Dubai and other emirates have made globalization work in the Gulf, using oil revenues to create more open and diversified economies.
Good governance, political foresight and fortuitous geostrategic developments have led to extraordinary growth in Dubai and other states of the United Arab Emirates (UAE) in the wake of the Covid-19 pandemic. But does the federation have what it takes to maintain its newfound role as a global trade, financial and tourism hub amid growing regional competition, a looming energy transition and global political tensions?
Close observers are optimistic that with the right dose of wisdom and luck, Dubai and the rest of the UAE can continue to ride the crest of the current wave.
“Dubai has done an extremely good job of marketing,” says Oliver Cornock, editor-in-chief of consultancy Oxford Business Group (OBG). “He has complemented this with a very clear set of open-for-business policies,” including free zones enjoying significant tax and foreign ownership advantages, ease of entry and exit, and “increasingly creating an environment in which people want to live, work and play.”
Horseback riding
Some 412,000 business licenses were in force in Dubai last year, up 30% from the previous year and a whopping 75% increase from 2021, according to government data obtained by Bloomberg. Last year also saw the highest volume of new company registrations in the UAE. Outstanding Special Economic Zone Dubai International Financial Center (DIFC): 1,451 more, up 34% year-on-year (YoY), according to DIFC.
Overall, Dubai welcomed more than 100,000 new residents in 2023, following an influx of about 71,600 in 2022, according to the Dubai Statistics Centre. The arrival sparked a surge in property prices, which soared to record highs.
Dubai’s performance stands out, but a positive trend is also visible in the other six emirates of the UAE, particularly Abu Dhabi and Ras Al Khaimah. In January, the Abu Dhabi Department of Economic Development reported that the number of active business licenses increased by almost 11% from 2022 to 2023, bringing the total to more than 143,600. According to the Abu Dhabi Statistics Centre, this contributed to the growth of the non-oil economy by 8.6% in the first nine months of last year.
Meanwhile, the Ras Al Khaimah Tourism Development Authority reported that 2023 was the sector’s best year yet, with international arrivals up 24% compared to 2022 and a record 1.2 million overnight visitors. up 8% year on year.
Foreign direct investment (FDI) inflows into the UAE rose 10% year-on-year in 2022, reaching nearly $23 billion, while global FDI fell 12%, according to the UN Conference on Trade and Development.
“The pandemic has been a very important stress test for many economies,” says Bernardo Bortolotti, executive director of the Transition Investment Lab at New York University Abu Dhabi. “The UAE has truly proven a surprising degree of resilience.”
Over more than five decades, visionary leadership has managed to transform the federation from its inception in 1971 to an oil giant and a regional financial center. Oil revenues filled government coffers and fueled the development of a sophisticated financial management industry.
As of March 2024, Abu Dhabi Investment Authority is ranked among the top 10 largest sovereign wealth funds in the world based on AUM, according to Global SWF. Dubai Investment Corporation Mubadala and Abu Dhabi Development Holding Company are in the top 50, followed by the Emirates Investment Authority. An abundance of foreign players complements the UAE’s highly developed financial landscape.
Pandemic and recovery
The Covid-19 pandemic has hit the UAE hard. In 2020, Dubai’s outward-facing, trade-focused GDP shrank by nearly 11%, while the federation’s national economy contracted by about 5%.
However, there were also positive aspects. “Dubai has been quite aggressive in its vaccination program,” says James Swanston, an economist at Capital Economics who specializes in the Middle East and North Africa. “He approved large vaccines very quickly … and maintained very strict containment measures.”
By relaxing social distancing measures and opening up the economy, authorities have solved two problems at once, turning Dubai into an international vaccination hub. New visa options targeting wealthy investors, digital nomads and even wealthy retirees are adding new, long-term residents to the mix.
As the world emerged from the pandemic, the UAE also benefited from geopolitical developments, most notably Russia’s war in Ukraine and rising tensions between the US and China. “The UAE has managed to maintain good relations with most parties,” says Bortolotti.
The road ahead
Questions remain whether Dubai, with a population of nearly 3.7 million, can continue on this successful path. The desert climate requires enormous resources for a comfortable life. Climate change, coupled with Dubai’s plans to add 2.1 million residents over the next 16 years, could put the environment at risk of severe degradation.
But Bortolotti expects the UAE’s tight oversight of immigration will provide some comfort.
“What worries me is urbanization too fast without the necessary institutions and regulations,” he says. “But I’m not sure [this] could ever happen in a highly regulated country like the UAE, where every immigrant comes with a job.”
Global efforts to cut carbon emissions, bolstered by an agreement by nearly 200 countries at the latest UN climate change conference in Dubai in December, also loom over the local economy. A collapse in oil prices amid the energy transition will impact Abu Dhabi and other emirates more directly than Dubai, which is less energy-dependent. But the entire federation will struggle with declining government revenues and the resulting strain on the largesse it extends to its citizens.
However, Swanston argues that the UAE’s low energy production costs, strong public finances and rapid diversification away from the energy sector put it in a relatively good position to maintain lower oil prices even in the long term.
very good job on marketing.
Complex world
Meanwhile, more and more neighboring countries are seeking to emulate the economic model of the UAE, and especially Dubai. Saudi Arabia is pouring enormous firepower into establishing itself as a global business destination, including efforts to lure away the regional headquarters of global firms.
“Ten to 15 years ago, people would often set up businesses in Dubai in a free zone to do business with Saudi Arabia because conditions weren’t entirely favourable, at the time,” says OBG’s Cornock. Although the situation is changing, he says, Dubai still “has a first mover advantage.”
A resolution to the war between Russia and Ukraine, however distant, could lead to many of the tens of thousands of Russians who flocked to the emirates returning home. Property prices are likely to suffer, threatening the health of heavily indebted real estate and hospitality companies as well as their government-linked backers. “It’s a much lower risk than even three years ago, but it’s looming in Dubai,” warns Swanston.
Looking to the long term, Bertolotti suggests that the global landscape currently emerging, with the rise of Asia an undeniable fact and the rise of Africa just around the corner, will only strengthen Dubai and the UAE’s position at the center of global politics and world politics. world economy.
“I see, at a very global level, an incredible redistribution of economic and political power in the next decade,” he says. “New economic and financial realities will come to the fore and the location advantage that the UAE enjoys, especially in terms of its exposure to the so-called global south, is unique.”