Ever since Dubai was granted the rights to host Expo 2020 back in 2013, several discussions by local officials about the event have led to believe that its impact on Dubai’s economy will be quite significant. Expo 2020 Dubai is a global mega event that aims to celebrate innovation, entertain an international audience, promote development and foster global cooperation. It will be the first world expo to be hosted in the MENASA (Middle East, North Africa and South Asia region) and will run from October 2020 until April 2021. As an Expo host, the UAE has high prospects to benefit from improved international reputation. Tickets are priced at affordable prices starting at AED 120 for single-day pass and AED 260 for a three-day past. Bundles packages sold by authorized ticket resellers will be offered for international travelers. Over 70% of visitors are expected to be comprised of international travelers from outside the UAE, which is the largest proportion in the history of world expos. About 190 countries are expected to participate in the mega event.
Phases of the Impact of Expo 2020 on Dubai
The impact of Expo 2020 on Dubai will come in three different phases:
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- Pre-Expo: November 2013 (when Dubai won the bid to host the Expo) until October 2020 (when the Expo opens).
- During-Expo: October 2020 until April 2021.
- Legacy: May 2021 until December 2031.
Each of these phases are expected to generate jobs and economic activities of various kinds, according to a report by EY.
The Pre-Expo phase is expected to have a GVA impact of AED 37.7 billion. The key economic impact is to be felt in the construction sector at an estimate of 68%. Other sectors that are likely to feel impact are transport, storage and communication, events organizations and business services. Approximately 20% (AED 4.7 billion) of the on-site spending is expected to be focused toward the SME sector. In terms of jobs, an average of 37,000 FTE jobs per annum are likely to rise. Out of these, an average of 27,600 FTE jobs per annum will most likely be in the construction sector.
During the Expo the economic influence of this phase is likely to arise from forecasted visits of 25 million to the site, as well as the maintenance of the site. Specifically, visitor expenditure and operational spending resulting in an expected GVA impact of AED 22.7 billion. Around 39% of this GVA impact will stem from the restaurants and hotel sector. Additionally, other sectors that are likely to feel substantial impact comprise of the events and business services sector. Approximately 20% (AED 505m) of the on-site spending is expected to be focused toward the SME sector. Additionally, this period is expected to support 94,400 FTE jobs out of which 51,100 FTE jobs (54%) are expected to be in the restaurants and hotels sector.
In the final phase, the Expo site is anticipated to convert into District 2020, a large, mixed-used development. More than 80% of the Expo built environment is planned to be converted District 2020, which is strategized to eventually expand into a city covering over four hectares of area. Tenants that have confirmed include Accenture and Siemens, facilitating a focus on innovation and technology, with a series of firms expected to follow suit. The Dubai Exhibition Centre (DEC) is similarly expected to be a key facility in this site. The key economic drivers of this period are largely expected to be the development and operational activities of District 2020 as well as the incremental impact of the development of the DEC. This period will most likely support an average of 53,800 FTE jobs per annum. Approximately 87% of this impact is likely to be represented in the events organization and business services sector.
Total Contribution (November 2013 to December 2031)
Overall, Expo 2020 is expected to contribute AED123b to the economy while attracting 25 million visitors and 190 country participants. Visitor expenditure is expected to be the key driver of the economic contribution. Additionally, the event is likely to generate around 905,200 FTE jobs which excluded an estimated 30,000 volunteers.
Non-Quantifiable Impacts
Some non-quantifiable impacts of the event are enhanced business relations developed during the Expo, better reputation of the UAE as a place to invest (FDI), do business and work, improved trade relations between participating countries and finally, improved international profile of UAE as a tourist destination.
Industry Specific Impacts
Economy
Even though Dubai’s economic growth slowed to 1.9% last year, it is expected to increase this year to 3% and grow further in 2020 to 3.7%, according to Emirates NBD Research. In addition, the government expects foreign investments to reach AED 50 billion next year from a 15-20% gain during this year. Following the spike in the economy during 2020, growth is forecasted to ease to 2.8% in 2021. Expo 2020, by itself, is expected to add another AED 23 billion to GVA. “The quantifiable elements of the legacy that Expo 2020 Dubai will create between May 2021 and 2030 has been estimated at Dh 62 billion”, - DED forecasts. “An important aspect is the direct boost it will give to the small and medium enterprises, who are expected to receive close to Dh 5.2 billion in new business up to April 2021 when the event ends”. The expected 25 million visitors during Expo 2020 are evidently emulating on the economy charts of Dubai, which result in an increase in hotel business, retail, transportations, communication, catering and facilities essential to the making of Expo 2020.
