Introduction
Dubai is a very populous city in the United Arab Emirates (UAE) and is one of the seven Emirates in the United Arab Emirates. The city lies on the Persian Gulf located in the Arabian Peninsula. Historically, it is believed that the city has been in existence at least for 150 years before United Arabs Emirates was formed. She shares economic, legal, military and political functions with the other six emirates which assume a federal authority (World Bank, 320).
Dubai has the largest number of population and is the second largest of the emirates following Abu Dhabi in geographical area. Dubai and Abu Dhabi are the only two emirates that can veto power over the other emirates over critical issues concerning the country and of national importance. The Al Maktoum dynasty have rule over the emirate since the year 1899. The current ruler of Dubai, Mahammed bin Rashid Al Maktoum also acts as the United Arab Emirates president and Prime Minister (International Monetary Fund, p.95).
The United Arabs Emirates gain its revenue from real estate, trade and financial services. Dubai’s revenue from the oil industry only amounts to a mere 6% and its economy is valued at US$ 37 billion in the year 2005. Since then it has enjoyed marvelous construction boom and this has contributed largely to the economy of the emirate. The emirate has attracted attention from all corners of the world because of its innovative construction projects and also through sports events. However, this recognition coincided with issues of human rights because most of its labor force is foreign. This came at a time when the emirate became a major business hub in the world (Kelly, p. 102).
Dubai’s economy
Dubai’s economy was valued at US$ 37 billion in 2005. It is important to note that Dubai’s economy was based and founded on the oil industry, but in modern times, revenues from the industry account for only or less than 6% of the economy. Dubai has the capacity to produce over 240,000 barrels of oil on a single day and a significant amount of gas from its offshore fields. Dubai only shares 2% of the gas revenues of the entire United Arabs Emirates. There is concern that the emirate’s oil reserves are diminishing and are supposed to be fully exhausted in twenty years (Economist Intelligence Unit, p. 125).
Dubai’s greatest revenue earners are real estate and construction which have made the emirate gain international recognition. This sector accounts for 22.6% of the emirate’s revenue. The other top earners of revenue are traded which accounts for 16% and financial services which accounts for 11% of the emirate’s revenue. Dubai also has a number of re-exporting countries including Iran, Saudi Arabia, India, the United States of America, China, and Japan (El-Din, p.125).
Dubai and Deira were important to call ports for Western manufacturers and this is evidenced by the fact that most of the financial institutions and financial services companies were headquartered around the port. The emirate maintained its significance as a trade route during the years the 1970s and 1980s. Due to its policy in free trade in gold, it acted as a busy smuggling port of gold into India because by then importation of gold into India was banned by the government.
Dubai has a port that was constructed in the 1970s known as Jebel Ali. This port’s harbor is recognized as the largest man-made harbor all over the world. It is also one of the most highly ranked ports in the world in terms of container traffic supporting. Apart from that Dubai is currently developing gradually into a hub of service industry key among them being finance and information technology. Its information technology is recognized as being one of the most important hubs because it has entities like The Dubai Internet City and Dubai Media City which are all part of Dubai Technology, Electronic Commerce, and Media Free Zone Authority, and its members include such big names as Oracle Corporation, EMC Corporation, IBM and Microsoft. The membership is also extended to media corporations like CNN, MBC, Assorted Press, and BBC (Kelly, p. 198).
In 2000, the emirate established The Dubai Financial Market, which is a secondary market of bonds and securities which are both local and foreign. Its trading volume was reported to stand at shares worth 400 billion which were worth US$ 95 billion in 2006. Its market capitalization stood at about US$ 87 billion. The government amended policies that oversaw the emirate diversify from a trade-based economy to an economy that was both service-oriented, but which still relied on oil has improved the country’s real estate industry and this has seen the appreciation of property from the year 2004 to the year 2006. The economy’s development of the real estate industry has seen the construction of one of the biggest skyscrapers in the world. An example of this building includes Burj Dubai, Emirates Towers, Burj Al Arab, and the Palm Islands (Rugh, p.69).
