Dubai’s diversification model has the right mix to re-accelerate growth and the emirate is on course to outperform growth projections driven by job creation, improved funding and solid execution of its growth strategy, BofA Merrill Lynch said.

The global bank, in its latest report, observed Dubai’s superior infrastructure investment and robust population growth have established solid foundations for its economic trajectory.

Stephen Pettyfer, head of Mena Research at BofA Merrill Lynch Global Research, said in the report, “GCC 2020: Time to Shift Gears” that Dubai’s model of diversification stands out in the GCC.

“Dubai has the right mix to re-accelerate growth. Given that there is a certain degree of duplication, competition or lack of distinct differentiation among various projects in the GCC, Dubai’s model of diversification stands out, having already achieved a critical mass, scale and a degree of competitiveness,” said Pettyfer.

Dubai’s status as a regional financial, transport and logistics hub places it in a position to benefit from growth in neighbouring countries in a self-sustaining fashion, said Jean-Michel Saliba, Mena economist at BofA Merrill Lynch Global Research.

According to the report, Dubai’s vision has relied on an historical factor of path dependence, as well as an element of risk-taking in enacting forward-looking policies. “Dubai used its oil revenues early on to help fund the construction of Jebel Ali Port Complex to supplement Port Rashid, and its diversification efforts predate most other GCC country initiatives.”

The report suggests that while the economy slowly recovers, Dubai is one of the best GCC cities in which to develop business. Its relatively small population of 2.1 million people and the ambitious objectives of the major Dubai-based corporates mean job creation should accelerate and support the real estate market.

Although the current working population in Dubai stands at 1.3 million, the emirate aims to create 950,000 new jobs by 2020, with retail, tourism and related sectors fuelling growth. “As Dubai heals from its real estate bust, the drag on growth that the real estate and construction sector represents (shaving off 2.5ppt off headline growth over 2009-11) is likely to fade away,” the report said.

“This is an ambitious but realistic goal which would see the population increase on average by four percent, which will, in turn, drive further economic growth by creating several new growth opportunities.

BofA Merrill Lynch said these include incremental housing demand of 317,000 units in eight years that represents 94 per cent of current stock.

The report also saw retail sales increase of five percent per annum until 2020 when Dubai will be hosting more than 15 million tourists, up from a total of eight million visitors in 2011.

Dubai air traffic levels will increase by 7.2 per cent at a compound annual growth rate.

Dubai hotels will witness a 35 per cent increase in hotel occupancy while adding an additional 18,868 hotel rooms by 2020.

“Dubai’s diversification model has proved successful in developing both infrastructure assets faster than other GCC countries, and a non-oil-based economy more geared towards trade and tourism. That gives the emirate a key regional competitive advantage in attracting talent and boosting non-hydrocarbon-related activities,” said Pettyfer. In 2011, Dubai’s economy expanded by 3.4 per cent in 2011, at a pace higher than what had been forecast, driven by strong trade flows and rising tourist traffic.

According to Dubai Statistics Centre, the emirate’s economy gained around Dh10 billion in 2011 to reach Dh306.2 billion as its growth picked up momentum on the back of surging trade and tourist traffic.

In 2012, Dubai’s economy is on track to gain more tail winds with the number of visitors expected to rise 10 per cent this year.

Shaikh Ahmad bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, has forecast a growth of up to five per cent for the emirate in 2012 thanks to its strategy of creating new opportunities through diversification. Most analysts had earlier estimated Dubai’s 2011 growth at around a modest three per cent.