What is the economic success of Dubai attributed to?
November 24, 2008 4:45 PM   Subscribe

I read the Wikipedia article on Dubai itself, but am still confused as to exactly how businesses such as a hotel located in the country can afford to do things like put on a larger fireworks show than the opening ceremony of the Olympics.

A friend of mine with Republican/Libertarian leanings told me they do not charge any form of taxes and that is why business has boomed there, but I am a bit dubious about this answer.

I know they use a lot of borderline slave labor to build, but there has to be more than that too.
posted by idyllhands to Society & Culture (25 answers total) 3 users marked this as a favorite
Money laundering for criminal syndicates.
posted by sonic meat machine at 4:51 PM on November 24, 2008

According to the CIA, it's oil and foreign labour.
posted by Fiasco da Gama at 5:09 PM on November 24, 2008

Oil has been priced at over $100 per barrel for much of the past year. The UAE (in which Dubai is located) is a small country with the fifth largest proven oil reserves in the Middle East (over 95 billion barrels), producing over 2.9 million barrels per day.

posted by mr_roboto at 5:10 PM on November 24, 2008

When they calculate the cost of the Olympic fireworks, do they include the bits that were CGI?

But seriously, I don't understand your question. How can [a business] afford to spend twenty million dollars on [promotional activities]? They've got investors, they've got a product, they're spending money on promoting it, they think this is a good strategy.

The movie industry spends more than that on a mid-sized film.
posted by AmbroseChapel at 5:13 PM on November 24, 2008

Oil and slavery business-friendly labor laws.
posted by mullingitover at 5:16 PM on November 24, 2008 [2 favorites]

Forgetting the wealth of the country, the article says the fireworks cost a mere $3 million. Many European and American businesses could comfortably spend $3 million on fireworks when launching a flagship product or property - they just don't because it's crass.
posted by wackybrit at 5:17 PM on November 24, 2008 [1 favorite]

How can a 13-year-old girl afford a $10 million party? Seriously, $20 million isn't that much. A 30-second ad during the superbowl is over $2 million.
posted by sanko at 5:22 PM on November 24, 2008

There also tends to be a bit of hyperbole at work when it comes to corporate self promotion. According the article, the fireworks were "said by organizers to be 7 times larger than that put on for the opening ceremony of this year’s Beijing Olympic Games."

So.... a grand claim was made by people seeking publicity. Did anybody attempt to fact check the claim? I doubt the organizers were under oath, if ya know what I'm sayin'.
posted by spilon at 5:25 PM on November 24, 2008

cheapest room is about $600 per night.
posted by Frasermoo at 5:53 PM on November 24, 2008

Yeah, there is no income tax in a number of the oil countries. Dubai Taxes
posted by defcom1 at 5:56 PM on November 24, 2008

The hotel cost $1.5 billion to build, which probably doesn't even include creating the land it's built on out of the sea. Realize it's not just "a hotel", it's the centerpiece of the Palm Jumeirah, one of those absurd Dubai projects. So the promotions budget is similarly absurd.

Even so, the money on the fireworks was probably well spent. It seems like it was shown on newscasts around the world. They could have spent 10% of the money and got some normal fireworks -- but then you'd have never heard of it. That would have been truly wasted money.

Lots more info on Skyscraper city.
posted by smackfu at 5:59 PM on November 24, 2008 [1 favorite]

Best answer: The big deal there is that a very tiny percentage (17% according to Wikipedia) of the people who live in Dubai are actually Emirati, or citizens of the state. This means that whatever services the government is providing -- and they don't provide much, there is no home mail delivery in Dubai, for example (people get most of their mail at work or at PO boxes, many of the new hotels don't have street addresses even) -- only go to a teeny percentage of the population. This leaves about 80-85% other people who are mainly workers from impoverished countries who have a better gig working in Dubai [16 hour days, six day weeks] than they would in their home countries. There are also what Wikipedia terms "Westerners" who are about 3% of the population (though it seemed more to me when I was there) who are academics, oil industry people and other contract workers.

