Economic and Political Environment of Dubai Essay Example

were instrumental in leading and directing Dubai's path the city it is today. These same early rulers also proposed many of the buildings that make Dubai famous: the World Trade Centre, Dubai Tower and the traffic leading Dubai international Airport. In 1971, when the British left the Persian Gulf, Dubai, together with Abu Dhabi and five other emirates, formed the United Arab Emirates. A form of currency called the dirham became the local currency and was adopted in 1973 as the uniform currency by Dubai and the emirates. From a small old-world town, Dubai became the modern beauty it is today, with excellent communication, transport, and infrastructure (DubaiCity 2009).

Economic Environment

Dubai’s ambitious growth strategy can be witnessed through the diversity of its GDP composition, but an issue forcing Dubai to make some difficult financial decisions is its financial relationship with Iran. Despite much of the instability in the Middle East, Dubai is still considered a safe haven for foreign investment and is considered to be relatively stable. As long as the world economy avoids another major crisis in the next decade, Dubai will have the opportunity to secure its long-term economic prospects and further establish itself as the Middle East’s premiere financial hub.

Political Environment

The current political climate in Dubai, and the rest of the UAE, is relatively calm in comparison to other parts of the Middle East. The political climate is steeped in tradition, but has been leaning toward modernization more recently. Throughout the UAE, the major political strife going on is that of political activism calling for modernization. The introduction of liberal Western ideals, combined with a

progressive Eastern influence, has resulted in the movement.

Military Capability An in-depth look at UAE’s military expenditures communicates that a small amount of revenue is designated for the military. The United Arab Emirates has recently begun a push to produce more of its own military equipment in an effort to reduce foreign dependence and help its own economy. The four largest foreign suppliers that Dubai and the UAE rely upon are the United States, France, United Kingdom, and Russia. All of the UAE, including Dubai, share the same military.

Social and Cultural Environment The social and cultural situations of Dubai are a product of its multinational society, which has resulted in a rich and diverse culture. The diversity of Dubai ranges from its music, religion, cuisine, nightlife, athletic sports, and population. Islamic traditions are the core of its lifestyle, and Dubai is considered a rare and valuable community that has a strong cultural imprint, as it is home to a large variety of ethnic and national groups. However, despite how quickly the country is evolving, the people of Dubai remain conscious of its culture.

 Dubai is located south of the Persian Gulf on the Arabian Peninsula. It also has the largest population with the second- largest land territory by area of all the emirates, after Abu Dhabi.

Economic Environment While the foundation of Dubai’s economy may have been built with oil revenues, only about 4% of Dubai’s GDP is oil-based. If Dubai had not invested a substantial portion of its oil reserves into developing additional industries and infrastructure, the economy of the emirate would not have grown so exponentially. The oil

reserves of Dubai only constitute approximately 2% of the total reserves in the UAE, and they are projected to be depleted before 2020 (mapsofworld.com 2012).

Dubai has drastically transformed its economy in the last twenty years with the aid of foreign capital and its strategic domestic investments that were initially funded by oil. The majority of Dubai’s largest corporations are state owned, or state backed, entities. The largest of these, Dubai World, recently restructured $14.7 billion of its $26 billion debt, narrowly avoiding a major financial crisis. The total debt of Dubai’s government-related entities is estimated at $100 billion, which is not significant when compared to the sovereign debt globally (dubai.com 2010). In 2008, the financial crisis that so adversely affected economies around the world also impacted Dubai.

The most affected were the real estate and tourism sectors, which both experienced substantial decreases in growth. It was reported that real estate lost as much as 60% of its value before finally stabilizing. Fortunately for Dubai, it has been able to rely on the strength of its other sectors in order to avoid any devastating, long-term consequences from which it could not recover. The GDP of Dubai dropped 2.4% in 2009, but rebounded and grew by 2.8% in 2010 and 3.3% in 2011. The growth projection for 2012 has been estimated at 4.5%, and trends indicate that this number will continue to increase (Ali Kahlil 2012). Economists have attributed the resiliency of Dubai’s economy to the prominence of its Free Trade Zones (FTZ).

Corporations from around the world have been attracted to the incentives offered in these zones, which allow 100 % foreign

investment, have no foreign exchange controls, boast no trade barriers or quotas, offer competitive import duties (4% with many exemptions), and are, in many cases, 100 % tax free. There are currently twenty-two separate free zones with 19,000 registered companies that employ more than 225,000 people. FTZs, like Dubai Media City and Dubai Internet City, consist of firms such as Microsoft, EMC Corporation, IBM, and Oracle, as well as media organizations like CNN, MBC, AP, ARY, and Reuters (mapsofworld.com 2012). Dubai’s ambitious growth strategy can be witnessed through the diversity of its GDP composition. The largest contributors to the current GDP are wholesale and retail (30%), tourism (17%), real estate & business services (13%), manufacturing (13%), transportation & communications (9%), construction (8%), and financial institutions/banking (7%) (Ali Kahlil, 2012). Tourism remains an important aspect of Dubai’s fledgling economy, of which it has been estimated that 80% of persons who choose to visit Dubai do so to shop in its modernized, world-class retail sectors (dubai.com 2010).

One issue forcing Dubai to make some difficult financial decisions is its financial relationship with Iran. Until recently, a quarter of total volumes of exports and re-exports went to Iran, but with increasing sanctions imposed by members of the U.N. during 2011 and earlier this year, Dubai has begun decreasing that number as a result of mounting international pressure. By re-exporting goods to Iran, many of the sanctions imposed upon it by the U.N. have been essentially circumvented through its trade relationship with Dubai. Recently, Dubai has become more aware of the diplomatic dilemmas it faces if large amounts of trade with Iran continue to occur.

The Dubai

Financial Market (DFM) general index is the best performing Gulf market so far this year, surging by 23% in the first quarter of 2012. Despite much of the instability in the Middle East, Dubai is still considered a safe haven for foreign investment and is considered to be relatively stable. Recently, there has been a growth in trade and investment relations between Dubai and some of the world’s fastest-growing economies, such as China and India. As long as the world economy avoids another major crisis in the next decade, Dubai will have the opportunity to secure its long-term economic prospects and further establish itself as the Middle East’s premiere financial hub (Ali Kahlil 2012).