Dubai’s economic collapse sent jitters round the world in 2009 but two years on it looks like a recovery is underway. For the Attractions Industry the slump meant that major projects were cancelled and there was a loss of confidence in the region. Despite this the projects that were completed in the UAE have delivered on their promise in terms of scale and spectacle – Ferrari World in Abu Dhabi and Atlantis, Palm Jumeirah in Dubai. As the DEAL show opens, we look at current economic projections and talk to Duarte Marques, CEO of Amusement WhiteWater (AWW) about the business environment in Dubai.
The UAE as a whole has significant competitive advantages: conveniently located between Europe and Asia, with well developed infrastructure, an established, diversified market and a safe haven in the region in times of unrest. The IMF predicts a recovery with sustainable growth of around 4% (see graph below):
Some economists are even more bullish, with Citibank forecasting growth of over 6% by 2012. As the Asian economies prosper, Dubai will be in a good position to benefit, in particular from close trade links with India. With the property sector still troubled there is still some fragility to the recovery, but tourism and trade are re-emerging as drivers for solid growth going forward.
AWW specialize in creating and enhancing themed environments worldwide, with significant recent projects in Dubai being Atlantis, Palm Jumeirah, Sharjah Aquarium, Ski Dubai and Wild Wadi. With two decades in business, the company has weathered the downturn and been involved in some of the most exciting projects in the region. This week sees the opening of a new showroom. Blooloop asked CEO Marques about AWW’s strategy for survival and plans for the future.
Please tell us about what it’s been like trading in the difficult economic environment of the last two years
The onset of the global financial crisis in October 2008 had an almost immediate impact on trading conditions in Dubai, an impact that was exacerbated by the troubles at the doorsteps of the major real estate developers in the region. A mood of pessimism descended upon Dubai as the world, in general, and the business community of Dubai, in particular, attempted to unravel and quantify the uncertainties which the local business scene then presented.
The rapid, unprecedented and dramatic decline in local liquidity, which was reflected by the local commercial banks’ actions in significantly curbing, if not strangling, the availability of new credit lines together with a demand for the settlement of existing borrowings (secured or otherwise), brought to an abrupt end a period of relatively cheap and easily available finance which Dubai had enjoyed for very many years. Dubai had fallen into the same trap that many other nations around the globe had done. Only a handful of conservatively banked nations escaped the trap which had been set for unbridled greed.
In times of great uncertainty, only the very brave – or foolish – attempt to expand their business activities. The herd draws the horns in.
Without the availability of credit, the totally over-borrowed community of Dubai contracted significantly and very quickly. Existing projects were wound down and suspended; new projects were shelved. The obvious, and only, outcome had to be a significant slowdown in economic activity. Massive cost cutting followed, which, in turn, led to further declines in economic activity. To stay in business at such lower, almost depressed, levels, corporate and private pencils had to be sharpened and difficult decisions taken quickly. Corporate and private Balance Sheets had to be trimmed to suit the new business environment which had suddenly descended upon Dubai. Those who adjusted and managed this process well, survived. Those who didn’t, didn’t.
At best, survival meant a very much lower level of trading profit together with a significant stretching of Balance Sheet fundamentals. At worst, survival meant a trading loss and trimmed Balance Sheets as shareholders dug deep to finance their businesses and to avoid stretching their Balance Sheet fundamentals to, or beyond, breaking point. Trading at breakeven prices was the order of the day, in the interest of survival.
But survival involves much more than just surviving.
There needs to be a reason to survive. Such a reason can only be a belief on the part of entrepreneurs that, fundamentally, their businesses are well positioned in the marketplace, well managed, well supplied with the appropriate skills and that while the short term outlook is particularly unsavory, the long term prospects remain good, despite the widely held belief elsewhere in the world that Dubai had been a seven day wonder. For those entrepreneurs who did not share that view about Dubai, it had become a question of managing a severe cyclical downturn.
Dubai Chamber of Commerce statistics seem to indicate that, by March 2010 – almost eighteen months after the onset of the global crisis – economic activity had bottomed out and was showing signs of a very modest recovery. Events of the last twelve months seem to confirm that, as business opportunities are thoroughly pursued and investigated and modest business volume increases have begun to present themselves.
How do you view the future of the Attractions sector in the UAE?
My Board and I have taken the view that this downturn is purely cyclical in nature and will emulate, to a substantial degree, such cycles as have plagued business for as long as business, as we know it today, has been around.
We are seeing clear signs of a recovery. We expect this recovery to be modest, even fragile, until such time as it becomes evident that the local commercial banks fell comfortable to lend again and in easing lending requirements. Whilst we do not expect the recovery to reach anything close to the heady days of 2006, 2007 and 2008, it will probably falter entirely if the commercial banks are unable to accommodate the reasonable funding requirements of their clients. We expect the banks to be cautious in their lending approach as they slowly rebuild their liquidity levels but we do not expect them to fail the borrowing market in this regard.
As Dubai’s economy is such an open one, a worldwide recovery will be a prerequisite to any recovery in Dubai. A rather modest worldwide recovery seems to be slowly gathering some momentum. Some pundits see that recovery faltering in the short, or even medium, term. We believe that it is too early to make any call in that regard just yet.
We are treading very carefully in the interim.
What interesting projects are you involved with at the moment?
Amusement WhiteWater is presently engaged in the very prestigious St Regis Beach Resort Project on Saadiyat Island in Abu Dhabi – a project driven by The TDIC. It is also involved in the equally prestigious Kingdom of Sheba development on The Palm Jumeirah and the Sofitel development, also on The Palm Jumeirah. We have recently completed the refurbishment and extension of The Wild Wadi waterpark.We fully expect to be engaged very shortly in two further significant and prestigious developments on Yas Island and in Al Ain but cannot comment on these until such time as contracts have been signed.
What are you hoping for from DEAL?
DEAL is the annual mouthpiece of the Amusement and Leisure Industry to the marketplace. This is a time and an opportunity to speak to that marketplace, as well as to network with other active participants in the industry, to generate new ideas and to make new contacts, in the long term interests of continuing to deliver the most professional and most cost efficient products into the market.