Exclusive: Dubai’s Danube chairman on why the UAE will see a V-shaped recovery from the Covid crisis

It is tough to catch Rizwan Sajan without a smile.

As he admits, the chairman and founder of Dubai-based construction and property conglomerate Danube Group is an optimist by nature, and hence it is easy to fathom why he believes that the UAE’s economy will recover rapidly from the Covid-19 crisis.

“The UAE is set to witness one of the fastest V-shaped recoveries in the world from the Covid-19 pandemic due to a number of factors including the way the authorities handled the crisis from day one,” he insists, in a bold prediction.

The Dubai-based businessman is confident that before the end of the second quarter of 2021, the situation will bounce back to normal, with the local economy back on track for strong growth. While one could attribute his sanguine economic outlook to his personality, Sajan stresses that he has solid reasons to back his projection.

“If you look back, the UAE recovered faster compared to other economies from all the previous crises they faced in the last three decades, be it the Gulf war or the global financial crisis. And there are practical reasons for this. The first and foremost is the strong and visionary leadership of the country.

Also, from the beginning, the UAE has invested in its future, be it hard or soft infrastructure, technology, systems, processes, people and the global connectivity that helps it to recover fast.

“It is a future-ready country,” he explains.

But the world remains very much in the throes of the Covid-19 crisis, even as governments and businesses across the globe scramble to adapt and adjust to the changes the pandemic has brought, seemingly overnight.

In June, the International Monetary Fund projected that the crisis will push the global economy into the “worst recession since the great depression, surpassing that seen during the global financial crisis a decade ago”.

Regionally as well, the GCC states – including the UAE – have seen an exodus of expatriate workers, which in turn is anticipated to adversely affect the other sectors of the economy.

Sajan admits that the magnitude of the Covid-19 pandemic surpasses the previous crises due to the growing global death toll, the rise in infections, as well as job and business losses. However, he emphasises that people must remember that while the situation is grim, Covid-19 is a public health crisis that will pass.

In a detailed interview, he explains why he is so positive about the country’s recovery.

You appear extremely optimistic about the UAE economy’s post-Covid-19 V-shaped recovery. Could you explain why and how?

There are a number of reasons why I am so optimistic. There are internal and external factors that are going to work for the recovery of the UAE and Dubai.

Firstly, one should not forget that it is a short-term public health crisis, which will soon become part of history. The way the UAE is winning its war against the virus, we expect the country to become Covid-19-free very soon. If that happens, all the exhibitions, conferences and business events will restart and the businesses will start to bounce back into profitability.

The Indian Premier League (IPL) is a very good case in point and will attract many visitors to the UAE – not only from India, but from a number of countries. The IPL is poised to give the UAE economy a massive boost with higher occupancy in hotels and increased consumption at restaurants.

Also, with the pandemic continuing to spread across the world, tourists are looking for ‘safe-haven’ destinations. Right now, everyone wants to come to Dubai and hence business will be much higher in October, November and December.

Along with tourists, people in countries where the pandemic is still growing are also looking for safe places to relocate to. The UAE is well-positioned to benefit from this trend. The country could attract a large number of wealthy people – businessmen, professionals and retirees – which will accelerate the pace of recovery and economic growth. We anticipate a major influx of minorities from India, especially those who can afford to finance their stay in the UAE. They might shift to the UAE with their investments.

If this happens in a big way, all the vacant homes won’t be enough to host them. This will trigger a massive demand for new homes.

In general, this is how I see the recovery. However, each economic sector will react in its own way.

Let’s talk about aviation and tourism – the two most important sectors that contribute to the growth of Dubai’s economy, which have been hit hard by the crisis. How do you see them recovering?

Aviation and tourism are the biggest contributors to Dubai’s economy. These were also the very first sectors to be severely affected by the coronavirus pandemic, due to the ban on international flights effective from March 25, 2020. The move halted international passenger movement and as a result, hotels had to close doors and send their staff on unpaid leaves.

Most tourism attractions in Dubai have gradually reopened since June and the emirate is currently seeing a surge in visitors to its shopping malls, family entertainment centres and theme parks, with the region’s biggest summer extravaganza – Dubai Summer Surprises – driving domestic tourism.

With Dubai also reopening to tourists from July, visitors have started streaming in to enjoy the city’s sunshine, clean beaches, shopping malls, luxury hotels and amusement parks.

Before the end of the year, the business events season will begin. A number of exhibitions and conferences will start attracting businessmen and professionals to Dubai.

The local real estate and construction sectors are grappling with massive oversupply coupled with weak demand. What’s the way ahead?

Real estate and construction are major drivers of economic growth in Dubai and despite the Covid-19 crisis, these two sectors will continue to attract foreign buyers and investors. Here’s why.

