Thursday, December 9, 2010

Analysis of the phenomenal growth of dubai in the last four Decades

fig 1: Palm islands (source: www.nakheel.com )                                                        

Dubai the second largest Emirate of UAE (United Arab Emirates) is considered as one of the top notch cities in the world. Known for its unique mix of extravagance, charm and elegance it equally attracts tourists as well as business travelers and professionals from all across the globe. But few decades back it was among the least developed nations in the world with economy primarily dependent on agriculture, animal husbandry and pearl trading. The turning point  for Dubai came in 1973 when oil and natural gas was discovered and from that point there was no looking back for the Emirate state. The following blog by the author will make an attempt in unwinding the success saga of Dubai and try deciphering various factors that helped morphing the desert state into such grandeur.



Social and Political apparatus: - natural resources coupled with strong, visionary and stable administration can do real magic and nothing exemplifies this better than Dubai. Dubai as a state was formed in 1971 and since then it has constitutional monarchy. In early 1970s oil and natural gas was discovered in Dubai, and within a very brief time of 1973 to 82 when the oil price was very high  made huge economic development. The oil revenue was invested in developing economic and social infrastructure, providing high salaries, and in other social welfare schemes. This resulted in a very stable and peaceful political and social atmosphere (Mohamed Shihab). The ruling class of Dubai had understood the fact that since the overall oil resources in Dubai is just 1/20th of neighboring Abu Dhabi; state economy cannot depend on oil revenue for a much longer time. Hence they always emphasized on diversification of economy into various other alternative sectors such as trade, tourism, real estate, financial services etc. (Michael Matley and Laura Dillon, 2007 )



Factors that shaped the  growth journey of  Dubai


Oil and natural gas:- Oil and natural gas in Dubai was found in the 60s and since then had played a very important role in Dubai’s economy. In the time of 80’s 55% of Dubai’s GDP came from the oil sector but with time its significance kept on decreasing. It contributed, 10% of GDP in 2000, 5% in 2005 and just 2.1% in 2008. (Paul Holdsworth, 2010). The constant decrease in the contribution by the Oil and natural gas can be attributed to the fact the economy had diversified into various other sectors such as trade, tourism, real estate and finance etc. With the current estimate it can be predicted that the oil and natural gas resources in Dubai will not last much longer.



Ports:- Dubai is one of the leading port cities in the world. After Hong Kong and Singapore it’s the 3rd largest re export center in the world. The 1st ever port namely port Rashid was constructed in 1972. Then in 1978 the Jebel Ali port was constructed. Jebel Ali is the biggest port in the Middle East and the biggest man made harbor in the world. The port is also surrounded by a major industrial zone having some 5,500 companies from 120 countries and an international airport. The leading port companies in Dubai  were Dubai ports authority and Dubai ports international which later on merged to form Dubai ports world or DP world. DP world operates 49 ports across Dubai and internationally and handles approximately 50 Million TEUs #. (Abdul Basit, 2010)



Business and commerce:- Dubai has evolved as center of commerce for the Middle East. Dubai’s political apparatus had played a very important role in this transformation. The earlier point discusses about the Jebel Ali free zone where companies from all around the world get tax benefits and hassle free liberal environment to conduct business. Another important step taken was the construction of DWTC (Dubai World Trade Center). The 39 storey building was the pioneer center in conducting business meetings, exhibitions, conferences and corporate events in the Middle East region (though today other centers like ADNEC are catching up fast). DWTC is home to many corporate offices and embassies also, hence played an important role in exposing Dubai to the business and investor communities spread across the globe. Dubai had invested hugely in constructing business parks for dedicated industries. One such park was opened in 1999 namely Dubai Internet City. It is home to the offices of some of the leading software and IT companies in the world such as Microsoft, IBM, Oracle, Sun Microsystems, Cognizant, Siemens etc. Similarly other such business parks include Dubai Media City, Dubai Knowledge Village, Dubai Land, Dubai Health Care city, Dubai Studio City etc. By 2006 more than one fourth of the fortune 500 companies in the world were having its base at Dubai. (Michael Matley and Laura Dillon, 2007 )