Real Estate and Hospitality
With the influx of visitors of the Expo, the requirement for apartments, buildings, office halls and event areas is obvious, which gives rise to new opportunities to real estate developers, especially in the hospitality sector. According to the World Travel and Tourism Council’s ‘Travel & Tourism UAE Economic Impact report’, “The total contribution of the travel and tourism sector to UAE’s GDP was an impressive Dh 164.7 billion which translates to 11.1% of the total GDP in 2018. A figure expected to rise by 4.9% annually by 2027. Dubai alone witnessed 15.92 million international overnight visitors in 2018”. Even though hotel occupancies are already high in Dubai owing to its tourism industry, Expo 2020 is expected to require an additional 50,000 rooms in over 200 properties of all categories from budget through to luxury, according to a report by Deloitte. The scope of this impact will also reach neighboring cities who will absorb a percentage of this demand, specifically Abu Dhabi. Apart from the incomplete projects, there are approximately 60,000 properties scheduled for delivery in 2019. However, only 33,000 projects that are 80-99% close to being completed are expected to enter the market this year, according to Fäm Properties. After Expo 2020, Dubai will be depending on their District 2020 project Dubai’s Smart City initiative, Abu Dhabi’s Economic Vision 2030 and the Happiness Index to push the legacy effect which is expected to drive the real estate market. The increase in supply of properties will most likely drive household prices down in terms of rental spaces as well as sales. Furthermore, the government’s efforts of implementing relaxed rules on property possession, the extended visas and expectantly a lower entry point for secondary property mortgages are crucial initiatives to incentivize investment while allowing the UAE to maintain the growth created by the tourism boost after the Expo ends. This also opens new and inviting investment prospects for investors as increase in supply of properties offers a wide choice in prices, location and offers to investors. Additionally, high ROI, easy payment plan, post-handover instalments and no property tax significantly add to the expected growth in the real estate investment market. “This trend we’ve seen of surging supply without a huge demand to match it is the main driver making Dubai more affordable. In addition, with the new legislation that has been brought in and the government’s vision to boost the economy and bring more expats into Dubai will stimulate the real estate sector”, - states Property Finder’s Abad. However, the real estate companies operating in the UAE are currently facing challenges that have reduced their profits and revenue in the first quarter of 2019. According to Mubashir statistics, “Net profit of the real estate companies in the Emirati markets amounted to AED 3.12 billion in Q1-19, down 19% from AED 3.86 billion in the year-ago period. Union Properties the top decliner in terms of quarterly profits which plunged 99% to AED 1.7 million, followed by Damac Properties that posted a 94% drop in profits for Q1-19 and recorded AED 31.1 million. Emaar Properties has reported the largest profits in Q1-19, which reached AED 1.74 billion on the back of a growth in its revenue that amounted to AED 5.89 billion”. The statistics showed total revenue of the UAE’s property firms retreated by 5.34% to AED 12.23 billion in the three-month period ended 31 March, compared to AED 12.92 billion in Q1-18. It is evident that there is no balance between supply and demand in the real estate market of UAE but are projected to be revived the implementation of Expo 2020 projects.
Finance and Financial Advisory
During and after Expo 2020, if not already, the financial landscape of UAE has already been directly and indirectly impacted to and from the country. As a result of increased real estate projects, capital projects, and growing infrastructure needs, an increase of opportunities in advisory and execution in these sectors are expected to rise. Consecutively, for companies that have not yet invested in the Middle East this, this is an opportunity to venture into the market, thus putting Dubai in a prominent position in the business world.
Retail
Dubai had previously topped the list of global cities with the highest international overnight visitor spend for three years in a row with total visitor spending amounting to AED 109 billion in 2017. Over the next five years, visitor spending is expected to reach over. Taking the impact of 2020 into consideration, spending within the UAE’s travel and tourism sector is expected to rise steadily over the next five years and reach over AED 206 billion in 2022, according to a report by Dubai Chamber. Additionally, companies like Emaar Malls will positively benefit in terms of revenues from tenant rent. Emaar Malls derives around 75% of its revenue from rent, according to Global Research. This rent is split into base rent and net turnover rent. During Expo 2020, base rent will remain constant however, turnover rent which is based on percentage of tenant sales is expected to escalate due to the increase in tourists.
