Dubai - An Incredable Rise | Explained
Dubai is a massive player on the global stage. In terms of human development, in terms of innovation. In just over 50 years ago oil was discovered here in Dubai so how did Dubai get so rich?
The person who ruled Dubai for 32 years- Sheikh Rashid was credited for transforming Dubai into a world-class Metropolis.
Dubai is one of the most incredible nations of the 21st century. Despite just being 35 square kilometres in area which is 19 times smaller than the city of Mumbai, this nation has evolved from being a barren desert to the 12th wealthiest city in the world.
While most people would think that Dubai got rich only because of oil. In reality today oil makes a barely one percent of its entire GDP. In fact, Dubai has lesser oil reserves than India and even Vietnam and yet while today many oil rich nations are struggling to grow, this city has become such an important financial business Hub that out of the 500 biggest companies in the world, an astonishing 140 companies have their headquarters in this tiny city of Dubai.
The real question, How?
In the global politics it is more or less the epicentre of the World Trade itself. The question is in just 40 years how did this little city of Dubai go from a barren desert to becoming one of the wealthiest in the world? How did they manage to achieve this without banging on their oil reserves and most importantly what are the lessons that India needs to learn from the iconic rise of Dubai?
Structure Of Dubai
In this blog, first we have to understand the basic structure of the Middle East because most people really don't know what the difference between UAE, Dubai and Abu Dhabi is.
So this is the Middle Eastern region wherein you have the United Arab Emirates or UAE. What is UAE? UAE is nothing but a Federation of seven Emirates which are Abu Dhabi, Dubai, Sharjah, Ajman. These Emirates are almost like states that work autonomously within the Federation.
Building Of Dubai
Now, Let's move to 1960s Dubai. Back in the 1960s, the UAE had not been formed and Dubai was just another fishing town that existed at the creek along the Middle Eastern trade routes. So let alone buildings, it was just another desert with nothing else but people riding on camels.
This is where something crazy happened on the 4th of July 1962, an oil tanker called British signal sailed from Das Island carrying Abu Dhabi’s first ever cargo of oil. In 1958, the first offshore well was drilled in the mashed field of Abu Dhabi and it was from this field that the first shipment of crude oil for the World Market was exported on the British signal in 1962.
In the 1960s the Middle Eastern regions discovered tons of oil beneath them and suddenly they realized that they were practically sitting on a gold mine and as the oil prices started shooting up. Billions of dollars started flooding into the city.
Now most people would say, ‘ If you give something as important as oil reserves to any country or any leader that country will obviously become rich and Powerful’?
Well not really, because if you look at the oil reserves across the world you will see that UAE is only the seventh largest oil Reserve in the world and if you notice something peculiar in this table the largest oil Reserve is actually in Venezuela.
And in Venezuela, the economy is going into a spiral of dysfunctionality. Venezuela has of today the highest inflation in the world. Venezuelans today cannot eat; you see people eating from the garbage. Cycle of violence and Street protests are day to day occurring.
So yeah, oil reserves do not mean that you'll be rich and Powerful. In fact, even in UAE, if you look at oil reserves in the Emirates you will see that Abu Dhabi has 92.2 billion barrels of oil, Dubai has only 4 billion barrels. So it's not like they had infinite wealth.
The best part when Dubai discovered oil, the ruler of Dubai was Sheikh Rashid Bin Saeed Al Maktoum. He said he said a very important statement that echoes through the tunnels of time and even today, he said,
I have good news and bad news we have found oil but not much now you see for a ruler who has lived in a remote Barren desert all his life.
- Sheikh Rashid Bin
This statement was nothing short of extraordinary because he clearly realized that they must do something before oil runs out. And not so surprisingly that is exactly what he did. While on one side they started making a lot of money selling oil, on the other side he started identifying the most important strains of Dubai that could be leveraged to build a diversified economy.