Dubai’s trade sector
Since ancient times, the UAE has been a center of trade and there was the trade of pearls, oil, and copper and these were considered the country’s most important commodities as far as trade was concerned. Trade has withstood the test of time and today it is one of the most important cornerstones of the country’s economy. Most of the country’s oil production is exported to Japan which accounts for 62% of the country’s oil production (World Bank, p. 320).
The major Dubai imports include audio equipment, machinery, electronics, textiles, vessels, motor vehicles, and aircraft among other imports like base metals. The major Dubai imports include base metals and textiles. Dubai is also involved in re-exporting and the major re-exporting commodities include textile, audio equipment, machinery, and electronics. Vegetable products are also highly re-exported (El-Din, p.196).
Dubai’s non-oil trade partners are mostly drawn from East and South East Asia where they exported the largest percentage of their products. Other places where there is a significant amount of export by Dubai include Western Europe and South and West Asia. The highest percentages of imports by Dubai are from East and South East Asia and followed by Western Europe (International Monetary Fund, p.66).
However, Dubai’s trade in gold declined from the year 1998 which was rooted in the drop in value of the Indian Rupee against the dollar and this contributed highly to Indian demand falling for the gold, which Dubai used to re-export to the Indian market. India also passed a policy that allowed Indian banks to import gold bullion from European countries and this led to the demand for gold in Dubai falling still further (Economist Intelligence Unit, p. 201).
Factors contributing to Dubai’s success after diversifying from the oil industry
Multinationals attraction
In recent times, Dubai has stood out as the leading and unchallenged commercial hub in the region of Gulf. It has made itself home to the modern economy of the Middle East and this has made it the undoubted role model of the other neighboring states and other emirates as well. It is this spirit of the development of the economy that has led many multinationals to focus on it and make it its regional headquarters. Such companies like HP, Citigroup, Microsoft and Daimler Chrysler have found their presence in Dubai and this is proving to be profitable to both the emirate and the companies themselves. It has led to the country is one that is a force to reckon with and with the companies of that stature willing to invest in the country, most experts view it as a positive incentive of inviting many more foreign investors which would make it even a stronger economy. Most of the economies of the world which are not in the developed nations league desire such an international recognition that would make them appeal to foreign investors. However, Dubai has proved that it does not need to be marketed abroad as many multinationals have already recognized the emirate’s potential in business (Kelly, p. 287).
One of the most prolific reasons for this positive recognition is the development conscious government which is willing to do even more. The building of the Jebel Ali Port was a pioneer in this trend and it led to the immediate and active rejuvenation of the emirate’s business world. However, it is important to note that Dubai has not started this due to its oil abundance because the government has already stated that it is well is diminishing and may not be yielding after twenty years. It is also important to note that the government is not relying on its oil industry anymore because the oil industry does not account for more than 6% of the emirate’s revenue (United Nations, p. 251).
Multinationalstheir have proved to have played a very important role in the strengthening of Dubai’s economy. It is always a good incentive when multinationals of such caliber are attracted to a place because it makes the whole world have the confidence in the economy. It is in this respect that Dubai is expecting to host many other multinationals and hence be headquartered for many multinationals for the region (International Monetary Fund, p. 82).
Good leadership
Sheikh Mohammed bin Rashid Al Maktoum is the ruler of Dubai and also is the president of the Unitedsectors, the fastest-growing Arabs Emirates, and also the Prime Minister He has proved to be a very development-minded person and has seen his emirate emerge as a force to reckon with in the global trade. He is also an outgoing man and has seen the emirates get into good and cordial relationships with many countries, especially the countries that are developed. With this political friendship and goodwill from those countries, the countries have given a go-ahead to many foreign investors to invest in the emirate and this has proved to be very beneficial to the emirate. He is also a hardworking man and has stated that he goes by himself to check on the progress of various projects that have been initiated in the emirate. Such kind of leaders is very good for the development of any economy more so if the economy is still struggling to come to terms with the realities of globalization and world trade. It is his spirit that has kept the country on the threshold of becoming a world business hub and this has already started to bear fruits because of the presence of numerous multinationals which have headquartered the emirate in the region (Kelly, p. 326).
