Economic Outlook

of Dubai

December 2012

Page 22012Q3-2010 Economic Indicators, Q2-2010

Dubai Performance 2012

Strong with Improved Foundations

Page 32012

2012 – Resilience of Dubai’s Diversified ModelI. Trade Entrepôt Role Solidified – Re-export

performance in solid metals is reassuring

II. Tourism Has Fully Recovered and is a Revenue Generator – Safe Haven Status has Persisted

III. Real Estate Sector Has Witnessed a Recovery in Activity and Prices in Select Areas

IV. Local Banks’ Improved Balance Sheet Health and Resurgence of Project Lending

V. Dubai is Seen as a Safe Haven by Investors

VI. Positive Business Sentiment

Page 42012

I. Trading is Paramount for Dubai’s Economy

Dubai has successfully expanded trade at double-digit rates compared to last year while world trade has slowed to a crawl – Dubai Chamber member exports & re-exports are higher in Jan-Aug 2012 than 2008

Source: Institute for International Finance and Dubai Chamber

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 2012f 2013f

-$300

-$200

-$100

$0

$100

$200

$300

$400

75%

77%

79%

81%

83%

85%

87%

89%

91%

93%

Imports

Non-oil Exports

Oil Exports

Gas Exports

Non-oil Exports as % of Imports

US $bn UAE Non-oil Export Performance Led by Dubai

Page 52012

II. Tourist Stays are up, as are Hotel Revenues

Hotel revenues and occupancy rates are so attractive that international hotel chains like Starwood and Hilton are making Dubai a center point of their expansion strategies for 2013

Source: Department of Tourism and Commerce Marketing and Dubai Chamber

H12006 H12007 H12008 H12009 H12010 H12011 H12012

AED 0

AED 500

AED 1,000

AED 1,500

AED 2,000

AED 2,500

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5Average Revenue per GuestAverage Nights per Guest

Guests Increasing Length of Stays in Dubai - 7 year high

H12005 H12006 H12007 H12008 H12009 H12010 H12011 H12012

65%

70%

75%

80%

85%

90%Dubai Hotel Occupancy Rate Back Up

Page 62012

Property transactions increased by 21% to 63 billion AED in H1 2012 YoY

of these transactions over 22 billion AED were direct foreign investments

III.Real Estate Sector in Recovery Mode

Source: Dubai Land Department

3.751

1.713

1.713

1.515

1.4381.059

0.7540.694

0.46

8.234

Dubai Real Estate Purchases by Foreigners, H1 2012 (in AED bn)

Indian

British

Pakistani

Iranian

Russian

Saudi

Canadian

American

Jordanian

Other

Page 72012

A range of real estate projects have been brought back to life

III.Real Estate Sector in Recovery ModeProject Value Sector

Mohammed bin Rashid City +++++ Mixed/Residential

Mudon (DubaiLand) $21,000 million Mixed/Residential

Meydan City & Tower $3,800 million Mixed/Residential

Habtoor Palace Complex $1,330 million Hotel

Taj Arabia $1,000 million Hotel

Al Sufouh Tram $650 million Infrastructure

Business Bay Canal $410 million Infrastructure

Nestle factory $136 million Manufacturing

The Address BLVD N/A Residential/Hotel

Panorama at the Views (Greens) N/A Residential

Arabian Ranches Expansion N/A Residential

Ibn Battuta & Dragonmart Expansion N/A Retail

The Pointe, Palm Jumeirah $81.67 million Retail

Jumeirah Park Community Centre $7.5 million Retail

Page 82012

Large deals now have local bank participation:4/6 top banks in $1.75 bn Dubai Duty Free loan

4/5 top banks in $1.1 bn Abu Dhabi new airport terminal

Central Bank launching a discount window to improve local bank long-term wholesale financing abilities

