Dubai's bid for the Expo 2020 will lift GDP growth leading up to the period and beyond, according to Bank of America Merrill Lynch.
"We estimate a successful bid would provide a modest lift to GDP growth, leading up to the period, and a more material one around the event itself," wrote Jean-Michel Saliba, analyst at BAML.
However, the "potentially higher external borrowing needs could pressure the existing EXD [external debt] curve given the confluence of a crowded Dubai maturity schedule, the existing contingent liabilities to the government, and tight spread levels, in our view."
Dubai is among four cities - including Ekaterinburg (Russia), Izmir (Turkey) and Sao Paulo (Brazil) -- hoping to win over the Bureau International des Expositions, which will make its decision on November 27.
Despite being a last-minute entrant to the bidding process, the emirate appears to be a strong favorite to win the right to host the event, according to a recent survey.
Dubai secured the votes of 57% of the 1,000 global executives surveyed by the Alliance Business Centre Network. Only 18% voted for Ekaterinburg, 14% for Sao Paulo and 11% for Izmir.
The event has never been held in the Middle East, Africa or South East Asia, and with the disqualification of the city of Ayutthata in Thailand - one of the early bidders and favorites - Dubai's chances of winning have increased.
The right to host the Expo 2020 would be a huge bonus for the emirate which is on a strong economic recovery path.
It would also be a just reward for the emirate that has poured billions in its infrastructure, even during the tough times, and has created a global economic hub that's ready for major events.
"All we need is a small change," Mattar Al Tayer, Chairman of the Road and Transport Authority and a member of the Higher Committee for Hosting the 2020 World Expo said. "We don't need major change because the infrastructure is ready or almost ready."
The authorities estimate that the Expo will generate USD 23 billion to the emirate's economy from 2015 to 2021.
"This would include total spending by the host, participant and visitors, as well as the impact on the supply chain and consumption. While this equates to an annual 3.5% of GDP, the bulk is likely to materialize around the Expo in 2020-21, in our view," BAML said.
Standard Chartered Bank expects around 300,000 new jobs being created as a direct result of the Expo, which will last six months.
"Ninety per cent of the job opportunities would occur from 2018 to 2021, with most of the jobs created in the travel and tourism sector," the bank said. "This indicates a good chance that a high percentage of these will be converted into permanent jobs, which would benefit the expanded economy in the post-Expo period."
Majority of the jobs are expected to be in the hotel and restaurant sectors (40%), construction (30%) and others in transportation, logistics, retail and services.
The city is hoping to attract 25 million visitors over the six months, with little over two million tourists from the neighboring Gulf states alone.
FINANCING THE EXPO
Total financing costs of hosting the Expo are estimated around USD 8.4 billion (8.9% of GDP), of which the Dubai government will commit to fully funding the capital needs of USD6.8 billion (7.2% of GDP).
The remaining USD 1.6 billion are operating costs which the government hopes will be offset by revenues generated from the event.
However, as these costs will be incurred before the event, they will probably be financed through domestic short-to-medium-term overdraft facilities.
"As such, the USD 6.8 billion in capital spending (AED 24.8 billion or 30% of Dubai's gross fixed capital formation) spread over four years (2016-2019) equates to AED 6.2 billion per year in government capex spending (USD 1.7 billion or 1.8% of GDP)," Mr. Saliba noted.
The venue for the World Expo 2020 Dubai will be Dubai Trade Center - Jebel Ali, a sprawling, 438-hectare site at the southern end of the city and adjacent to the spanking new Al Maktoum International Airport.
The city plans to build 1.2 million square meters of additional space, including 700 kilometers of pavilions, venues and facilities, and work will commence once the master plan is approved towards the end of 2015, assuming the city wins the bid.
"This would double the current government capex in nominal terms back to the levels of pre-financial crisis. We however note that current capex levels could drop as projects come to completion in coming years."
The right to host Expo 2020 elevate Dubai's status as an international city, capable of holding major events. While the emirate pulled out of hosting the 2016 Olympics Games and then the 2024 Olympics Games, those events no doubt remain on the wish list of the authorities.
A winning bid for Expo 2020 will give the emirate the confidence to enter the race to host bigger events in the future.
alifarabia.com 2013