He is also a leader who can interpret the times and use the modern times as a way of ensuring that the emirate will always be leading as far as business is concerned. It is in this respect that he shifted his main revenue sources from the oil industry to other sources of revenue. One such avenue is the real estate and construction sector which has fully raised the economic standard of the emirate. There has been the construction of various monumental buildings and skyscrapers that have amazed the world and have left no doubt which direction the emirate is taking. He has also seen the future of the hospitality business and this is the reason which has brought him to make hotel constructions that are making the world wonder just what next is the emirate up to (Economist Intelligence Unit, p. 165).
It is important for a growing economy and an economy which is ambitious to have good leadership and this has been afforded to the Dubai economy. It is also in this respect that people all over the world are sure that the economy will grow from strength to strength and this means that many people especially the citizens of the emirate and foreign investors have confidence in the economy. It is in this spirit that the economy expects to raise its investment both foreign and domestic since investors have faith in the economy (El-Din, p. 258).
Foreign Investment
Dubai has witnessed a large presence of foreign investment and hence is assured that its economy is well protected from fluctuating. This has brought a lot of foreign investment because of the stability of the economy. With the increased level of foreign investment still witnessed in the country, the economy is growing stronger day in and day out. Right now, the Dubai economy is one of the forces to reckon with in world economics. Their investments policies also attract a large number of international investors and this being championed by the presence of various multinationals in the country. It is also this factor that will ensure that most other investors will want to make an entrance to the economy (Rugh, p. 69).
There are a number of multinationals that have already established themselves in the economy. Dubai has been headquartered by numerous multinationals and this has raised the level of confidence of other foreign investors and after seeing the success of their competitors, they have to ask themselves how they can enter into that gold mine of an economy. This has brought about a lot of competitiveness in the economy which is very good for the economy (International Monetary Fund, p. 93).
Ideal business locale
Dubai is conveniently located at the crossroads whereby it can be accessed from Africa, the Middle East, the Confederation of the Independent States, and the entire Indian Subcontinent. With supreme positioning, many traders find themselves converging in Dubai and thus ensuring that Dubai has a thriving trade sector at all times of the year. It is in this respect of the locality of the emirate that the country is flocking with multinationals and foreign investors who are interested in grasping a piece of the throbbing business hub. It is for this reason that many multinationals have opted to headquarter the emirate because of its accessibility to many parts of the world as well as acting as a shipping route for major world economies. The country is also doing business with some of the major economic countries in the world including Japan and this is because, the transportation of the goods from Dubai and to Dubai is easier especially after the construction of the Jebel Ali Port which turned out to be a major docking port in the world (El-Din, p. 298).
Dubai Financial services
There was the establishment of the Dubai International Financial Center (DFIC) a few years ago. This turned out to be one of the most revenue-producing sector of the economy and the country no longer had to depend on oil as their main source of revenue. Currently the financial services sector is the leading revenue earner in the country. This is because it has proved to the world that it is one of the fastest growing international centers of financial services and it is gearing to earn the same stature as the financial centers in New York, Hong Kong, and London. It is already efficiently serving the region inclusive of East Asia and Western Europe (Rugh, p. 69).
It has attracted most of the high caliber firms around the world and this it started since its establishment in the year 2004. A major milestone is the opening of NASDAQ Dubai which was formerly known as Dubai International Financial Exchange (DIFX) which was opened in the year 2005. This is seen as a vision of the ruler of the emirate to create a progressive environment for the development of the economy and the entire UAE country and also in the inclusion of the wider region.
Dubai offers such financial services as corporate banking, investment banking, and private banking in its banking industry. They are also involved in capital markets and also offer services of asset management. There are other sectors like Islamic Finance and professional services. It is also involved in Insurance and Reinsurance and also funds registration (Economist Intelligence Unit, p. 198).
Dredging of the Creek Water Way
The emirate embarked on an ambitious project of dredging of the Creek Water Way and this paid off handsomely because it immediately made the emirate the hub of water freight in the Middle East region. This combined with the accessibility to the rest of the world that is afforded to the emirate, has paid off handsomely and this has also paid a great role in encouraging foreign investors to invest in the country. The easy shipping that is afforded to the emirate since its construction of the Creek Water Way has made the trade thrive profoundly in the country. This has played a major role in the thriving economy which is enjoying some of the very best in terms of trade with other countries as well as the service industry (El-Din, p. 365).
