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The launch of Dubai Metro on Wednesday could be the catalyst the city-state’s ailing economy needs to find its feet again after being severely shaken by the fallout from the global financial crisis, economists said on Tuesday.
They said the metro could save Dubai up to $1.4 billion a year in lost work hours and spur the economy as employees spend less time caught up in the city’s infamous congestion and become increasingly mobile.
“We can expect an increase in productivity as a result of lower congestion costs estimated at between 4 to 5 billion dirhams per year,” said Fabio Scacciavillani, an economist at Dubai International Financial Centre.
Scacciavillani said increased productivity will lead to business becoming faster and more efficient, boosting economic growth that has stalled amid the financial crisis.
Many economists are projecting the UAE economy will contract in 2009, weighed down in part by Dubai, which has seen its real estate market collapse, billions of dollars worth of projects cancelled and thousands lose their jobs.
Scacciavillani put the monetary benefit the metro will have on Dubai’s economy at between 17 billion and 28 billion dirhams ($7.61 billion) over the next five years.
“Public spending on infrastructure produces positive economic returns,” he said. “Higher endowment of infrastructure boosts the aggregate return on private sector capital investments.”
Dubai’s Roads and Transport Authority (RTA) expects the metro alone to generate $4.6 billion over the next 10 years through fares, advertising, retail rentals and sponsorship of stations.
The returns will have to be big to balance the cost of building the metro, the Gulf’s first urban transport system.
Delays and extensions to the metro have seen the cost of building the first two lines soar by 75 percent to 28 billion dirhams from an initial estimate of around 16 billion dirhams, the RTA said last month.
There is potential for further cost escalation with two-thirds of the stations on the Red Line still to be completed and the Green Line not set to open until June next year, three months later than originally planned.
"It's very difficult for any railway system to recoup initial capital costs," said Joss Dare, partner and head of Middle East transport at law firm Ashurst.
Dubai will not want to see those costs increase with debts estimated at almost $85 billion, more than double the city state's gross domestic product, according to EFG-Hermes, and concerns over the ability of government related entities to service their debts.
The figure of $85 billion does not include the cost of the metro.
With little oil, Dubai has historically invested in the best infrastructure in the Gulf to attract international companies and investment. The emirate is home to the region's largest airport and biggest container terminal, which both help make it a bustling trading hub.
Investments in infrastructure effectively give greater capacity for an economy to grow, something that will only pay dividends as Dubai economy turns the corner, analysts said.
"The metro is a long-term investment," said Simon Williams, chief economist for the Middle East at HSBC Holdings. "Its value will show itself when Dubai eventually returns to growth."
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