Johan Ibrahim Adrián

Dubai: The secret strategic journey from barren desert to world power Dubai didn’t even exist 60 years ago, or at least not as we know it today. Then, it was a tiny fishing village next to a barren desert with nothing special about it. But oil came into play and changed it all. Now, this small piece of desert is one of the most wealthy, powerful, and influential places on earth. Do you want to know how they did it? Stay with us as we take a deep dive into Dubai’s long-term strategy for wealth and power! ​ Quick facts about Dubai Let’s begin with the goodies, shall we? Just a quick battery of facts that will blow your mind and turn you into an instant Dubai fan (if you aren’t one already): ●​ Did you know that Dubai has FOURTEEN resident BILLIONAIRES? ●​ Or that this place is the headquarters of 7 of the top 2,000 public companies with a combined value of 65 BILLION DOLLARS? ●​ They also built the largest man-made island ever constructed. It’s a complex of artificial islands so big they can be seen from space! ●​ Oh, and they also have the tallest building ever erected. The impressive skyscraper known as the “Burj Khalifa” reaches a whopping 828 meters high with 163 stories! ●​ Have you ever thought of visiting or moving there? Well, you’d be sharing a home with A LOT of foreigners. There are seven times more foreigners than locals in the United Arab Emirates. More than 88% of residents come from other countries all around the world. ●​ One of the juiciest reasons for this might be the fact that there are NO TAXES in Dubai. Yeap! No personal or even income taxes for residents. ●​ And what about their famous riches? They are not afraid to look a bit obscene about it. If they were, they wouldn’t have GOLD-dispensing ATMs. You know, because cash is so mainstream. ●​ That shouldn’t be surprising for a government that uses supercars like the Ferrari FF, Lamborghini Aventador, and even the Bugatti Veyron as POLICE CARS. ●​ They also have the first seven-star hotel in the world: the sail-shaped Burj Al Arab, located on its own private island. Gold ATMs don't impress you? Well, this building features roughly 1790 square meters of its interiors covered by 24-carat gold leaf! ●​ And for a final fun fact, Dubai’s proven oil reserves are believed to reach total depletion in the next 20 years! WAIT… WHAT? We’ll have to go deeper into that. The “what” and the “where.” But first, let’s clarify some things that are both part of Dubai’s identity and strategy. The WHAT and the WHERE. First of all: WHAT is Dubai? As we hinted above, Dubai is not a country. It is more like what we understand as a “state,” and it's one of seven “emirates” that, grouped in a federation, form the nation known as the United Arab Emirates, with Abu Dhabi as its capital. So far, so good, right? But where is it located? That’s one of the critical questions to understand Dubai’s importance and strategy. According to Wikipedia, the UAE is a country “located in the Middle East, at the eastern end of the Arabian peninsula, and shares borders with Oman and Saudi Arabia, while having maritime borders in the Persian Gulf with Qatar and Iran. Abu Dhabi is the nation's capital, while Dubai, the most populous city, is an international hub.” And it’s the 'international hub' part that gave Dubai its strategic importance: a privileged location, in a spot that could be seen as the center of the world. And, if you take a good look at the world map, it is kind of in the center of the world. So, you might imagine this location had an untapped potential waiting to be exploited. And that’s what the rulers of Dubai would do after finding the magic natural resource that started it all. Dubai’s Rise A strategic place covered with dust and sand, it’s still only dust and sand. Unless you make something out of it, Dubai’s way to grandeur started. The UAE built the essential infrastructure for oil extraction, and Dubai built its first international airport. The first oil export from Abu Dhabi was completed in 1962. When they found oil in Dubai, the reserves were not as large as, let’s say, Venezuela’s (the South American country that holds the first place in proven oil reserves in the world with a whopping 18.2%). The smaller size of the found reserves helped Dubai’s rulers understand they couldn’t become an oil-dependent economy. The UAE possesses 5.93% of the world’s oil reserves; from this number, only a tiny percentage belongs to Dubai, reaching approximately 0.24% of the world’s total reserves. Thus, Sheik Rashid bin Saeed Al Maktoum, vice president of the UAE and ruler of Dubai at the time, wasn’t too impressed. He declared, “I have good news and bad news: we found oil, but not too much.” So, Sheik Rashid made it his personal endeavor to transform Dubai into a city of the future and, for the future, obsessed with the idea of building something that would last beyond generations and, most importantly, beyond oil. Beyond Oil: The “Jebel Ali” Port Yes, oil kick-started Dubai’s impressive transformation, but as Sheik Mohammed bin Rashid Al Maktoum (son and successor of Sheik Rashid and current ruler of Dubai) once said: “Dubai was built on trade, not oil.” This family took the desert’s future on their shoulders and worked hard to build one of today’s neural trade centers worldwide. They did this by securing the domain over the region with the construction of the Jebel Ali Port, establishing the first steps for creating a commercial route to Iran and toward the Persian Gulf, a strategic pathway to the Arabian Gulf, the Indian subcontinent, and some Commonwealth nations. Dubai’s privileged location even puts it very near Africa. They couldn’t have asked for a better strategic advantage: access to and from several of the most critical regions in the world, first by sea and, more recently, by air. Dubai built and built and kept building. The Sheik materialized his vision by taking billion-dollar loans with the