IV. Local Banks Up Lending in Place of Foreign Banks

Source: UAE Central Bank

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1,000

1,050

1,100

1,150

1,200

0

10

20

30

40

50

60

70

Loans & Advances

Bank Deposits

NPL Provisions (rt axis)

bn AED bn AEDDomestic Banks are Loaning More

Page 92012

IV. Local Banks’ Improved Health vis-à-vis Real Estate

Source: UAE Central Bank

UA

E N

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nals

Non

-UA

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0%

5%

10%

15%

20%

25%

30%UAE Banks' Real Estate Exposure Breakdown

Individuals (45.1%)

Corporate (30.8%)

Developers (24.1%)

Overall exposure to the property market in the UAE amounts to 232 billion AED ($63.2 billion), equating to 21.5% of the total deposit base/ 21.3% of collective net loans and advances

The majority of NPL provisions (63 billion AED) are for real estate-related transactions

Page 102012

Lower borrowing costs for the sovereign should allow reputable local firms to issue commercial paper as well as refinance at better terms – Islamic note yields are lowest in over 7 years

MAF issued a well-priced $400mn Islamic note

V. Dubai is seen as a Safe Haven – by Investors too

Source: IFR and Moody’sJune 16 2011 September 12 2012

0

1

2

3

4

5

6

5.591

4.4431

Dubai's 10 year bond yield

Page 112012

Domestic factors continue to weigh most heavily on Dubai Chamber members, while low global demand is a continuing worry

VI.Business Sentiment has Greatly Improved

Source: Dubai Chamber

Keen price competition

Payment defaults

High costs of raw materials

High rental cost

High equipment costs (machinery/transport)

High cost of capital (interest rates/charges)

High bank service charges

Limited access to credit

Low global demand

Changes in foreign policies of other countries

Other international pressures

High cost of accessing foreign marketsS

ales

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Fin

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ial

Glo

bal

fac

tors

0 10 20 30 40 50 60 70 80 90

Q2-2012 survey

Q1-2012 survey

Q4-2011 survey

Dubai Chamber Members More Confident Across the Board

Page 122012

2012 – Dubai’s Model of Diversification a Success

Economic Growth

Focus on Non-oil

Economy

Trade Model: Re-exports to the region

Air Hub and Tourism Industry

Real Estate Recovery

Strengthening of

Banking sector – fuel for growth

Page 132012Q3-2010 Economic Indicators, Q2-2010

Dubai Outlook 2013

Bright, but with Fiscal Overhang

Page 142012

2013 – Cautious Optimism Leading to Bright ForecastI. Global Trade Slowing – But Dubai is Destined to

Outperform Trend on Higher Commodities Exports

II. Local Manufacturing and General Industry to Continue Domestic Expansion – Import Substitution

III. New Source of Tourism and Large Scale Investments from Local and International Operators

IV. Consumer Confidence and New Business Growth to Prompt Higher Activity – along with Construction

V. Dubai Fiscal Health Remains a Worry

VI. GDP Growth Forecast – Solid Performance Expected

Page 152012

I. World Trade Volumes are Slowing, but not Dubai’s

Despite world trade volumes decreasing by 1.4% MoM in June, Dubai has bucked the trend and is expected to do so in 2013 given its geographic and sectoral trade focus

Source: CPB Netherlands Bureau

1991m01 1992m07 1994m01 1995m07 1997m01 1998m07 2000m01 2001m07 2003m01 2004m07 2006m01 2007m07 2009m01 2010m07 2012m01

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

World Trade Volume, 3mo RoC (left axis)

World Trade Volume, 6mo smoothed average

World Trade Volumes are Stalling

Page 162012

I. Dubai’s Trade Performance Will Remain Strong

Dubai has established itself as a precious metals trading center, which will further improve its trade surplus in 2013 as prices increase (gold was the top exported product from Dubai during H1 2012)

Source: JP Morgan, Bloomberg and National Bureau of StatisticsG

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80AED bn Top UAE Commodities Trade ex-Oil, 2011Commodities No Longer Tied to Manufacturing Growth

