat Turkey’s Izmir, Russia’s Ekaterinburg and Brazil’s Sao Paulo in a vote organized by the Bureau International des Expositions in Paris yesterday. The emirate of 2.2 million people, whose economy is rebounding as its hospitality and property industries flourish, plans to attract 25 million visitors during the six-month event starting Oct. 20, 2020.

The region’s hub for commerce, tourism and trading will need to invest almost 6 billion euros ($8.1 billion) on infrastructure projects ahead of the Expo, Sheikh Ahmed bin Saeed Al Maktoum, head of Dubai’s Supreme Fiscal Committee and chairman of Emirates airline, said Nov. 17. HSBC Holdings Plc estimates government and private expenditure will reach 67 billion dirhams in the run-up to the Expo.

“Dubai’s Expo 2020 win will lead to an acceleration in the implementation of the investment plan,” chief economist Monica Malik and strategist Simon Kitchen at investment bank EFG-Hermes Holding SAE wrote in a report yesterday. “Regardless of the long-run impact of the Expo win, it is clear that Dubai’s economy is in the middle of a strong cyclical upswing that is supportive for earnings surprises.”

Economic Growth

Dubai’s economy, already headed for the fastest expansion in six years after domestic output grew 4.9 percent in the first half of 2013, according to government data, may grow 6.4 percent on average over the next three years and potentially 10.5 percent annually to 2020, Barclays Plc said in a Nov. 26 report. Bank of America Corp. said in September the expo may boost GDP by 0.5 percentage point annually and 2 percentage points in 2020.

“What winning this event means is that the rise in supply will be met by a rise in demand -- associated with the event itself, but also with the population growth that accompanies the infrastructure build-out,” Liz Martins, Dubai-based senior Middle East economist at HSBC, said by e-mail. “It also means that investment should be channeled into more productive projects, in contrast to the somewhat frothy nature of the last construction boom, which ended painfully for Dubai.”

Real estate prices in the emirate slumped as much as 65 percent since their peak in 2008 after the global financial crisis tightened credit. Before the crisis, Dubai was famed for headline-grabbing development plans, including three palm-shaped islands off its coast.

Property Rebound

Dubai’s property market has since rebounded, with high-end villa prices in the emirate rising 34 percent so far this year, after climbing 20 percent in 2012, according to Cluttons LLC data compiled by Bloomberg.

“While the Expo will result in long-term benefits to the Dubai economy and the real estate market, the short-term impact needs to be managed carefully to avoid the inevitable boost in sentiment translating into excessive price growth or overdevelopment,” Alan Robertson, chief executive officer for the Middle East and North Africa at broker Jones Lang LaSalle Inc., wrote in a report.

The sheikhdom’s benchmark DFM General Index surged as much as 4.2 percent at the opening today. The measure closed up 1.6 percent, its highest since November 2008. Bets the emirate would win the bid have helped push up the measure 82 percent this year to become the world’s second-best performing.

Dubai’s Expo will be built on a 438-hectare (1,080-acre) area close to the new Al Maktoum International Airport, which is equidistant from Abu Dhabi, the nation’s capital, and central Dubai.

The World Expo traces its roots to London’s Great Exhibition of 1851. While the Expo left Hanover, Germany, with a $600 million deficit in 2000, it gave Paris its Eiffel Tower in 1889 and drew 73 million visitors to Shanghai in 2010.

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