The current oversupply situation in the residential real estate is of a temporary nature. The gradual influx of people into the city will absorb the existing housing inventories before the World Expo next year, when demand will start picking up. In general, smaller properties still fetch annual returns of 6 to 7 per cent – one of the highest rates in the world.

While the Covid crisis might have reduced the rates for certain properties to 4-5 per cent for a short while, it is still better than most developed real estate markets. So, despite the crisis, properties remain a strong investment.

Let’s take a look at the mortgage rates. The current mortgage rate is very low at roughly 2.5 per cent. So, if you are getting a rental income of about 7 per cent, then after paying the 20 per cent down payment, you can complete your EMIs [equated monthly installments] within 14 years without paying anything out of your pocket.

Also, high asset price appreciation is another factor that investors benefit from in Dubai. The market is the best regulated real estate market in the Middle East, with investors’ interests well protected. The outlook for the construction sector, which is linked to oil prices, remains good.

If oil prices exceed the break-even price barrier, local governments will invest in infrastructure and housing, which in turn will accelerate economic growth. Oil is trading at about $45 today, which is good news. Once the global economic situation improves, crude oil prices will go up further, which will help increase the current account surplus. So we have reasons to be optimistic.

The worst for us in the GCC is over. With the reopening of the economies, construction work is also picking up. So we are excited about the prospects.

Moving to the retail sector, another major industry that has been hit by the crisis, how do you see the recovery?

The retail sector, which is largely reliant on international and regional tourism, is set to recover fast once tourists start coming to Dubai. However, since most UAE residents are not travelling abroad, they are spending within the country. Dubai’s shopping malls are abuzz with activities, with families spending more time in malls than ever before.

An earlier UAE government survey had found that the country’s outbound tourism spend is expected to grow to 3.5 million trips involving $24bn by 2025. Due to Covid-19, most families are avoiding travel. A family of four usually spends around Dhs15,000 to Dhs20,000 on average during a summer holiday. Every year, around 300,000 to 500,000 families travel during the summer and winter holidays.

Using a conservative estimate, this translates to an annual spend ranging from Dhs4.5bn to Dhs10bn on air tickets, hotel booking, site-seeing, food and beverage, transport and entertainment.

Part of that money is now being spent in the domestic market on food and beverage, home furnishings, upgrading electronic gadgets and household appliances. So, shops and restaurants across the country will start making money in the fourth quarter once tourism picks up, giving a major boost to the retail sector.

What is your outlook for the shipping and logistics sectors?

With the reopening of the economies, the movement of goods has also picked up pace, reflected in the shipping and freight rates. The November freight rate at Jebel Ali port is poised to jump 400 per cent (four-fold) to $1,000 from $250 in October this year.

This reflects how quickly things are picking up. Dubai’s non-oil foreign trade values rose nearly 6 per cent to reach Dhs1.02 trillion during the first nine months of 2019, while volumes also grew by 22 per cent to reach 83 million tonnes during the period. With a V-shaped recovery, we project the shipping movements will resume to these levels by the end of this year due to growing consumption across the Middle East, Asia and Africa.

With people going back to work and companies’ cash-flows coming back to normalcy, things will surely bounce back due to the rise in consumption.

What role has the banking and finance industry played in the crisis?

Soon after the crisis hit, the UAE government announced a liquidity buffer to banks to help consumers and businesses in distress. The UAE Central Bank has provided a stimulus package worth Dhs256bn, which is helping banks and financial institutions manage the situation.

In their half-yearly results, all the UAE banks have reported profits. While profit declines were recorded by some lenders, the majority of them reported growth in net profits, despite impairments. Now with the situation stabilising, banks could look into supporting small and medium enterprises (SMEs) with loans and advances. Those businesses, which have survived the Covid-19 ‘stress test’, have all proven their resilience and are more agile and sustainable. With bank financing, they could now expand their businesses further, and also start hiring people.

Do you think these factors are adequate to jumpstart the economy? From a regulatory perspective, do you recommend any decisions that can further support the recovery process?

There are a number of initiatives that the government could undertake that might help the economy recover faster. The UAE could utilise its current competitive advantage of being a ‘safe haven’ by reviewing and reforming the visa regime to allow more foreigners who would like to move into the UAE for more than six months. Introduction of a six-month and a one-year visa could help in attracting international investors to stay in the UAE. If this could be made available the same way a three-month visit visa is issued, the UAE will see a massive influx of residents and investors, who might also buy homes to stay and do business.

This would also be a good time to look at reducing the government fees for processing documents. It takes more than two to three weeks and costs over Dhs7,000 (excluding the bank guarantee) to hire an employee and to complete all the services, including the labour permits, employment contracts, entry permits, medical, Emirates ID, medical insurance and visa stamping process.

