Dubious Dubai

I was in Dubai two weeks ago to attend a meeting of the World Economic Forum. Our hosts, the Government of Dubai, told us that Dubai had turned the corner – hotel occupancy was up, airline traffic had recovered, and Burj Dubai, the tallest building in the world was complete. And then the story broke – Dubai World was having difficulty repaying creditors. 

Photo ©istockphoto.com

I have been to Dubai twice this year. In early 2009, I learnt that migrants were not returning en masse as reported in the media at the time. They have stayed on instead, even at the cost of losing legal status in many cases.  This time conversations with some Bangladeshi construction workers at a labor camp brought out some interesting facts: Because new construction is slowing, maintenance is doing well. Migrant workers in maintenance and hospitality are doing better than those in new construction and finance. Many migrants are moving on to Abu Dhabi and other oil-rich Emirates and neighboring countries where huge infrastructure investments are going on. Many are coping with the crisis by cutting consumption and sharing accommodation. Many have sent their families back home, so the funds spent in Dubai are now remitted home.

Many migrant workers, from Bangladesh in particular, are somewhat stuck in Dubai because they cannot afford to return. It costs about 12,000 dirhams to pay recruitment agencies and travel costs. At a monthly income below 900 dirhams – no overtime these days – a construction worker can easily take three years to save enough to repay recruitment costs. Too bad there is a crisis – they just can’t risk returning home. So many are entering into creative arrangements (e.g., taking unpaid leave) with employers to simply wait it out in Dubai.

Many workers mentioned that living costs – especially the price of rice, a staple for many migrants – has more than doubled in the last two years. Earlier, a construction worker spent roughly 150 dirhams a month, now he is spending between 350 and 400 dirhams. That has reduced remittances. Also, that is bound to increase the time it takes a migrant to pay back recruitment fees.

To my surprise, the workers I spoke to did not complain about high cost of remittances or a lack of access to remittance services. Remittance fees seem to be under $1 per transaction. Cut-throat competition has pushed many remittance service providers to send agents to the labor camps to provide remittance services at the migrants’ door step.

Now that the massive construction projects such as Burj Dubai are completed and credit worries have surfaced, there will be a slowdown in new construction projects and therefore in demand for new migrants. The dream of having 10 million people by 2010 – the current population is reportedly around five and half million – will not materialize for a few years longer. The risks, therefore, are decidedly downside in the near-term: remittances to South Asia from the UAE are likely to fall from the levels of 2008 and 2009 (see our M&D Brief 11). In the medium- to long-term, however, Dubai will remain a center for trade and finance and a playground for the Gulf countries. And the demand for workers in the UAE will grow, causing a strong and steady increase in outward remittances.

Photo ©Dilip Ratha/World Bank

P.S.: From my hotel room, I showed the remarkable Burj Al Arab to my older son through Skype. “What’s that banana-shaped building?” he asked. A little later, my younger 6-year old came in. “What’s that?” he said. “It looks like a banana!” To me, it looked like the sail of an expensive boat about to reach shore. A seven-star “oasis” in the desert. Alas, with imported soil and man-made water!