As the Iran war has entered its seventh month, tourism and logistics in the United Arab Emirates (UAE) have been hit hard, but global financial firms continue to flow in and the population has increased. Although growth has slowed because of the war, analysts say the UAE economy is showing stronger-than-expected resilience as finance and demand for education serve as a buffer.
Since the Iran war began, traffic disruptions in the Strait of Hormuz have pushed up the UAE's logistics expense and fuel prices and shaken supply chains. After the outbreak of war, gasoline prices rose about 60%. Tourism also took a hit. Dubai International Airport has not been able to function as a transit hub, with a sharp drop in passengers, and the hotel occupancy rate in Dubai in August fell to 64% this year from 76% last year.
However, Bloomberg reported that flows of capital and talent into the UAE continue despite the war. As Abu Dhabi's sovereign wealth funds, which hold about $2 trillion in asset, execute investments worth billions of dollars, global banks and hedge funds seeking related transaction are expanding local staff and offices. The private capital accumulated in Dubai, low tax rates, and financial free zones are also drawing in overseas financial firms.
The number of corporations operating in the Dubai International Financial Centre (DIFC) has recently topped 10,000. Abu Dhabi Global Market (ADGM) issued about 2,000 business licenses and attracted 4,700 workers in just the first half of this year. Even as Singapore and Hong Kong offer tax incentives to attract global financial firms, the financial hubs of Dubai and Abu Dhabi have maintained growth.
The population is also increasing. Dubai's population, which was 4.58 million at the end of last year, has grown by about 200,000 this year. As the population grows, demand for education has expanded. The number of students at private schools operated by education company Taaleem Holdings rose about 7% from a year earlier, and seven private schools opened in Dubai this year. The U.K.'s Harrow School and Rugby School also opened campuses in Dubai.
The impact of the war on daily life also appears more limited than expected. Hours after the UAE intercepted a drone over its territorial waters and airspace on the 31st of last month, areas around schools in Dubai and Abu Dhabi were crowded with vehicles as students returned to class. Although a UAE official described the current situation as "neither war nor peace," Bloomberg reported that the routine economic activities of local residents and corporations are continuing.
However, it will be difficult for the boom that followed the COVID-19 pandemic to continue at the same pace as before. The UAE Central Bank expects economic growth to slow to 1.7% this year. Economists projected that if tourism demand recovers and growth in finance continues, next year's growth rate will rebound to about 7%.
Monika Marlee, chief economist at Abu Dhabi Commercial Bank, said, "A favorable business environment—including low tax rates, world-class infrastructure, and an ample labor force—will continue to stand out over the medium term."