The main reason business is booming there, according to an article I read in (I think?) the New Yorker, is because Iranians do a ton of business in and out of there to end run US sanctions against Iran. While US interests are trying to find way sto shut this down, there is a shit ton of money going through Dubai from Iran to the rest of the world.
posted by jessamyn at 6:17 PM on November 24, 2008 [1 favorite]

Let's put the idea that this is all oil wealth to rest: oil accounts for some 40% of Emerati GDP in total, which is big, but only 6% of the GDP of Dubai. As the UAE consists of a federation of emirates which are more independent than US states are, this is significant.

One might similarly ask why New York is so wealthy. They don't actually produce much these days other than services. But hot damn if those services aren't lucrative. Dubai has strategically positioned itself as the services, particularly financial services, headquarters of the Near East. International banks, insurance companies, you name it. It's also a mecca for retail, entertainment, and vacation spots.

How has it attracted these things? Zero percent corporate tax rates certainly help, as does minimal government oversight/regulation. Ireland is experiencing a much smaller boom for similar reasons: low taxes attract corporate investment. So all that "wealth" that was "generated" in the recent global boom? Yeah, a lot of that wound up parked in skyscrapers in Dubai.

Yes, the Emeratis do employ a lot of foreign workers who can reasonably be described as slaves, but this probably only accounts for the sheer scale and ostentation of their building projects, not their presence. They'd still have been building skyscrapers, but they might not be the Burj. Maybe only the Empire State Building.

Whether or not they can keep this up in the face of the ongoing global economic downturn remains to be seen. The simple answer to "How can they afford this?" may actually be "They can't, it just looked like they could for a while there."
posted by valkyryn at 8:15 PM on November 24, 2008

Best answer: jessamyn is also on to something: Dubai is where many of the richest of the rich in authoritarian regimes go to play. So yeah, there's a lot of Iranian money in Dubai. But there's even more Saudi, Chinese, and Russian money there. Not only does this provide at least some measure of security from grasping home governments, but Dubai permits and even encourages consumption in ways that are impossible in many places. Dubai actually represents the wealth not just of its own citizens, but of the richest citizens of dozens of countries.
posted by valkyryn at 8:18 PM on November 24, 2008

yeah, it's not just Dubai's oil money driving things, it's the entire f-in' planet's oil money.

As I mention every time I can here, M3 of the USD has risen from $7T in 2001 to $14T+ now. 5% of that monetary inflation would be $350B.
posted by troy at 9:42 PM on November 24, 2008

Its something to invest all that oil money in. Real estate will be an asset when the wells dry up.
posted by MiltonRandKalman at 9:44 PM on November 24, 2008

Best answer: > Iranians do a ton of business in and out of there to end run US sanctions against Iran. While US interests are trying to find way sto shut this down, there is a shit ton of money going through Dubai from Iran to the rest of the world.

This, among other things. The Emiratis are, or at least try to be, the middle-men of the Middle East. It's sort of a crossroads where you can go to do business with people you might not ordinarily be able to, or want to, do business with. If you were an American and wanted, say, to do some profitable business in Iran or Syria, you could go to Dubai and find people who could act as pass-throughs and make it happen. (And lawyers to set up your shell company, and accountants to creatively account for the income, etc.) There is a lot of "brokering", for lack of a better word, that happens there.

The oil money is a big part of what's there, but there's also a lot of trade money. The big buildings are mostly from oil — they're basically investments, albeit highly speculative ones — but I'd wager that most of the Emiratis and Westerners there (of those who are not working on construction) are actually involved in trade. The oil makes a very few exceptionally rich, but trade makes a greater number somewhat less, but still comfortably, rich.

