Dubai’s model is working, but some bumps lie ahead
By Christopher Davidson 

Monday, December 31, 2007

By the close of 2007, contributions from non-oil related sectors of the Dubai economy will account for an estimated 95 percent of the emirate’s gross domestic product. As a result, Dubai’s is now very much a “post-oil economy” and, on paper at least, would seem to be succeeding with its diversification strategies.

However, the Dubai development model is now drawing heavy criticism for its replacement of dependency on oil with an equally dangerous dependency on foreign direct investment. Should international confidence in the emirate be shaken by a nearby conflict in Iran, by domestic terrorist attacks, or by a regional economic downswing, then it is likely that tourism would slow and foreign investments in real estate and free zones would be relocated to a safer environment.

Also problematic may be the political costs of the reforms necessitated by the diversification. As a number of studies have demonstrated, many of the world’s surviving traditional monarchies rely upon a delicate balance of legitimacy resources that together make up something of a “ruling bargain” with the national population.

Dubai is no exception and the Al-Maktoum family’s survival has rested on a combination of legitimacy resources, backed up with distributions of oil-rent-derived wealth to its citizens. Dubai’s diversification does not upset the wealth component of the bargain, given that it is still the nationals who own the plots of land that the new residential properties, hotels, and foreign business parks are all built upon. Indeed, although there are a few hidden taxes creeping up on Dubai’s nationals, and although they may no longer be receiving blatant handouts from the government, it is important to appreciate that the majority of Dubai nationals are still elevated above the wealth creation process and can still enjoy a rent-based income, albeit a different form of rent.

What Dubai’s recent reforms do upset are the cultural and religious resources of the ruling bargain. With accelerating foreign ownership, and with foreigners beginning to make profits out of activities that were formerly the preserve of the indigenous population, many of the nationals feel that Dubai’s development is not really to their benefit any longer. Moreover, not only are formerly exclusive privileges for nationals being eroded, but so too is their way of life, as the government continues to bend rules to accommodate the increasing number of non-Arab and non-Muslim expatriates and visitors.

Most obviously, the volume of loudspeakers on mosques has been reduced in many residential areas and previous restrictions normally observed during the month of Ramadan are now rarely monitored in an effort to boost non-Muslim tourism.

Similarly shocking to the local population has been the dramatic expansion in prostitution. Dubai is now firmly established as a center for sex tourism and the authorities allow thousands of sex workers to flood into the emirate. Also noteworthy is the tolerance of homosexuality (which is officially illegal in the United Arab Emirates), and the existence of Dubai-based gay bars and nightclubs is widely acknowledged.

Perhaps most controversial of all has been Dubai’s increasing communication with Israel. With its rising profile in the international banking system, Dubai has hosted meetings that have included Israeli delegations. This is remarkable given that the UAE is supposed to uphold a total boycott on all Israeli relations and trade.

Should a threat develop, it is most likely to come from disaffected and

radicalized young Dubai or other UAE nationals that view these reforms and relaxations with distaste. Already, a number of UAE nationals have participated in Al-Qaeda operations (including two members of the 9/11 hijack team), and there is a concern that attention may soon be turned to their own country. At present, it is unlikely that expatriates would be involved, as most of them are strictly monitored through the employment and residency visa system, and most are simply working in Dubai in order to send remittances back to their families.

Christopher Davidson is lecturer at the Institute for Middle Eastern and Islamic Studies at Durham University in the United Kingdom. This commentary first appeared at bitterlemons-international.org, an online newsletter that publishes commentaries on Middle Eastern and Islamic issues.

 

0 Responses to Dubai has a bumpy road with Foreign Investments

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