Dubai Serves As Diversification Model
Sunday, February 4, 2007; 4:18 PM
DUBAI, United Arab Emirates -- Dubai's push to diversify its economy may not only save it from a possible crash in oil prices but could also serve as a model to other Gulf Arab states for a post-oil era, its leader and economists said.
Dubai's ruler, Sheik Mohammed bin Rashid Al-Maktoum, vowed at a ceremony Saturday to make his emirate "a pioneering global city" that would be "free of the direct influence of oil price fluctuations."
The occasion marked the launching of the so-called Dubai Strategic Plan _ an ambitious project to increase the real per capita gross domestic product, which takes into account inflation, of this Arab city from its current value of $31,000 to $44,000 in 2015.
The increase would require a sky-high 11 percent annual GDP growth rate.
Al-Maktoum said the non-oil sector now accounts for 97 percent of the emirate's total GDP _ a significant shift from 1975, when oil revenues made up 64 percent of the GDP.
This is in sharp contrast to the oil-rich Abu Dhabi emirate, which produces more than 85 percent of all oil from the Emirates combined. The non-oil sector contributed only 37 percent of Abu Dhabi's GDP in 2006, according to official sources.
Unlike Abu Dhabi and the five other emirates in the oil-rich United Arab Emirates, Dubai is not home to significant oil reserves.
This has forced it to tap into other assets and become a prime holiday location and investment banking center for the rich and famous, especially from the Arab world. Dubai has also taken advantage of its location to become the biggest re-exporting center in the Middle East, accounting for about 85 percent of the Emirates re-export trade, according to official statistics.
Tactics to attract investment have included liberal government policies, highly developed infrastructure, and low operational costs.
"This city has tried for the last 15 years to accomplish one strategic objective _ to build the first non-oil economy in the region," said Abdul Khaleq Abdulla, economist and political science professor at United Arab Emirates University in Abu Dhabi.
"It wants to prove that life after oil is possible, and can even be better," Abdulla said. "Dubai has proven that we should take it seriously."
Even though Dubai still exists in an oil region and attracts oil money surplus, when the oil price drops, Abdulla said, "there is not going to be a crash landing."
Steve Brice, regional head of research for the Standard Chartered Bank, said Dubai leaders broke ahead of other Gulf Cooperation Council, or GCC, countries in the early 1990s by realizing that oil revenues alone were not sufficient to develop the economy.
Now Dubai serves as a leader for other Gulf countries in diversification, Brice said. "Oil prices matter less and less."
But economists have also warned that despite Dubai's attempts to minimize the economy's reliance on oil revenue, a sharp cut in oil prices could still hurt it.
A report on the future of Gulf economies by HSBC bank in January warned that if the price of oil falls below $40 per barrel, it could curb growth sharply. Oil was slightly above $59 a barrel in New York on Friday.
The GCC accounts for about 37.7 percent of the world's total proven oil reserves, according to Oil and Gas Journal.
Some analysts say large petroleum reserves have been more of a disadvantage to Gulf countries because they hold the economy at the mercy of the boom-and-bust cycle of oil prices. Current high oil prices have spurred unprecedented economic boom in the Gulf.