I think this is part of the long-run, post-oil plan for Dubai: they want to be the trading, East-meets-West center of the region, as well as a posh vacation spot for the wealthy. I'm not sure this is a safe plan but it does seem to be part of the plan.
posted by Kadin2048 at 10:41 PM on November 24, 2008

Also, all of those construction projects are highly leveraged, the Dubai real estate market had its own investment/speculation bubble which is now bust, property values are down something like 40%. There's a nontrivial chance that all those pretty buildings will turn into so many ruins 50 years from now.
posted by T.D. Strange at 10:43 PM on November 24, 2008 [1 favorite]

The business friendly environment is attracting companies from all over.
posted by electroboy at 8:13 AM on November 25, 2008

also, a can of coke costs like $30 in dubai. it's an exotic place, so the tourism industry does very well, because only the truly wealthy people can afford to be there.
posted by alice ayres at 8:41 AM on November 25, 2008

No, it doesn't. I was there for ten days in December. A can of Coke costs about seventy-five cents to a dollar twenty-five. Please do not contribute if you don't have actual information.
posted by jessamyn at 10:54 AM on November 25, 2008

Best answer: I've been living in Dubai on and off since 2000 now and basically people upthread are right, most of the money in Dubai comes from trade.

The Persian Gulf may seem like something of a backwater, on the fringes of the world, but 4 billion people live within 6 hrs flight of here. The big flagship projects are what get the attention worldwide, but what you might not know is that they have the largest deepwater harbour for thousands of miles, and that's being expanded.

The economy of the whole Arabian peninsula has been growing rapidly and Dubai has positioned itself as *the* place to put your regional HQ. Just try and get your employees to relocate to Saudi Arabia from the US or Europe, to Dubai is much easier.

Years ago, before Dubai was really on the map, the Sheikh decided that he wanted to make Dubai the media hub for the region. They financed a whole office park and secured CNN and Reuters as anchor tenants, within this area there are no laws governing the media. Where else could you find that in the region? There are actually a lot of these regulatory microclimates here, I work in the Financial Centre here which operates in what is financially speaking an extraterritorial zone, we just can't do business directly with the public in the rest of Dubai

The last thing, no matter how much we may bitch, it is way easier to set up a business here than anywhere else nearby. It can take months to get a business license in Syria, only a few days here.

And yeah, coke definitely does not cost as much as that unless you buy it in hotels, apart from housing which has been experiencing a wicked bubble, this isn't really such an expensive place to live if you avoid the vulgar extremes.
posted by atrazine at 11:21 AM on November 25, 2008

Response by poster: Thanks for the responses. To all the initial posters: I wasn't referring so much to the fireworks event specifically as to the general trends I've noticed when reading about business in Dubai.

And thanks for the pictures smackfu!

Follow up question: with such a (financially) impotent government, who does the policing? Are the businesses themselves hiring private security forces? If so, who polices them? Or is there some other source of tax money used to pay the salaries of official police forces? It seems like all that wealth would attract the more unsavory members of society (I mean, of course, besides Halliburton, etc.).
posted by idyllhands at 1:45 PM on November 25, 2008

I know people are probably only joking by talking about 'slaves' and 'slave labour' and so on, but it's a bit distasteful, and it probably helps lower people's threshold of concern when the subject of actual slavery comes up.

The workers in Dubai probably don't have great pay or conditions and they probably don't have the rights that the average MeFite does, but that's not slavery.
posted by AmbroseChapel at 4:43 PM on November 25, 2008

Best answer: Follow up question: with such a (financially) impotent government, who does the policing? Are the businesses themselves hiring private security forces? If so, who polices them? Or is there some other source of tax money used to pay the salaries of official police forces? It seems like all that wealth would attract the more unsavory members of society (I mean, of course, besides Halliburton, etc.).

There are a lot of use-charges. It costs to get a visa, to register a car, etc. There is also a lot of oil money from Abu Dhabi that comes here. VAT (Value Added Tax) is scheduled for introduction over the next few years to provide a non-oil source of revenue. There is an ordinary police force.
The most expensive things for European governments are their entitlement programs, since only 18% of the population here are citizens, it is fairly inexpensive to fund them.
posted by atrazine at 8:25 PM on November 25, 2008

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