Page 172012

I. Onset of QE3 is Set to Improve Value of Exports

Recently announced quantitative easing programs by the US, Europe (and others to follow) will spur gold and other precious metals to rise in price – which will boost Dubai export performance

Source: Central Banks, World Gold Council, Bloomberg, TTMYGH

Global Monetary Developments as of 2007 vs. Gold Precious Metal Prices are Set to Grow Further in 2013

Page 182012

II. Local Manufacturing Set to Grow Further in 2013

• Import Substitution Efforts Materialize in Food Processing, Insulin Production and Greater Industry (12% of UAE GDP)

• Dubai Industrial City (DIC) Expansion Efforts Materialize 7 new plants relocated from MENA unrest Subsidies aimed at SMEs aimed at new firm candidates Improved logistics facilities & capabilities located adjacent to DIC

• GREs such as Emal are investing in enlarging production capacity

Page 192012

III.Catering to Chinese Tourists in addition to others

The number of Chinese tourists are expanding with a rising middle class eager to explore accessible international locations – in 2011 close to 300,000 tourists came to the UAE and spent $334 million

Chinese British

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,092

3,477

Per Capita Tourist Spend by Nationality, in AED

Source: World Tourism Council

Page 202012

IV. Non-oil Business Activity is Set to Expand

• According to both the DED’s and MasterCard’s latest surveys, consumer confidence is high and spending is at pre-crash levels

• The growing number of businesses establishing themselves in Dubai (DED trade licenses up 9% in July YoY) will produce more

• Construction sector is set for expansion with real estate prices selectively recovering and major developers launching new projects

• New hotel openings are slated for 2013 and 2014 with the bulk of groundbreaking and work concentrated over the next 18 months

Page 212012

V. Vulnerabilities – Fiscal Strain Continues

Dubai’s fiscal picture is set to improve next year, however significant pressure to increase revenues exists

2003 2004 2005 2006 2007 2008 2009 2010 2011e 2012f 2013f

-100,000

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

Net Loans and Equity Capital Expenditures Current Expenditures

Other Transfers from AD Enterprise profits

Oil and gas Tax on Foreign Banks Customs Duties and Port Charges

Overall Balance

mn AED Dubai Government Deficit is an Ongoing Worry

Source: International Monetary Fund, Dubai Department of Finance and Dubai Chamber

Page 222012

The private sector, overwhelmingly concentrated in Dubai, will surpass growth in the public sphere and result in real GDP growth of over 3.2% in 2013

VI.Real GDP Outlook: Bright Prospects for 2013

Source: Institute for International Finance and Dubai Chamber

2007 2008 2009 2010 2011e 2012f 2013f

0

200

400

600

800

1,000

1,200

-15

-10

-5

0

5

10

15

Non-hydrocarbon GDP Hydrocarbon GDPPrivate non-hydrocarbon growth GDP growth

AED bn, 2007 prices %UAE Real GDP Growth Set to Gain Strength in 2013

Page 232012

VI.Outstanding Risks to Bright Outlook

• QE3-caused Price Disruptions Filter into Soft Commodities Inflation

• Coordinated Global Slowdown Reduced Trade Volumes

• Frustrated Policymakers and Low Trade Volumes Protectionism

• Sharply Lower Demand for Crude and Precious Metals Lower Prices

• Sudden Increase in Risk Premiums High Borrowing Costs

• Geopolitical Tensions turning into more than Bluster Big Disruption

Page 242012

VI.Risks to Dubai Growth Outlook: Europe & China

Europe is at a crossroads which is only delayed by continuous sovereign bailouts and dictated by political schedules – however 2013 is likely to be when the powder runs dry and hard decisions must be made

The sharp slowdown in China, evidenced by slowing electricity consumption (>50% from manufacturing), is resulting in a large increase in NPLs and capital outflows, which could lead to instability

China Top 10 Banks’ Overdue Loans Reach 489bn Yuan (Rise 333% since end 2011)