A thriving service industry
After the government realized that their oil reserves were diminishing, they concentrated on other avenues of earning revenue. They ventured into an economy that thrived on very well on the service industry. They ventured into such sectors as tourism and financial services. It is also in this effort that the government embarked on a project of building the most sophisticated and appealing hotel that the world had not experienced for a long period of time. The study has shown that the leading revenue of the emirate is the financial services that are offered to a number of countries in the region as well as to a number of Western European countries. This service has been likened to leading stock exchanges of the world such as the New York, Hong Kong, shortly, and London stock exchanges which have received world acclamation for the services that they have done to the world of finances. It is no wonder that the Dubai financial services are headed for that stature and with the trend of the economy’s growth that is expected to be in the near future (International Monetary Fund, p. 95).
Dubai is also one of the world’s leading tourism destinations in the world. This is because they have incorporated new technology and their scenic views to come up with one of the world’s greatest tourist attractions in the world. There is a skiing resort in the desert and this has played a lot in attracting potential tourists in the world. This is notwithstanding some of the best hotels in the world that have also played a great part in attracting tourists from all over the world. There are a number of hotels that have designs that have never been seen before all over the world (Kelly, p. 215).
Jebel Ali Port
The port of Jebel Ali has also helped in elevating Dubai’s economy since it is one of the busiest freight hubs in the world and the leading hub in the Gulf Region. It is estimated that every sailor having completed his or her tours of shipboard should have visited the port at least once. This means that the port is much frequented and this means good business for the emirate. It is also said to be the biggest harbor that is man-made in the world and hence raises the business level in the region. The ships that harbor at the port mean a lot of business too to the emirate. This is one of the reasons that Dubai has excelled even after diversifying its economic basis from the oil industry. Most important the United States Navy has identified the port as their preferred docking port in the world other than the United States ports (El-Din, p. 265).
Dubai tax policy
Another factor that has contributed to the enormous growth of the emirate’s economy is the tax policy that is enjoyed by various businesses and the foreign investors in the market. Dubai having come to the terms that they cannot rely on the oil industry anymore, they started finding ways of diversifying their economy and thus they also wanted to venture into trade. They also recognized that trade would only thrive if they could attract foreign investors in multitudes and this is when they came up with a tax policy that gave corporations as well as businesses tax incentives. This has seen the whole world try to get a glimpse of this free trade zone (Economist Intelligence Unit, 214).
This has also helped in the increased number of foreign investors in the emirate because they have seen the profits leap from this kind of arrangement which is the only one of its kind in the modern world. Many multinationals have headquartered the emirate for the region because they know that many traders will flock into the place to take advantage of the tax incentives that are offered in the emirate. This is one sure way of the multinationals ensuring that their sales are high and that means big business. However, this also is very beneficial to the economy because it boosts its service and hospitality sectors not to mention the financial services that the financial institutions in the country will have to offer to those traders (Rugh, p. 59).
Jebel Ali Free Zone
Jebel Ali Free Zone is a free trade zone that is located at the Jebel Ali location of Dubai. This area offers a lot of services to international corporations which would want to start a base in the emirate. It has played a great role in ensuring that the economy of the emirate is growing at a very high rate and it is also seen as a pillar of the economy’s trade center. Apart from the fact it offers tax incentives to these multinationals, it also offers such services as distribution of the multinationals goods as well as warehousing the multinationals goods. This means that the multinationals are attracted to the emirate because of the services but most importantly because of the tax relief and incentives the multinationals are afforded in the emirate (Kelly, p. 358).
This place also doubles up as a resourceful employment place for the citizens of Dubai because of the numerous job opportunities that are available in the area. There is also an educational opportunity for the citizens because in that area there are a number of corporations that offer education to the citizens who are willing to learn. It is important to note that multinationals only give education as to the basis of their operations a good example being Microsoft Campus in the free zone which offers Information Technology-related courses.
