July 2017
Dubai

Aiming to reinvent itself

By Sylvie A. Briand
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Strategy. It is the city of superlatives, where huge projects and boundless ambition make up for the lack of oil. But falling crude prices, geostrategic tensions and a sagging model are pushing the emirate to find new sources of growth—especially technology and the “global knowledge economy”. 

This story is about the meteoric rise of a small fishing port with its back against the desert and a population of under 60,000 in 1969 to a financial, tourist and commercial metropolis of 2.7 million in the heart of the United Arab Emirates (UAE). Dubai captures the imagination. Nothing seems to stop its colossal projects—manmade islands, futuristic skyscrapers and glittering, luxurious shopping malls—not even a sluggish global economy that has darkened the Emirates’ skies and caused thousands of job losses in the banking and aeronautics sectors alone. Short-term growth does not seem threatened—it will average “3% a year until 2020”, says Khatija Haque, head economist for the Middle East and North Africa at Emirates NBD bank—but Dubai must undertake reforms to insure its future. It aims to become the “Silicon Valley” of the Middle East. Illustrating the desire for all-out innovation, the world’s first police robot has started greeting shoppers and watching over them at a Dubai mall.

Dubai and Abu Dhabi—the federal capital and the most oil-rich emirate by far—must invest $81 billion (€72 billion) by 2030 to gear up for the “post-hydrocarbon” era and the “global knowledge economy” based on cutting-edge science and technology. Dubai is already a step ahead in the Gulf States’ innovation race. Lacking its neighbours’ oil resources, the emirate started diversifying its economy long ago to become a city of superlatives.

It has turned into a leading destination for Russians, Europeans and Asians, just behind Paris with nearly 15 million visitors in 2016, as well as a global trade, finance and transport hub: Jebel Ali ranks among the world’s 10 busiest container ports and Dubai’s airport handles more international passengers than any other on the planet: 83.6 million in 2016, a 423% rise in just 16 years. The emirate also has around 20 free-enterprise zones—more per capita than anywhere else in the world—in the areas of health, education, media and technology. To accommodate foreign workers, towers and houses have been built at breakneck speed by cheap labour, mainly from India and Pakistan.

MORE HIGH-SKILLED PROFILES

Dubai’s phenomenal growth hit a major snag in 2009 when the global financial meltdown triggered a collapse in real estate prices. Without a $20 billion (€17.7 billion) loan from Abu Dhabi, it undoubtedly would have defaulted on loans to its creditors. But observers who predicted its downfall were wrong. The economy, and grandiose projects, came roaring back. The tourism and construction industries are fuelling growth in anticipation of Expo 2020. People with few or no skills account for the overwhelming majority of workers.

But the goal of moving forward in the most innovative areas, such as cutting-edge industries or research and development, is linked to the need to reduce the share of cheap labor in its business model, a 2016 Oxford Business Group report noted. Dubai’s future, the intelligence economic and consulting firm pointed out, depends on its ability to attract more high-skill profiles in order to close the innovation gap. The United Arab Emirates rose from 47th to 41st place in the Global Innovation Index in a single year, but still rank after Greece, Singapore (6th) and Hong Kong (14th), two model cities for Dubai. To rise in the standings, the Emirates intend to triple the number of skilled workers to 40% of the expatriate workforce by 2021.

To attract them, Dubai continues vaunting its safe, comfortable, low-tax environment, “which works pretty well,” says Ms. Haque. But the emirate is not completely free of direct or indirect taxes. That pushes up utility costs, restaurant bills and rents, which are as high as in Paris or London. Falling oil prices have compelled all the Gulf States, starting with Saudi Arabia, to raise taxes and cut subsidies. On 1 January 2018, the Emirates will become the region’s first country to gradually roll out a value-added tax (5%), which should eventually rake in over $5 billion a year. An income tax is highly unlikely, but the issue is no longer off the table.

The cost of living in Dubai is already high for expatriates, especially families with school-age children. In other words, it is hardly a tempting proposition for top professionals—unless they can be lured by substantial salaries and benefits. Dubai could have the most trouble attracting those from Russia, Asia or Africa, who are often more interested in stability than remuneration. Moreover, barring some exceptions, expatriates in the Emirates—mostly Indians and Pakistanis, with a minority of Arabs and Westerners—must run an obstacle course to obtain visas no matter how long they have lived there. Residence permits are linked to employment: losing one’s job automatically results in revocation.

So, the choice between working in Dubai and getting a job or attending university in a Western country that offers a passport and social benefits after a certain number of years is a no-brainer. A young, influential commentator from the ruling family of the emirate of Sharjah, Sultan Sooud Al Qassemi, proposed naturalising “entrepreneurs, scientists, academics and other workers” who make outstanding contributions to the UAE. Published in an English-language Dubai newspaper in 2013, his opinion piece sparked an uproar. The reason: Emiratis, accounting for only around 12% of the population, sometimes feel that their identity is threatened. The government is trying to remedy that delicate situation by granting financial breaks in the areas of housing, health and education. Nevertheless, Emiratis make up a tiny fraction of the labour market, especially in the private sector, where, according to official figures, in 2016 they comprised around 0.5% of the total, despite a programme to encourage hiring them.

“The main problem,” says economist Nasser Saidi, Lebanon’s former Minister of the Economy, who moved to Dubai several years ago, “is striking a balance between the local and expatriate population. The Emirates are keenly aware of the need not just to attract professionals in order to breathe new life into the economy, but also to keep them here”—without upsetting the nationals or the established order. The quasi-absolute monarchy, which prohibits political parties and demonstrations, is willing to welcome talented people from around the world—as long as they stay out of politics and refrain from criticising the Emirates on social media. That is the price, they believe, of stability and development. It is also why naturalising foreigners is not an option at this point for the Emirates, which would rather reform the visa system. A new, recently approved draft making it easier for entrepreneurs, scientists and researchers to stay put will enter into force at an unspecified date.

 

HOPE IN THE MIDDLE EAST

Trump’s protectionist and anti-immigration policies, as well as tensions in Europe due to Brexit and the refugee crisis, may make Dubai more appealing to entrepreneurs from Arab, African and Asian countries, perhaps even Europe and the United States. “I think the Emirates offer young talents more opportunities than Europe or the United States, which are already saturated,” says Mr. Saidi. “Dubai is the only place in the Middle East that offers hope. In a tumultuous region, new generations can have a bright future here.” In Dubai, one can create start-ups, invent phone apps and do research on green energy sources in complete freedom—or almost. 

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