Half a century was enough for Dubai to grow in the desert in the United Arab Emirates - today one of the most visited cities in the world by tourists. How did it happen that skyscrapers are standing in the former fishing village, exclusive apartments are being built on artificial islands. What will the future of the city be like when the oil runs out? Answers look for Abdulrazak Al Faris and Raimundo Soto in the book "The Economy of Dubai".
Oil is the answer to the first question. Oil deposits were discovered in Dubai in 1966. "Unlike other economies in the Persian Gulf, Dubai has successfully moved away from hydrocarbons by creating a world-class financial services cluster, trade and tourism," reads the book. Today, oil is responsible for no more than 4 percent. GDP of this emirate.
Dubai is one of the seven emirates that make up the United Arab Emirates. Measuring 828 meters, Burj Khalifa is the tallest building in the world.
Oil is the answer to the first question. Oil deposits were discovered in Dubai in 1966. "Unlike other economies in the Persian Gulf, Dubai has successfully moved away from hydrocarbons by creating a world-class financial services cluster, trade and tourism," reads the book. Today, oil is responsible for no more than 4 percent. GDP of this emirate.
Dubai - a global center of trade and tourism
The authors remind you that between 1975 and 2010 Dubai was one of the economies with the highest growth rate. However, the financial crisis of 2008-2010 dealt a strong blow and stopped expansion for a while , but the emirate rose from it. One of the evidence to overcome the crisis was the construction of Burj Khalifa - the tallest building in the world .
Al Faris and Soto point to three weaknesses in Dubai's development path:
First, it is proven that economic growth was mainly caused by a significant accumulation of physical capital and a massive influx of foreign workers, rather than by increasing productivity.
Secondly, Dubai also has a significant vulnerability to external shocks and domestic production is unstable despite limited dependence on the hydrocarbon sector.
Third, contrary to its historical dependence on the private sector, Dubai's economic growth in the decade preceding the global crisis was fueled by massive public investment in largely government-related entities operating in the real estate and construction sectors.
They emphasize that the lack of monetary policy resulting from a fixed exchange rate against the dollar has a major impact on the economy of the United Arab Emirates . In addition, in Dubai you do not pay taxes in the form of PIT, CIT, and until recently also VAT . Public tribute takes the form of payment for services, e.g. health care or education, as well as the lack of pensions.
Economic challenges for Dubai
The branches of the economy that have been identified as key to Dubai's future development are foreign trade, financial services and tourism . The first of them has been developed in this city since the mid-nineteenth century, when Dubai was still a fishing village.
" Dubai benefits from its strategic geographical location as well as from a developed transport and logistics system, which has made the emirate a leading hub for international trade," we read.
Al Faris and Soto emphasize that more than half of Dubai's exports and re-exports are focused on one commodity - gold and jewelry . "This puts Dubai in a risky position, because world prices for these goods are volatile," they write. Referring to tourism and trade, they add that the contribution of both sectors to GDP is similar, comparable to the revenues generated by construction and the real estate market.
However, the authors cite studies saying that two-thirds of companies in Dubai point to the workforce as the most problematic factor in business operations. They explain that it is about the government regulation of the labor market, including in terms of wages, as well as a ban on employing part-time employees in high season trading, e.g. before Christmas.
" The quality of the workforce has been identified as a major barrier to the economic development of trade and the financial industry, as well as other sectors of the economy," write Al Faris and Soto. They add that for decades, the United Arab Emirates relied on highly educated staff from Western Europe and low-educated workers from the Indian Peninsula.
"Development in the long term requires that Dubai develop its ability to provide its labor market with its own highly educated and productive staff capable of creating and managing new businesses," they add. Among the achievements they mention the reform of the education system and enabling primary and secondary education for all residents, regardless of nationality.
Energy efficiency is another challenge for Dubai . "Historically, the United Arab Emirates government has kept energy prices very low to support industrial development. However, suboptimal policies have contributed to unusually rapid growth in energy demand in the last two decades, and energy efficiency against international standards is low." . No wonder then that it is in Dubai that an experimental sustainable city is being created .
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