Dubai Hopes Metro Will Get Economy Back On Track

The opening of Dubai Metro Wednesday could mark a turning point in the emirate's fortunes as it tries to spend its way out of the worst economic downturn in a generation.

After four years of planning and construction, Dubai's ruler Sheik Mohammed bin Rashid Al Maktoum will open the 52-kilometer-long rail system, the first urban metro network in the Gulf's Arab states. Across the Persian Gulf, Iran already operates a metro in Tehran.

Dubai's planners hope the metro will not only make the daily commute for thousands of the city's residents easier but also help lift a struggling economy, desperately in need of a boost.

But the vast project has come at a high price for debt-laden Dubai. Construction costs on the project have soared to 28 billion U.A.E. dirhams ($7.6 billion) from the AED15.5 billion originally estimated, according to the emirate's Road & Transport Authority, or RTA.

The sheikdom can hardly afford the increased cost. Dubai's government and its many related companies are estimated to have debts of almost $85 billion, more than double the city state's gross domestic product, according to investment bank EFG-Hermes. That figure doesn't include the cost of the metro.

"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.

The RTA has said it expects the metro will generate $4.6 billion over the next 10 years. To raise cash, it has offered naming rights for 23 of the planned 47 metro stations, as well as the metro lines. So far, approximately $490 million has been raised from the sales.

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.

Dubai like many of its neighbors wants to spend its way out of the global economic crisis despite heavy debts. The emirate has budgeted this year for its first-ever deficit of $1.14 billion, with government spending up 42%.

"The metro is a long-term investment," said Simon Williams, chief economist for the Middle East at HSBC Holdings PLC. "Its value will show itself when Dubai eventually returns to growth."............

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