David Harris, Director of International Logistics Services, Dubai Department of Economic Development, says that the the overall investment picture in Dubai looks positive.
A careful study of regional market statistics and the cross-relations between them can highlight indicators showing whether the time is ripe to make new investments in Dubai’s logistics initiatives.
An analysis of how the market is trending paints a different picture for UAE. For example, the trend in Foreign Direct Investment (FDI) in logistic activities in the UAE appears to be on a volatile and downward cycle (Fig.1). The global crisis took its toll on logistics activities and despite brief periods of reprise – from mid 2006 until mid 2008 and from mid 2009 to mid 2010 – global investments in logistic activities decreased as indicated by the chart below (Fig. 1).
Fig 1. Indexed Flows of FDI and GDP. Source: FDI markets, World Bank
This is understandable when considering that during the height of the recession there would be an overall decrease in global and local consumption. However, a contrary picture is presented in Fig. 2, when we see that GDP in the Middle East and Africa has grown steadily between 2009 and 2012.
The question then arises: How long will current stocks absorb existing economic growth and when will the inevitable upwards price pressure hit due to a shortage of supplies?
Fig. 2. Regional growth
Retail sales trend in the UAE
Source IMF. (2011/12 = projected growth)
Aligned to this are longer decision cycles concerning new investments in the logistics infrastructure. Multinationals are less inclined to make such investments due to reduced liquidity and also the lack of multi-year contracts that would normally stimulate investment decisions.
In such a scenario, astute logistics planners will be asking themselves “Where do I invest and when?” If one considers that retail sales in the UAE are projected to grow over 40% between 2010 and 2015 as outlined in Fig. 3 then clearly opportunities await and a detailed study of market drivers is needed to discover when best to make an investment decision.
Fig. 3 Retail sales trend in the UAE
Source: BMI indexed trend
Overall, the investment prognosis looks positive. The population in the Middle East is currently growing at a rate of over 1.5% annually. This represents more than 6 million people per year in the region who will become future consumers and drivers of current demand (Source UN). MENA’s encouraging report of GDP figures is another indicator of sustained growth.
Dubai, with its current and planned position as the regional logistics hub, is well placed to take advantage of such developments. While such indicators point to market growth, they are not sufficient by themselves to drive an investment decision. Each organization must understand how this growth affects its respective customers and be able to identify new opportunities whenever they present themselves.
The criteria for decision-making will differ depending on your position within the sector. A 3PL supplier will be different to a 3PL user, which differ for own account logistics operations.
What is clear is that if one waits for the demand curve to fill a facility, the timeline for decision-making and build cycles will cause potential issues within the supply demand curve. All of these are potentially avoidable with a clear forward-looking strategy that accounts for some of the issues outlined above as well as those relating to your particular circumstances.