Building Of Dubai
The first thing he spotted is the Strategic location of Dubai. More importantly, this place that is 35 kilometres Southwest of Dubai, this was a very important location for World Trade because it was near Iran and the entrance to the Persian Gulf. So obviously it is very important for the Middle East Trade.
Secondly it was a very strategic Connecting Point to Arabian Gulf, the Indian subcontinent, the Commonwealth Nations like Kazakhstan, Kyrgyzstan, Russia, Ukraine, and Uzbekistan and then immediately down south it was near Africa.
So practically Dubai was so strategically located that it could give unparalleled access to some of the most important regions in the world both through sea and air. Also, it provided access to a market of 1 billion people during that time.
The Jebel Ali Port Project
This is the reason why Sheikh took up a Super Bowl project with something called the Jebel Ali Port that started operating since the late 1970s. He took up very heavy loans to first dig deep into the shallow Waters and carried out dredging. As in what sand is taken out from the Dubai Creek to create a deep-water Port. This port was then used both for shipping Dubai's oil and more importantly to build cutting-edge shipping facilities. So that Dubai could offer world-class shipping services to the most valuable ships in the world and today the Jebel Ali Port provides many important logistical services in many areas of General Maritime freeze.
Along with that the port also provides cooling services with advanced storage and cooling facilities which cover an area of 10,000 square meters and these facilities help to store all the shipments that contain perishable products and products that need special storage conditions.
These products include pharmaceutical products chocolate and cosmetics and today the Jebel Ali Port is the ninth busiest port in the world and handles roughly 10 percent of the entire world's container traffic with over 14 million containers handed every single year.
As a result, while oil contributes to just one percent of Dubai's GDP as of 2018, the maritime industry alone contributed seven percent of Dubai's GDP.
The Free Zone
Along with the maritime industry, the Sheikh went ahead to build a second important asset for the economy of Dubai which was something called The free zone.
In simple words Dubai’s Free Zone is the specially allocated areas wherein companies from all across the world could set up their business with special privileges. These special privileges included four mind-boggling incentives that were not being offered anywhere in the world which were: -
2. 100% Repatriation Of Capital And Profits
-
As
in you can send 100% of your profits to your home country.
3. 100%Import And Export Tax Exemption
-
That
simply means, tax heaven for businesses
4. 100% exemption from local and corporate
taxes both
How Dubai Earns?
Now the question over here is then how does Dubai make money in spite of giving so many privileges?
Well, as it turns out Dubai does not make a lot of money from the free zones, so the question is then what is Dubai getting out of all of this well?
The Shaikh of Dubai is giving out these benefits for three important reasons: -
2. Diversification
3. Create Irreplaceable, Irreversible Global business ecosystem
So that Dubai can make money maybe not today, or tomorrow but 10 years, 20 years down the line.
To understand this, you need to understand the fact that every business needs a conducive ecosystem along with important supporting entities to actually function as a business. And without these entities, a company or a business alone cannot function at all.
Example of Ola
You see for Ola to function as a service you first need internet providers like Jio and Airtel who can provide 4G access at dirt cheap price. That is when you'll be able to book a cab from the road itself. Then you need Android and iPhone manufacturers who can make phones with a processing ability to run these apps and at the same time make it affordable enough for the drivers and passengers to use them. After that you need automobile manufacturers and Banks who could make it affordable for the drivers to buy these cars and lastly you need Google Maps API that could be used for tracking and navigation.
All these entities together make an ecosystem for Ola and Uber to operate. Once they establish this ecosystem, they never ever leave the market until they die. And even if they do someone else will come and take their place because the real asset over here is not Ola-The Entity but the ecosystem of cabs, that Ola and Uber have managed to build their business on.
In fact, let alone operating in the ecosystem Jio, Zomato Airtel and Ola have spent billions of dollars to create an ecosystem in India. For which they are suffering thousands of crores of losses (except of course Jio).
Similarly in Dubai because of Regulation and Taxation being so lenient, some of the most incredible tech companies have set up their bases and like I said, before in the little city of Dubai, which is almost 1/18th, the size of Mumbai. It has more than 100 000 organizations including fintech, food Tech, and med- tech companies from all across the world.
