Inflation des salaires à Dubaï

Analysis of pressure on UAE salaries in 2013

Table of Contents

1- Introduction        2

2-  Economic Overview        2

3- Why are our findings and IMF inflation rate so different?        2

4- Conclusion        5

References        6

Methodology: analysis based on international, governmental and local sources.

In this analysis we used experts’ work on:

• Real estate
• Salary / Compensation & Benefits
• Consumer Price Index and inflation

1- Introduction:

A research on available data and experts’ views about Dubai’s economics and statistics reveals that the IMF 2013 inflation rate of 1.75% ^[1]does not reflect the reality on the ground.

After analysis, inflation for 2013 could be between 3.08% and 6.30%^[2]. To maintain our purchasing power, we would therefore expect an increase in salary higher than 4%, which ties back to experts’ forecasts (5% according to Mercer, 6% according to MacKinley, 6.08% according to Aon Hewitt)^[3].

2- Economic overview:

Economic growth in UAE in 2013 is expected to be as high as 4%^[4] (wholesale and retail trade, oil revenue growth, strengthening tourism, economic recovery, political stability, Dubai 2020 expo). This growth has attracted more companies or confirmed expansion possibilities for existing businesses creating demand on the labour market. More opportunities for employees put more pressure on employers to use adequate retention and management strategies^[5].

We also have to bear in mind that, even though the UAE is a “tax free” country, residents have to pay many indirect taxes (5% of annual rent, ID card & residency visa (every 3 years), car registration (annually)... In the near future, the UAE, along with GCC partners, will introduce VAT^[6].

3- Why are our findings and IMF inflation rate so different?

3.1- Population: Heterogeneous and growing

• The fact that the UAE population is made up by nearly 90% expatriates complicates the analysis of inflation. A “transient population and different spending patterns” make it difficult to calculate representative Consumer Price Index (CPI)^[7].

• There should also be noted that UAE nationals benefit from different government helps, which in turns influences the results of inflation calculation^[8] (free government schools for UAE nationals, no housing fees (housing fee = tax = 5% of rent)…).

• Dubai population has increased by more than 5% a year in the last 3 years^[9]. This increase is mainly due to: the UAE political stability in a troubled Middle East and the confirmed and expected economic growth.

3.2- Real estate: Confirmed recovery

• Inflation rate is based on the Consumer Price Index evolution. For the UAE the CPI main expenditure groups^[10] are weighted as followed:

• Housing & Utilities: 42%,
• Food and non-alcoholic beverage: 13%
• Transport: 10%

We can see that the main factor influencing inflation is the spending in Housing. According to Dubai Statistics Center, the variation for Housing &Utilities was -0.09% in July 2013 (year on year). Our experience on the ground does not compare to this figure. We therefore concentrated our research on the real estate market. If we replace this number (-0.09%) with the observed numbers (from 11.30% to 30%) found in research reports published by renowned real estate agencies, the impact of increase in price of rental in Dubai gives inflation figures of 2.87% to 6.10%!

• The UAE have been growing at such a speed and under so many influences that despite a strong political will to control and harmonize businesses and individuals behaviors, rules and regulations are not yet fully respected.

• Rents: rules to impose certain levels of rent increase to landlords exist but data and tools for tenants to defend themselves are quite new. The high increase in rents (+12% according to Jones Lang LaSalle, +18.5% according to Asteco, +30% according to CBRE Global Research & Consulting) in the last 12 months has triggered an increase in disputes^[11].

3.3- Cost of living: still increasing

• Food and non-alcoholic beverage expenditure group (13% of CPI): 85% of the UAE food is imported. Price are based on global supply and demand and therefore very volatile^[12]. The UAE government by implementing price cap regulations has asked food retailers to take the impact of increase in food price to prevent inflation on food items for consumers. The increase in food and beverage price in July (year on year) 2013 was 2.29%.

• Transport (10% of CPI): fuel cost has been rising regularly. This year’s inflation on transport is 1.60%.

• Education (4% of CPI): even though Education is weighted at 4% in the official CPI, two points are worth being mentioned:

• The official number for Education is skewed: School fees in Dubai vary greatly (from AED 1,725 to AED 96,140 a year) with an average of AED 18,196. But 55% of students pay more than AED 35,000 a year.^[13] This would represent 10% of the salary of an “operation manager”, with one child, in Dubai. This also impacts inflation with an estimation of 3.08% to 6.30%!^[14]

• Despite a public announcement from the ministry of Education of no increase in school fees for 2013-2014, a number of exemptions are given the increase in school fees is linked to the graded quality of the school (the best schools are allowed to increase fees).

4- Conclusion

The UAE are remarkable in many ways. The fact that they have grown so much in such as small timeframe, taking on board almost 90% of expatriates from many different countries makes it an unusual subject upon which we are trying to apply conventional ways of calculating economic and social data. More than most countries, we have to bear in mind that things are changing very quickly here. These changes cannot be recorded officially instantly, hence a discrepancy between figures given by IMF, for example, and what UAE residents are experiencing. Basing an increase in salary only on IMF figures would mean ignoring important factors influencing the purchasing power of local employees. Therefore, a minimum of 5% salary increase would be advisable.

References:

1- General figures:

1.1- IMF – UAE Inflation Figures

, accessed 17/09/3

1.2- Calculation of inflation using local real estate research from credible sources

[pic 1]

1.3- Estimated inflation rate with Education weight at 10%:

[pic 2]

1.4- Dubai Economic Outlook Q1-2013, July 28, 2013

http://www.dec.org.ae/reports-publications/details.aspx?id=142, accessed 17/09/13

2- Real Estate

2.1 – Renting in Dubai - Time Out Dubai September 11-17 2013

page 8

“According to Mark Wellman-Riggs, general manager at Crompton Partners Real Estate Agents, a swelling population and increased demand in already sought-after areas has seen prices begin to rise. Now, tenants who can’t find property in “key areas” (such as Dubai Marina and Downtown Dubai) or find themselves priced out of such locations are turning to better value developments – such as The Greens and Jumeirah Village Triangle – in turn causing prices to surge there, too.”

2.2 - CBRE Global Research and Consulting – Q2 2013 – Market review

Dubai growth forecast is 4%, which makes it an attractive location.

“Over the past 12 months, landlords have become increasingly bullish, leading to an increasing number of rental disputes being raised at the rent committee.”

“Average residential rentals have now grown by 30% over the past 12 months.”

2.3 - Dubai Real Estate Market Overview Q2 2013

http://www.joneslanglasalle-mena.com/MENA/EN-GB/Pages/ResearchDetails.aspx?ItemID=11754, accessed 15/09/13