The success story of Dubai over the past few decades is truly one of luck, proper planning, and hard work. What was once a sleepy, and barren strip of land just a few decades ago, is now home to one of the world’s largest and most modern metropolis. The government of Dubai, is essentially a semi-autonomous province within a larger group of emirates known as the United Arab Emirates. As a result, the emirate of Dubai, maintains a lot of control over its economic policy. Taking the initiative, the emirate of Dubai, was one of the first emirates to realize that it needed to diversify its economy away from an unhealthy dependence on oil, towards more sustainable forms of economic growth. Dubai is a well recognized name in global trade, but how is doing business with Dubai?
Economic Intervention Plays Vital Role in Business in Dubai
Due, to extensive government intervention, the economy of Dubai has become significantly more diversified in terms of how it generates its revenues. For example, according to the Middle Eastern business news publisher AMEinfo, revenues from oil and natural gas currently account for less than 6% of Dubai’s revenues. While service sectors such as, trade (16%), and financial services (11%) are the largest contributors to Dubai’s economy, according to figures published by the Dubai Chamber of Commerce. A City Mayors survey rated Dubai as 44th among the world’s best financial cities in 2007 while another report by City Mayors indicated that Dubai was the world’s 33rd richest city in 2009, in terms of purchasing power parity (PPP). Dubai is also an international financial centre and has been ranked 37th within the top 50 global financial cities as surveyed by the Mastercard Worldwide Centres of Commerce Index (2007), and 1st within the Middle East. The biggest sector of Dubai’s economy today is the tourism sector, which is the major backbone of Dubai’s economy.
Tourism Tops Business in Dubai
As of 2007, Dubai was the 8th most visited city of the world, and Dubai is expected to accommodate over 15 million tourists by 2015, according to Arabian Business magazine. Dubai is the most populous emirate of the seven emirates of United Arab Emirates and it is distinct from other members of the UAE in that a large part of the emirate’s revenues are from tourism. As a result, Dubai has been called the “shopping capital of the Middle East”. Dubai alone has more than 70 shopping malls, including the world’s largest shopping mall, Dubai Mall. The city draws large numbers of shopping tourists from countries within the region and from as far as Eastern Europe, Africa and the Indian Subcontinent. While boutiques, some electronics shops, department stores and supermarkets operate on a fixed-price basis, most other outlets consider friendly negotiation a way of life.
However, for all its positive advantages, the Dubai economy has gone into a major slump in the last couple of years. Dubai’s property market experienced a major downturn in 2008 and 2009 as a result of the slowing economic climate, with some properties losing as much as 64% of their value from 2001 to November 2008, according to the British newspaper Daily Telegraph. An article in the Wall Street Journal in October 2009 reported that Dubai’s economy, heavily dependent on real estate where prices have fallen 50% in a year, has been badly hit by the global financial crisis, unlike its wealthier neighboring emirate, Abu Dhabi. Dubai has $50 billion of debt coming due in the next three years, according to Standard & Poors. But its total debts are estimated to exceed $80 billion. In another article in October 2009, Reuters reported that one in four homes is vacant in Dubai and a quarter of office space lies empty due to oversupply, and additional supply coming onto the market will continue to put pressure on prices. All these trends point to a protracted downturn in Dubai’s economy. However, since most of Dubai’s economy is made up of international trade and services, there is still an opportunity for foreign businesses and investors to take advantage of opportunities in Dubai.
The most promising areas of Dubai’s economy today are likely to be financial services and tourism, since they are the least affected by the domestic real estate market. Since, most of the financial activity that took place in Dubai was based on offshore assets. For small businesses looking to sell consumer goods, Dubai’s vast shopping malls offer a good distribution platform for selling goods a wide range of consumers. While trying to invest in the local economy might not be such a good idea, there should be plenty of opportunity to service Dubai’s international clientele. In the meantime, it will be interesting to watch how business in Dubai tries to rebound with the global economy.