Dubai Internet City (DIC)
This is also another source of Dubai’s success in trade and service provision. The government has realized the trend in which communication was taking direction, they did not want to be left behind and at the same time, they saw an opportunity of making the economy grow by ensuring that citizens were actively involved in and that meant that there were opportunities of employment to the people. This was initiated as a strategic base for the companies that have noted the potential and the communication requirement of the regional market in internet services (Economist Intelligence Unit, p. 235).
This has also attracted a multitude of international companies, chief among them being Microsoft, Sun Microsystems, Siemens, IBM, Nera Telecom, Nokia, Oracle, and HP. In the same respect, there are also a number of the United Arabs Emirates communication companies that are incorporated in the Dubai Internet City such as Acette and I-Mate. The government started this establishment with the vision that companies would avail themselves of a contract that would benefit Dubai in terms of custom-related issues and taxation that are mandated by the law for 50 years. This arrangement is mutually beneficial to the government and corporations. This has also ensured that Dubai has had several advantageous economical benefits that they could not have had if they had continued to rely on the oil industry (Kelly, p. 326).
Dubai Media City (DMC)
Just like the Dubai Internet City, Dubai Media City is located at the Free Zone and is also another initiative of the government. It was started to promote Dubai’s foothold on media services and this has seen it become a media hub in the region and the flocking in of major media organizations in the world. This has helped elevate the economy because the government has laid the principles as those of the Dubai Internet City.
There are a number of media companies in the DMC including CNN, BBC, APTN, Reuters, GeoTV, and Bloomberg which are all broadcasting networks and press service organizations. There are also other forms of media represented in DMC which include print media and radio. All this has helped in elevating the economy by affording employment opportunities to the citizens of Dubai and also using the service and financial service sector in the economy (El-Din, p. 365).
Diminishing oil reserves
However, the most important factor that has led to the success of the emirate’s economy is the diminishing oil reserves in the country. The government back in the 1970s knew that the oil reserves of the emirate were diminishing and hence their success can be said to be the case of necessity being the mother of invention. The government prior to its recent economic boom relied heavily on the oil industry which oversaw exhausting the oil reserves. They had to come up with new ways of earning revenue all they would be subjected to poverty that would lead them to have severe and difficult times ahead (United Nations, p.251).
It was in this spirit that the government decided to improve the sector of trade and this led to the establishment of the service industry. They also tried other sectors which included the real estate and construction industry which together has brought a lot of revenue to the emirate. With the tax incentives to corporations, they also attracted major multinationals that have contributed immensely to the growth of the economy from strength to strength. This has brought about the starting of the financial services which is afforded to private and corporate customers since there is a lot of trade going on in the emirate (Economist Intelligence Unit, p. 256).
Remarkable growth rate
In conclusion, the study has concluded that Dubai has experienced a remarkable growth rate and has emerged as the top economy in the region. This is because of its incentive to develop and hence the fruits of the government’s labor have been borne and now the economy is enjoying all the glory. It has come to be known as one of the busiest business hubs in the world and this is the main reason why it has raised its standards to such a remarkable level in just a few years. Its main sources of revenue include services industry, trade, and offering of financial services.
Works cited
- Economist Intelligence Unit. United Arab Emirates Country Profile. London: Economist Intelligence Unit, 1998.
- Economist Intelligence Unit. United Arab Emirates Country Report. London: Economist Intelligence Unit, 1997.
- El-Din, Amin Badr. “The UAE Offsets Program.” Middle East Policy. Vol. 5, 1997.
- International Monetary Fund. Direction of Trade Statistics Yearbook. Washington, DC: International Monetary Fund Press, 1999.
- Kelly, J.B. Arabia: The Gulf and the West. New York: Basic Books, 1980.
- Rugh, William. “The Foreign Policy of the United Arab Emirates.” Middle East Journal. Vol. 50, 1996.
- United Nations. Human Development Report. London: Oxford University Press, 2000.
- World Bank. World Development Indicators 2000. Baltimore: Johns Hopkins University Press, 2000.