These things could be streamlined with reduced costs. The government could also once again reduce the real estate registration fee to 2 per cent from the current 4 per cent. The fee was doubled in 2014 to 4 per cent to stop the practice of ‘flipping’ properties. Right now, since speculative buyers have disappeared from the market, it is a good time to revisit the fees.

Lastly, banks could provide additional funding to SMEs to help them grow.

This will help them expand business and grow their workforce, potentially rehiring those who were laid off to further support the economy.

A possible ‘second wave’ of infections in the UAE could rattle the short-term economic prospects, but Sajan is insistent that the longer-term outlook will not be affected.

“The coronavirus situation will not affect the long-term competitive advantage of the UAE. In all likelihood, it is a stress test for various economic sectors and businesses. Those who have attained economic sustainability will come back strongly. This is a wake-up call for businesses that did not attain sustainability,” he says.

‘OUT OF THE BOX’

Established by Sajan in Dubai in 1993 as a small trading outfit, Danube Building Materials has since expanded and diversified into a construction behemoth, with more than 10 businesses and brands in the GCC and an average annual turnover exceeding $1.3bn. The privately-held group, whose divisions span interiors companies Danube Home and Milano as well as real estate development business Danube Properties, employs 3,600 people across 10 countries in Asia, Europe and Africa.

In April, in a move that was widely reported in the region, Sajan announced that the company will not lay off any of its employees due to the Covid crisis. He confirms that the company has stuck to that policy so far – mainly to maintain motivation and ensure that staff feel appreciated.

“During the lockdown, we had reduced employees’ salary by 30 per cent. From the month of June, the salary has gone back to pre-Covid-19 level – at 100 per cent. I have also assured my employees that if the business losses that we incurred can be recovered to a certain level, I will repay the 30 per cent that was cut [in April and May] in full back to them,” Sajan says.

“Everybody is trying hard and hopefully we will manage their expectations,” he adds.

He points out that during a crisis, the most important thing for leaders to do is to keep their people motivated.

“A leader should face the crisis from the front and should not go into a shell. Even during the lockdown, I came to the office every single day since I had an official pass. This is my way of driving and motivating my employees,” he explains, adding he is “blessed to have a dedicated team of loyal directors, heads of departments and many other staff who are driving the organisation today.”

From a business perspective, what helped was also “thinking out of the box” to meet the demands in the market.

“We started a disinfection division where we started selling machines to disinfect spaces as well as masks and disinfection tunnels that we imported. This led to big revenues for the company,” reveals Sajan.

Despite the crisis, the company is expecting its overall business figures to remain positive for 2020.

“During the first half of the year – that included two months of complete shutdown, in some parts of our business, we have actually done better than last year’s first half. In other parts of the business, we were not so lucky. However, it balanced out well. In the remaining months for 2020, we might do better and the overall full year revenues could be better than what we had expected at the start of the Covid crisis,” he projects.

CONSOLIDATION ON THE CARDS

Looking ahead, Danube, which has been on an expansion spree during the last few years, will now focus on consolidation.

“For the next couple of years, we don’t have any expansion plans. We need to consolidate [the business] and ensure that we make the best out of what we have. We will wait for the global economy to really improve before we expand,” discloses Sajan.

“Once the dust from the Covid-19 crisis settles, we will look at the markets with a fresh eye and see the new opportunities. There will be re-adjustments and realignments, for sure. I know that opportunities not only come from the good days, they also come from crises. One has to have the foresight to tap the opportunities passing by. We will keep a close watch on the changing economic landscape and make calls when we are sure and comfortable.”

Danube Properties, which launched a Dhs400m project in Dubai called Olivz in March – and was 80 per cent sold out as of July – will also concentrate on existing projects for now.

“We are not looking at any new launches unless we get a JV deal – where it is someone else’s land and money and we only do the marketing for them.”

However, the company’s franchise plan will continue as is, he adds. “There’s no investment in that – we only have to set up the company for them and lend our expertise to that company – that will continue.”

Longer-term, Danube will focus on its three core businesses – building materials, interiors and real estate development.

“We will focus on growing bigger in what we do,” he says.

“As a businessman, I would want to continue what I am doing as long as I’m healthy and I would want to take this company further and make sure that it grows. The best thing is that my brother [Anis Sajan], son [Adel Sajan] and nephew [Azhar Sajan] are all involved with running the business. So I’m confident that the next generation is sorted. Also, we have harmony between us and so we are very confident that we will take Danube to a different level,” he says.

And what does Sajan count as his biggest achievement so far?

“The way I have brought the company to this level is something I had never anticipated. Today when you talk about Danube, people believe in the brand across all our verticals, they are happy with us. This does not happen unless those working for me are convinced that we have to deal with our customers with integrity – so they don’t promise what we cannot deliver. And this is my biggest achievement, because after 25 years, you look back and this is what stands out.”