Tourism:- With time Dubai had morphed into one of the biggest tourist destinations in the world. Many people even consider it giving fight to Las Vegas as the tourist capital of the world. With lots of state of the art hotels, spas, restaurants, fashion boutiques, shopping malls and exciting activities like dessert safari, ice skating and camel racing etc it is today one of the most preferred tourist destination in the world. The emirate state was visited by some seven Million visitors in 2007 and close to 10 million visitors in 2010. With more than 450 hotels and lot of projects still under way Dubai targets 15 Million visitors by 2015. Dubai also attracts a lot of business travelers from all across the globe to conduct their meetings, exhibitions and other corporate events in Dubai. The credit for this can be given to the state of the art convention centers like DWTC and the heavy marketing done by the DTCM (Dubai tourism and commercial marketing) in promoting Dubai as a business travel destination. Dubai’s journey as a successful tourist destination started in the mid 90s. In 1997 the Jumeriah group was established which develops and operates luxury hotels in Dubai as well as in other parts of the world. The Dubai govt. had invested in many of the magnificent projects like the Burj Al Arab, Palm Islands, Snow Mountains, and Jumeirah Medina resorts etc. These coupled with heavy marketing and an efficient airline in the form of Emirates airline gave a huge boost to the tourism sector in Dubai. (Michael Matley and Laura Dillon, 2007)


•  Financial sector:- Financial sectors are other important constituents of the Dubai’s economy. In 2005 financial sector contributed 10% to the GDP of the Dubai. There is also a strong correlation between the real estate sector and financial sector. Dubai aspires to be the financial hub of Middle East. The Dubai Financial Market commenced its operation in 2000. It received a FDI inflow of 12 Billion US dollars in 2005.



Why Dubai?

One important question that always strikes is why Dubai had been so successful in making changes so fast where as other Arab states which equally looks attractive on paper could not make such an impact. There are following reasons for that:-


Speed: - Dubai is well known for implementing its projects with phenomenal speed. From project launch to its implementation things are done with great speed.

Truly cosmopolitan culture: - Dubai is a place where people from different part of the world came and mingled with each other in a much open fashion. Where as in other Arab states the expatriates were restricted to their own boundaries, in Dubai they mingled well with the locals as well as other expatriates giving an unique cultural edge to Dubai. Other states in the Middle East lack such an exciting cultural platform.

Safe haven in the midst of a politically disturbed region: - Middle East is high up on the strategic agendas of the whole world because of its natural resources, but at the same time political and socio economic systems of these nations make others a bit apprehensive of them. Dubai was unique in this regard because in between a politically disturbed mosaic it provided a safe and stable place which attracted every one, investors, tourists, professionals , diplomats, sportsmen, artists alike towards itself from all over the world.

Transparency: - While other gulf states are notorious for their transparency in govt. activities Dubai had tried hard to build govt. institutions which are very transparent and open in its approach.



It was the state of the art infrastructure, open and cosmopolitan culture, stable and efficient government, zero business and corporate taxes that made Dubai as one of the most sought after places in the world. The journey of Dubai in the last four decades is one of the most phenomenal success stories of the world but it had its own drawbacks. In the last two years Dubai had undergone a real estate bubble burst that had impacted its economy badly, fate of many of its big real estate projects seem to be doomed. The Emirate state had constantly been accused of human right abuses of its expatriate workers, as well as lack of quality in many of its projects. Last year with the help of financial support from Abu Dhabi its economy seems to be recovering strong  and atmosphere again seems to be optimistic. Dubai has a long way to go. The given blog analyzed the success story of Dubai so far where as the next one will analyze the future growth prospects and strategy for Dubai.


# The twenty-foot equivalent unit (often TEU or teu) is an inexact unit of cargo capacity often used to describe the capacity of container ships and container terminals



Reference:-

1> Mohamed S, Economic development of UAE, United Arab Emirates: a new perspective, P-250, available at < http://www.uaeinteract.com/uaeint_misc/pdf/perspectives/12.pdf  >

2> Michael M and Laura D, 2007, Dubai Business Strategy: past, present and future, Harvard business school,P-1, available at < http://belfercenter.ksg.harvard.edu/files/matly_paper1.pdf >

3> Paul H, 2010, Oil Makes Up 2% of Dubai GDP Post-Diversification, gulfjobsmarket.com, available at < http://news.gulfjobsmarket.com/oil-makes-up-2-of-dubai-gdp-post-diversification-7861765-news >

4> Abdul B, 2011, DP World container volume hits 
all-time high, Khaleej Times Business, available at < http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/business/2011/January/business_January436.xml§ion=business >

5> Michael M and Laura D, 2007, Dubai Business Strategy: past, present and future, Harvard business school,P-3 to 4, available at < http://belfercenter.ksg.harvard.edu/files/matly_paper1.pdf >

6> Michael M and Laura D, 2007, Dubai Business Strategy: past, present and future, Harvard business school,P-3 to 4, available at < http://belfercenter.ksg.harvard.edu/files/matly_paper1.pdf >

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