Dubai’s Masterplan
That is an incredible number for a city that is so freaking small. This is the reason why Dubai has become one of the best business ecosystems in the world with world-class Talent, world-class companies and more importantly Cutting-Edge start-ups that are making an irreversible, irreplaceable business ecosystem. So, after 10 years even if Dubai imposes a five to ten percent tax, these companies will be more than happy to pay their tax and will never ever leave Dubai.
As a result, after oil, Dubai can Bank on the taxes from these insanely prosperous businesses in the city. Therefore, the Emirate of Dubai is laying a solid foundation to de-risk itself from oil and diversify into business ecosystem.
Tourism and Logistics
And this brings me to the most important part and perhaps the most well-known aspect of Dubai which is tourism.
Dubai is by far one of the most strategic locations in the world for air transportation. If you look at Dubai in the world map you will see that Dubai is barely a 4-hour flight away for a population of 2 billion people (Indian Sub-Continent) and an 8-hour flight away from 5 billion people which is literally 2/3rd of the world's population. And hopefully these flights come from some of the most important destinations in the world including Europe, Singapore, India, China, and even Africa.
On the other hand, for destinations that are not close by like Canada, US and Australia, Dubai acts as the perfect labour spot for the planes going from these places. And the biggest hurdle for Dubai back then, was the image of Dubai.
The Tourism Industry
Now obviously if you look a bear in Sandy land which swings between 20 degrees to 50 degrees that doesn't look like a lucrative tourist destination. So, they just took all the money that they made from oil, and they just changed that. Now for a city that is 42 times smaller than Delhi, Dubai has done such an insane job with its tourism industry.
While the entire country of India had 17.91 million tourist arrivals in 2019. Dubai, which is one light time smaller than India, had 16.73 million tourist arrivals. They built many Avenues of spending, such as hotels, amusement parks, Aqua, Venture Parks, underwater zoos, and even ski slopes. Yes, they built a ski slope with 6,000 tons of snow inside a freaking desert.
As a result in total, the international overnight visitors spent in Dubai in 2018 was 30.82 billion dollars which is way ahead of Mecca, Bangkok, Singapore, and even London. As a result the tourism industry of Dubai as of 2019 contributed 11.5 % to the GDP of Dubai.
This is how Dubai diversified its economy from oil into tourism, business ecosystem, and Maritime trade. And today it is using its business ecosystem and Maritime trade to create an irreversible, Irreplaceable, scenario for the biggest companies and the most powerful Trading countries in the world.
The Lessons India Can Learn
And this brings me to the most important part and that are the lessons that we need to learn from the incredible rise of the Dubai.
The lessons the first thing we need to learn is that :
1. Use Your Resources Judiously
No matter how much resources you have at your disposal unless you use a properly it will never ever create wealth for you. In case of oil like we saw on one side we have Venezuela which collapsed despite having the largest oil Reserve in the world. Dubai used it very judiciously to achieve sustainable growth instead of recklessly depleting it.
Now in case of India I don't know if you've seen this but then I've seen these uncles in the past five to ten years who often say that you know ‘India has so much population now that is why we are underdeveloped’. China also has population now, but they used it to their advantage.
So this advantage of disadvantage is completely upon you in fact Japan right now is on the verge of Crisis due to lack of population and this brings me to lesson number two.
2. Diversification Of Resources
Diversification of Recourses is extremely critical for the growth of any country. A single asset cannot help you with sustainable growth.
And lastly can you imagine if Dubai being such a small City can become a tourism Hub with man-made Marvels. India is filthy rich in terms of natural beauty and destinations that are far beyond man-made structures. So if we calculatedly use these resources to create a tourism industry in India, we could be the biggest tourism Hub in the world.
That's all from my chapter today guys hope you get the case study analysis and the whole story of How Dubai’s is so Epicenter for the world despite very less resources.Thank You.
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