Dubai redefines the traditional concept of a desert oasis. Surrounded solely by desert, it is one of the fastest growing and richest cities in the world that provides the biggest and most extravagant, well, everything. My travels through Dubai left me in awe as I observed the endless spectacle of human industriousness, resourcefulness and creativity. There isn’t a city in the world that can compare to its developments, especially in the Middle East.
Originally seen as a misfortune, Dubai was actually “lucky” not to have vast deposits of oil, like most of its regional neighbors. I use the term lucky because significant natural resources can sometimes be a curse to long-term progress, rather than a blessing. Many resource rich countries become so reliant on easy money from their natural assets that they neglect to develop other aspects of their economy and country. Since Dubai couldn’t rely on oil, it created an ambitious campaign to make itself an internationally renowned trade and tourism mecca. It allowed companies and individuals to operate with no corporate tax rate for 15 years, no personal income tax, full foreign ownership, full repatriation of capital and profits and no currency restrictions. It financed significant infrastructure developments and even created areas within the city, such as international hotels, that are free from following the same Islamic laws as the rest of the country. The ruling family – which has ruled since 1833 – developed and maintained the philosophy, “What’s good for the merchants is good for Dubai.”
The result? The small desert city’s population grew from under 183,000 in 1975 to over 1.2 million in 2005 with over 80% of the population consisting of expats. It became one of the richest cities in the world and is now home to one of the world’s busiest airports. Dubai also planned and constructed the world’s tallest building, an indoor ski resort, the largest high-end malls, man-made islands, giant dancing fountains, a “7-star” hotel (yes, out of 5) and an office for what seems like nearly every multinational corporation.
While Dubai appeared to have the magic touch for a few decades, the financial crisis in 2008 exposed many of its problems. Since companies in Dubai are typically privately held by a few wealthy families and government data is weak, there is a significant lack of transparency in the economy. And while much of the world was highly levered, in typical Dubai extravagance, the emirate took leverage to another level in order to fund its expansion. Dubai real estate prices fell by as much as 50%, the emirate defaulted on its foreign loans, investors fled and many grew skeptical about Dubai’s relatively quick rise to riches. This forced Abu Dhabi to come to the rescue with a $10 billion bailout, which coincidentally led to the official name change of Burj Dubai – the world’s tallest building – to Burj Khalifa in honor of Abu Dhabi’s ruler. Time will tell if Dubai will be able to develop long-term sustainable growth, but it should be fine as long as other countries continue to put tighter controls on business while Dubai continues to make itself so open for business.