Dubai’s innovative model of development

An obscure Gulf port whose merchants once traded pearl, gold .textiles and electronics has now emerged as the Arab world’s leading hub for finance, media, tourism, aviation, logistics, technology, construction, shipping and even venture capital. Dubai derives only 6 per cent of its GDP from oil and gas yet has managed to double its economy’s size since 2000, exhibiting annual economic growth rates higher than even China or the Asian tiger economies. The emirate’s leading state owned corporations such as Dubai Holding and Dubai International Capital have used strategic international investments to both deploy excess funds as well as attract new FDI to Dubai, akin to Singapore’s Temasek.

Dubai’s government has had a sophisticated strategic planning process that has implemented a succession of infrastructure projects on such a grand scale that Wall Street investment bank Morgan Stanley estimates that no less than 20 per cent of the world’s 125,000 construction cranes are now active in Dubai. The sail shaped Burj Al Arab, offshore man made islands built in the shape of palm trees and continents, lavish beachfront hotels, gated communities with the unmistakable echo of Beverley Hills and Palm Beach, Ski Dubai, shopping malls galore, tourist and convention extravaganzas, the emergence of DXB as a aviation hub to rival Heathrow, O’ Hare and Changi ensure that tourism is Dubai’s new black gold, Arabia’s New Age epicentre of globalisation. The international culture of conspicuous consumption and freewheeling capitalism has branded Dubai as a hot tourist destination in the new millennium.

The globalist ethos strikes a responsive chord in Dubai because the emirate’s fate was always tied to foreign trade and its capacity to reinvent itself, not ownership of vast reserves of oil and gas. This meant that Dubai never ever evolved into a womb to tomb welfare state or the rentier state psychology of, say, a Kuwait or Qatar. Dubai’s merchants, the epitome of cosmopolitan and entrepreneurial risk taking amid the tribal, ultra–conservative societies of the Gulf, acted as the natural partners to the development strategies initiated by successive Al Maktoum Rulers. From Jebel Ali to the establishment of Emirates Airlines, from the launch of free zones dedicated to international finance, the Internet, higher education to the Arabian Gulf’s first freehold property projects, the development of Dubai assumed and encouraged the active participation of the private sector.

If imitation is the ultimate flattery, the Dubai model was vindicated in the Gulf when Qatar and Riyadh promoted the DIFC concept of an offshore financial zone and Emaar was invited to reinvent the property markets of Morocco, Syria, Egypt, Pakistan and India with its luxury projects launches.

If economic growth, diversification from oil and gas and the creation of profitable platforms for investing the Arabian petrodollar windfall is an index of success, there is no doubt that Dubai has been the development success story of the region. The development model of Dubai has managed to give UAE citizens a stake in the city’s success, spawned a meritocratic elite of technocrats and financiers with easy access to the Ruler-CEO, a liberal social climate that has attracted 180 nationalities to the new Arabian Xanadu on the Creek and a safe, secure environment for foreign investments. Political stability is a major factor that has seen Dubai’s banks become a haven of flight capital from countries such as Pakistan, Iran, South Africa and the Levant. Political stability is another dimension of Dubai’s allure, with invariably smooth successions of power, no history of the violence, terrorism or coups d’etat so endemic in the Arab world. In fact, Dubai refutes economist Joseph Stiglitz’s “resource curse” theory that petro–economies mean poor GDP growth, repression, economic stagnation and irrational investments, a phenomenon witnessed in the past of too many other Middle East oil exporting states.

Dubai has done its best to integrate into the global economy and financial markets. Its current strategic plan estimates almost a million new foreign workers and 15 million tourists, more than annual visitors to New York, by 2010. So why did Dubai succeed when so many other countries failed to achieve sustainable high growth and diversification from oil and gas? After all, the merchant ethos was in Dubai’s DNA even before the Oil Age began in the lower Gulf in the late 1960’s. Besides, Dubai was nowhere near blessed with the black gold geological lottery of Kuwait, Abu Dhabi or Qatar, so trade, tourism and finance was the emirate’s sole avenue for wealth creation. Oil rents were never enough to underwrite the scale of Dubai’s development ambitions, even in the 1980’s. Dubai also benefited from the birth of the UAE Federation and Abu Dhabi’s huge subsidies in the Federal budget and national security umbrella.

Of course, Dubai’s pace of development exacted its own human and economic costs. Inflation rates have surged as real wage growth has been stagnant. Luxury millionaire communities coexist with labour camps for impoverished workers, who have sometimes rioted on the streets. Speculative bubbles led to an epic crash in the Dubai stock exchange. Dubai’s “open economy” has attracted both legitimate businessmen – and illegitimate financiers, forcing Dubai to boost its anti-money laundering vigilance.

Terrorism is a threat to all Arab Gulf states, particularly Dubai, with its glitzy tourist haunts and Western expatriate enclaves. Yet Dubai has staked out its own place as an incubator of cosmopolitan lifestyles in Arabian culture and as a model for entrepreneurial development. Dubai refutes Samuel Huntington’s “clash of civilisations” or Bernard Lewis’s “what went wrong” theories with its very existence. Because Dubai went right, was the melting pot of civilisations, the new Arabian Cordoba.

Matein Khalid is a Dubai-based investment banker and economic analyst