Understanding Dubai’s Economy – Why Dubai is Rich Without Oil?

Just over 50 years ago, oil was discovered in Dubai. It helped build this modern metropolis but the resource accounts for less than one percent of the state’s GDP. The city is now a global business hub and luxury tourist destination that boasts the world’s tallest building, host luxury desert safaris and a police force that drive super cars.

One of the main sources of Dubai’s wealth is from its prosperous maritime activities. It was once a modest fishing town, which by the early twentieth century had become an important trading port. Its location, close to both Iran and the entrance to the Persian Gulf, attracted merchants from all over the region.

Today, Dubai’s main cargo port Jebel Ali is the busiest port in the Middle East and arguably the United Arab Emirates’ most valuable commercial asset. A big reason for the shipping terminal’s success is that it’s located inside the Jebel Ali Free Zone, also known as Jafza.

Spread over 57 square kilometers, Jafza is the world’s largest economic free zone. It’s one of more than twenty other industry specific free zones dotted around Dubai all set up by the government. These zones attract businesses with tax breaks, custom duty benefits and no foreign ownership restrictions, all within a developed infrastructure that is run by an independent authority, helping streamline bureaucracy.

Within Jafza are now several thousand companies, accounting for more than 20% of total foreign investment in the UAE. The zone employs close to 150,000 people, helping generate more than $80 billion worth of trade, which accounts for 21% of Dubai’s GDP.

Extensive development in the city has come at a cost however. The UAE has the world’s sixth largest migrant population, with foreigners making up more than 80% of the people living in the country. The majority of that workforce is made up of South Asians working on construction sites for low wages and long hours in poor conditions, often unable to return home because their passports are withheld. But in 2017 following global criticism, the UAE’s Federal National Council passed a new bill that gives workers 30 days paid vacation every year, one day off a week, medical insurance, and a contract before starting work. But for Dubai’s rulers and investors, this cheap workforce helped it become one of the world’s fastest growing metropolitan areas.

It’s important to note that while Dubai is the largest and most populous state in the UAE, the richest state is Abu Dhabi, the country’s capital city. It currently holds nine percent of the world’s proven oil reserves. Back in the 1930s Abu Dhabi began to discover its rich oil reserves while its neighbor Dubai had failed to find any. This occurred around the same time as the decline of the pearl industry, the gulf’s main source of income, creating friction between the two emirates.

Tensions escalated into an armed conflict following a border dispute in 1947. British intervention did lessen hostilities, but it didn’t stop Dubai falling into a deep depression, leaving many residents starving and having to flee to other parts of the gulf. It was clear that something had to change. Enter Sheikh Rashid bin Saeed Al Maktoum.

Soon after becoming the ruler of Dubai in 1958, he decided to go on a bit of an infrastructure spending spree. To do this, the Sheikh took out big loans in addition to the money still coming in from the state’s maritime trading activities. He spent the money establishing private companies which then built electricity lines, telephone services, more ports and Dubai’s first airport. Much of the development in Dubai and across the Emirates has been facilitated by the British government.

The two countries’ relationship began back in the late 19th century when the U.K. agreed with the Sheikhs to establish the region as a British protectorate in return for diplomatic concessions. It’s clear to see that the U.K. still maintains a strong business relationship with the Emirates, particularly Dubai. That is the London Gateway Port, a new deep-sea container terminal, 25 miles east of the city. It’s one of the U.K.’s main links between London and 90 other cities around the world and yet it’s owned and operated by DP World, a company based in Dubai.

It was 1966 when the U.K. and Dubai relationship became increasingly lucrative following the gulf state’s discovery of its first oil field. The city though, wasn’t dependent on selling oil in order to thrive. Instead the oil was used to fund Sheikh Rashid’s existing strategy of basing Dubai’s economy around trade, tourism and finance.

That decision now looks like a good one as the world increases its use of renewable energy and moves away from a reliance on oil. Dubai now has the world’s busiest airport for international passenger traffic, confirming its position as a gateway to the East. But it’s no longer just a stopover, it’s also become a destination for millions of visitors. The state’s vast infrastructure made this possible, but for many years it was largely unused. Now with an ever more globalized planet, Sheikh Rashid’s gamble of borrowing tens of billions of dollars looks to have paid off having turned this once quiet backwater into one of the world’s most powerful cities.

How did Dubai get so rich?

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