Transport and Logistics
RTA’s direct contribution to Expo 2020 consists of fifteen kilometers of new rail lines, a AED3.5 billion project with the purpose of improving road access near the Expo 2020 site, road improvements near Dubai International Airport, nine hundred new taxis, over six hundred new buses and fourteen bus stations. Furthermore, RTA increased road capacity through the airport road project and expect to handle 95 million passengers travelling through the airport in 2020. Additionally, companies like Uber and Careem will also benefit from the Expo as tourists might prefer private taxi services to commute around the city due to easier access. In terms of the logistics, Expo 2020 seems to be driving a boom in the sector. For the event, 56% of the contracts have gone to SMEs and 26,000 companies from around 150 countries are involved in the event. “With foreign companies get contracts in the UAE, they need professional support of logistics specialists with wide local and international networks to move their set-up and equipment to the Gulf country”, - said Shailesh Dash, chairman of Dubai-based Gulf Pinnacle Logistics. “Contractors of Expo 2020, which is extraordinarily big in magnitude, therefore rely on reputable and experienced logistics players to become their strategic and operational partners”, - he added. The increase in momentum of Expo 2020 preparations has ranked UAE in the first place in the region and third globally on the 2019 Agility Emerging Markets Logistics Index. Furthermore, DP World forecasted that the number of items it handles is expected to double by 2020 to hundred million packages, containers and suitcases. “Logistics is witnessing a business boom, when other sectors are observing slow growth”, stated Rodney Viegas, the CEO of Abdulmuhsen Shipping LLC (AMS) and So Safe Logistics LLC. “Expo 2020 is expected to drive the logistics and supply chain segment even further and cement the UAE’s position as a global leader in logistics”, he added.
Airlines
In the coming years, the airline sector which currently contributes 15% to UAE’s GDP, is forecasted to account for 20% of the economy as regional carries Etihad Airways, Emirates, Flydubai and Air Arabia carry out the expansion of their global connectivity, capacity and frequencies while governments of various emirates continue working on AED 85 billion investment on aviation and tourism infrastructure. In order to prepare for the anticipated jump in visitor traffic due to Expo 2020, governments are spending billions on upgrading and expanding airports and tourism infrastructure. Consecutively, the country’s four major carriers are attempting to expand in various foreign markets. As a result, the aviation industry is expected to contribute around AED 200 billion to the economy by 2020 while providing approximately 750,000 jobs, according to recent industry estimates. Furthermore, after its expansion is complete, Dubai’s second airport Al Maktoum is expected to become the world’s largest. In line with International Air Transport Association projections, Boeing expects, “5.2% growth in traffic over the next 20 years, supported by a 4.9% increase in total regional fleet size”. Additionally, the size of the Middle East market is forecasted to be worth $660 billion in two decades, with the four UAE carriers to makeup majority of it.
Telecom
Etisalat and Expo 2020 Dubai have collaborated to provide 5G network that offers the most advanced telecom and digital services to the expected 28 million visitors., including supporting forecasted 300,000 users on peak days. The 5G network will support smart tickets, tech-enabled volunteers, dynamic crowd management, smart food-ordering, 4k security cameras, dynamic information on pavilions, etc. According to Rashid Mohammed, Vice President of Intelligent Connect, Expo 2020 in Dubai, “Etisalat’s network and infrastructure will be ready to provide the service as soon as the 5G mobile handsets are available in UAE. We are aiming to build 1,000 5G towers across the UAE during 2019 to enable 5G coverage”. Once majority of 5G deployments are implemented by 2020 on a global level, the industry estimates display a projection of 1.5 billion 5G subscriptions by 2025. Another very plausible impact on the region’s telecom companies like Etisalat and Du is a spike in temporary or short-term sims and data packages for the influx of tourists expected for the event.
Potential Risks
Overbuilding for the Expo stands as the greatest potential risk Dubai could face. This could negatively impact the government-related entities (GREs) by hindering their capability to repay the debts they incurred for Expo 2020. According to Capital Economics, these debts stand at approximately AED220b, almost 50% of Dubai’s GDP. Another risk that may arise is over-capacity. As per Moody’s warning on March 12, loan losses at banks could increase over the next year as increasing interest rates and declining real estate prices will put borrowers in an unpleasant situation. It has also been observed that Dubai banks are getting involved in large infrastructure and real estate projects post Expo 2020 at an increasing rate, with these segments acquiring 20% of total lending. According to IMF, “Sustaining strong growth after Expo 2020 and the fiscal stimulus will require capitalizing on new growth drivers that are decoupled from oil prices, and this in turn will require the authorities to build on their ongoing structural reform momentum”. A few other situations that UAE should look to mitigate are stopping the public sector from squeezing out private sector firms by reducing the size of the public sector, dealing with the enlarged labor market by reforming it, and lastly, making the local financial market strong.
Conclusion
We all hope for the legacy effect to work its magic in terms of integrating the development of additional vibrant business districts while incorporating retail and leisure into the well-established international travel destination, Dubai. However, potential risks like overbuilding and maintaining the level of attraction of these developments could pose as a challenge to the retail and hospitality sectors. These need to be mitigated through careful planning that will boost future visitors for generations to come. Nevertheless, Dubai being Dubai, is placing all the appropriate steps required to attract more expats and achieve abundant demand to meet boosted supply. The country positioning itself as a startup entrepreneurial hub, the 10-year visa legislation and new foreign-owned company rules are all associated with the goal of real estate developers to fill homes. We conclude that there is no doubt that Expo 2020 will have an incredibly positive impact on the UAE while acting as a catalyst to energize retail, leisure, hospitality and consumer businesses in the country.
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