How Dubai Get So Rich

In the last three decades, Dubai has transformed itself from a desert emirate to a luxury tourist destination.

The world’s biggest banks have their operation in Dubai.

Dubai is a hub for tourism, financial services, and business activity.

Today, Dubai has the world’s tallest buildings and the world’s biggest malls.

So What made Dubai the most luxurious emirate it’s today?

Well, most people will probably think that oil was the main reason behind Dubai’s economic success.

Oil was one of the factors that made Dubai so rich, But it is not the only one.

In the 1960s, Abu Dhabi discovered a lot of oil and gas, This capital city would become the richest emirate in the UAE.

Like Abu Dhabi, Dubai also discovered oil on its land, but it was in much smaller amounts than Abu Dhabi.

At the time, Dubai knew that oil revenues would hugely help make Dubai a luxurious place.

Dubai is a centrally planned free economy which means the government intervenes in the economy so it can work effectively.

Today, oil accounts for less than 1% of Dubai’s GDP compared to Abu Dhabi’s 50%.

So how did Dubai overcome its dependence on oil and become one of the luxuries emirates in the UAE?

No Income Tax

Dubai has no income tax, and recently it imposed a VAT( Value-added tax ) tax of 5%, which is reasonable compared to western economies with 18%.

Dubai has attracted many wealthy individuals who dont wanna pay high-income taxes in their countries.

These wealthy individuals come to Dubai to protect their wealth in a tax-free economy.

Dubai still charges a staggering 55% of taxes on oil companies and imposes taxes on foreign banks of 20%.

However, most people don’t have to pay income taxes, Which played a big part in improving its economic growth because it attracted a lot of wealthy individuals and increased investment in the city.

As these wealthy individuals tend to buy multiple real estates and consume more than regular people do, So consumption starts to go up as more wealthy individuals come and start spending more in Dubai, which improves the overall economy.

Low taxes played a crucial role in Dubai’s economic growth.

One of the reasons why Dubai has so many big skyscrapers is that foreign direct investment flows into their economy because of no property taxes.

It attracted many foreign real estate developers to come into the country and build luxurious skyscrapers to sell without paying taxes.

Luxurious properties probably are in high demand because Dubai has so many wealthy individuals eager to buy these properties.

During the financial crisis, Dubai’s real estate boom hit hard because of its high exposure to the global economy.

Many wealthy individuals and foreign businesses were declaring bankruptcies. There were not enough people willing to buy real estate at the time.

It resulted in more supply of real estate than demand which made the price of real estate go down significantly during the financial crisis of 2008.

Dubai’s real estate market started to recover in 2013, and in 2014 real estate prices started going up.

Special Economic Zone

A special economic zone is an area subjected to different regulations than other regions within the same country.

Dubai has more than 30 special economic zones, which have attracted foreign direct investment from around the world.

The benefit of the special economic zone is that international companies don’t have to follow sharia laws to operate in Dubai, which is applicable in the rest of UAE.

Instead, foreign companies that reside in a special economic zone are subject to different and light regulations.

In Dubai, a special economic zone provides companies with tax cuts, low regulations, and other incentives which attract many multinational companies into the emirate.

Special economic zones tend to increase foreign direct investment because of low regulation and tax incentives which also improve economic growth.

For example, Dubai international financial center is one of the special economic zones in Dubai. Which has a separate judicial system chaired by a British judge, and its official language is English. It attracts many foreign banks and finance companies because of its tax advantages while also giving a favorable environment for them to operate in Dubai.

Immigration Freedom

85% of inhabitants in Dubai are born abroad. In Dubai, it’s more common to see foreigners than Dubai citizens. Immigration was one of the factors that fuel economic development in Dubai.

To increase foreign direct investment which would improve economic growth. The administration made a decision that would change the destiny of Dubai’s economy.

In 2002, Dubai allowed anyone regardless of their religion and race to buy real estate in Dubai.

The foreign investors flooded Dubai with their capital and started buying real estate in unprecedented amounts.

When Dubai opened the door for anyone to acquire real estate, it was at this time the main economic boom in Dubai began.

Demand in Dubai reached sky-high when foreign investors flooded the real estate market with their money which also boosted the construction of more skyscrapers and luxury apartments in Dubai because the demand was high.

The real estate boom was so high that 20 percent of all the cranes in the world operated in Dubai.

Today, Dubai announces new projects every year, whether it is about building the largest building in the world or building the largest indoor theme park in the world.

Building these huge skyscrapers and mansions requires a lot of labor. The dark side of Dubai’s growth was its exploitation of workers.

Workers from South Asian countries such as Pakistan, India, Bangladesh, and Nepal come to Dubai to work and send their salaries to their home countries.

These people were often desperate for work because they couldn’t find a job in their home country.

So Dubai authorities often take advantage of that and give these people lower wages and terrible work conditions. Workers can’t leave because they won’t find work in their home country and have to live in terrible conditions.

Although, it had started to change as international organizations and foreign countries became aware of the working condition of laborers in Dubai.

In 2017, following international criticism, the UAE federal national council passed a new bill that gives workers 30 days of paid vacation every year, one day off a week, and medical insurance.

The cheap workforce has played a role in transforming Dubai into a global business hub and a luxury tourist destination.

Conclusion

The wealthiest emirate in all of UAE is Abu Dhabi because of its huge oil reserves.

But Abu Dhabi’s economy is highly dependent on oil, which makes their economy extremely fragile.

As more and more economies are shifting toward renewable energy, It moves the demand for oil down in the long term.

That’s why Abu Dhabi and even Saudi Arabia are following the step of Dubai to turn their economy from an oil base to an economy based on tourism, finance, and services.

Dubai has become a great model for middle eastern economies, which are highly dependent on oil to transform into a more stable economy based on finance, services, and tourism.

Originally Published On Medium

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