Dubai Economy

March 11, 2010Dubaiby EconomyWatch Content

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Situated on the Persian Gulf coast, Dubai is part of the seven United Arab Emirates federations. From relative obscurity, this emirate has grown into a regional powerhouse. The country is located 16 meters (52 feet) above from sea level, with Sharjah to the northeast, Abu Dhabi to the south and the Sultanate of Oman to the southeast. Dubai is the largest city, principal port and commercial center of the federation. It is the largest of all the Emirates by population. There have been speculations regarding Dubai’s dependency on Abu Dhabi until 1833. It was in the early 1960s that Dubai discovered its wealth of oil wells. Dubai can be easily reached by air. The national airline, Dubai Emirates Airline, has a network 101 destinations across 61 countries.

The economy of Dubai is one of the most unique and unusual in the world. As an entrepôt, (or free port or porto franco) duties and taxes are not imposed on imported goods. Dubai has numerous free zones including Jebel Ali free zone, Dubai Maritime City, Dubai Internet City, and Dubai Media City. The free zones in Dubai have attracted considerable foreign direct investment (FDI). Combined, the internet and media free zones are called TECOM (Dubai Technology, Electronic Commerce and Media Free Zone Authority). Within them are large multi-national firms sucah as Microsoft, Oracle Corporation, IBM, and EMC Corporation; BBC, CNN, Reuters, Sky News, and the Assoiated Press are in the media free zone.

While many believe Dubai's economy is totally driven by oil and gas, that sector only comprises less than 6% of Dubai's economy. In fact, Dubai's portion of natural gas revenues in the United Arab Emirates is only about 2%. Dubai's oil production is estimated to be about 240,000 barrels per day. By the height of the boom years in 2007, Dubai had come to epitomise 'bling' or extravagence on a national scale. It contains the largest building in the world (the Burj Khalifa), and many other largest/ biggest/ deepest projects, such as the seven start Burj al-Arab hotel and the man-made Palm Islands. However much of this construction boom has been financed by debt. By the start of 2010, the emirate as a whole owes anywhere between $80 billion and $120 billion. Government-linked Dubai World almost defaulted on its debts at the end of 2009, and was saved only by oil-rich neighbour, Abu Dhabi. Its biggest challenge now will be riding out the debt repayment and confidence challenges to take advantage of the fantasy-like infrastructure it has built.

Dubai Economy: Major Contributors

The economy of Dubai is made up of the following key activities:

  • Property and construction (22.6%)
  • Trade (16%)
  • Entrepôt activities - shipping, warehousing and logistics (15%)
  • Tourism (11.6%)
  • Financial services (11%)
  • Oil and natural gas (6%)

Dubai Economy: Income

Until the 2008 global economic downturn had its toll on Dubai, the country had achieved a 17% annual growth rate from 2000 to 2006. In 2008, Dubai’s economy stood at Dh68.21 million, which increased marginally in 2009 to Dh68.397 million. Oil was the biggest industry of Dubai at one time. However, in 2006, petroleum and natural gas contributed less than 6% to the country’s revenues.   The real estate sector was the hardest hit, with prices plummeting drastically. Cash was insufficient to meet debt obligations, raising concerns regarding solvency. To deal with the situation, a $20 billion bond program was launched.

In early 2008, the value of the country’s wholesale retail trade was Dh23.3 million. It increased by 4% in 2009 and stood at US$88.8 million (Dh24.2 million). The contribution of manufacturing was Dh13.5 million by Q1 2008 that increased to Dh13.9 million in 2009, up by 2.91%. Apart from wholesale and manufacturing, Dubai’s strong banking sector, government services and restaurants and hotels were resilient during the economic depression, as revealed by the Dubai Chamber of Commerce and Industry in a report.

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