certainty of a visionary. They built world-class shipping facilities, cooling centers, and gigantic storage bays, and started to provide quality shipping services for the world. It wasn’t long until they became a neuralgic center of operations for commerce. The barren, empty desert from last century’s tale now has the 9th busiest port in the world and handles 10% of the world’s container traffic, roughly FOURTEEN MILLION CONTAINERS PER YEAR. Do you remember oil? As of today, it comprises no more than 1% of Dubai’s GDP, while the maritime industry holds as much as 7% of its GDP. The “JAFZA” Free Zone ​ ​ But Jebel Ali (and the rest of the ports built after it) wasn’t the only idea the Sheik had. Today’s Dubai is held in place by the groundbreaking idea of The Free Zone (also known as JAFZA). JAFZA is the world’s largest economic free zone with an astounding surface area of 57 square kilometers. This area, practically a city within the city, employs nearly 150,000 people and generates a whopping $80 BILLION a year in non-oil foreign trade, representing 21% of Dubai’s total GDP.​ The Free Zone is an area for companies from all around the world to establish their businesses with special and mind-blowing privileges, which include: ●​ 100% foreign ownership: You don’t have to collaborate with a local company OR THE GOVERNMENT to set up your business in Dubai. ●​ 100% repatriation of capital AND profits (you can send 100% of your profits and investment money to your home country). ●​ 100% IMPORT AND EXPORT TAX EXEMPTION. ●​ 100% exemption from income and corporate taxes (except on oil companies and foreign banks). Winning The Future So, “what do they win?” You might be asking yourself. Well, they win THE FUTURE. As simple as that. By creating an environment that nourishes economic de-risking, diversification, and the establishment of an irreplaceable (and irreversible) global business ecosystem for the companies that choose Dubai as their place of operations. It doesn’t make them win a lot of money immediately. Still, it will be in the following decades: after businesses are established (10 years after the company's arrival), they start charging what is perceived as a little tax (5% -10%) on their operations. But by this point, all companies are more than happy to pay it and will never leave Dubai, as they are submerged knee-deep in its global ecosystem: The free zone, the shipping and trading facilities, the connections with hundreds of other individuals and companies around the world, everything they have already built in Dubai. The names of the game are diversification and long-term planning! Everyone’s invited ​ This constant (and enormous) flow of investment comes with more and more construction, infrastructure, and modernization that conspire to create a new kind of global metropolis (as redundant as that might sound). ​ Think about it: a radius of eight-hour flights (or less, maybe even half in some cases) connects Dubai with the most critical locations in the world: all of Europe, Singapore, India, China, and the most influential African countries. In relation to other super essential places in the world that happen to be very far away (the USA, Canada, and Australia), Dubai usually serves as a docking middle point for ships and planes that need to stop over… And what does this all mean? That’s right! Tourism! Again, its privileged geographical location makes it the perfect place to stop when traveling from and to all these places, creating more and more possibilities for tourism. But why is it so attractive? Dubai literally re-shaped the unattractive barren land of the desert and transformed it into a luxurious sci-fi-like utopia. That was where the oil money originally went. It has become a place people want to see, and this is easily verifiable with numbers. As the country becomes more modern and luxurious, tourism rises to numbers as high as 16.73 million tourist arrivals a year as of 2019. A fantastic, ever-growing list of artificial marvels makes Dubai so attractive for tourists worldwide and a must-visit destination for every type of traveler. The list includes: ●​ The world’s largest resort. ●​ Burj Khalifa: the world’s tallest skyscraper. ●​ An astounding series of impressive MAN-MADE ISLANDS that can be seen from space and created a multi-million-dollar real estate empire out of nowhere by adding 70 KILOMETERS of land to the originally existing shoreline of Dubai. ●​ Luxury hotels (including the impressive Burj Al Arab, the first seven-star hotel in the world), amusement parks, aqua venture parks, underwater aquariums, and SKI SLOPES in the middle of the desert… we aren’t even kidding here; these people IMPORTED more than 16 tons of snow to create a ski slope in the middle of the desert! That’s how far they would go to offer top-notch tourist experiences. AND IT WORKS. They create the conditions for people to WANT to go there and SPEND MONEY. As a result, they reach an average International Overnight Visitor Spend that goes as high as 30.82 BILLION dollars (in 2018). If we want our jaws to drop, we can compare that number against New York’s 16.43 billion. Can we still say that New York is the world's capital after we look at current affairs? We doubt so. As Dubai keeps growing exponentially, it seems destined to take over that mantle sooner or later; It is already 5.24 times bigger than New York in terms of land extension, and if economic growth keeps as steady as it is right now, we could totally see Dubai becoming that Metropolis of the future. Lessons to learn from Dubai Remember when we talked about diversification of the economy? As of today, tourism represents 11.5% of Dubai’s GDP. They have already built that irreplaceable (and irreversible) global business ecosystem around this new type of luxury tourism. So that’s lesson one: exploit what you have or build something that can be exploited. We also mentioned the next lesson before, long-term thinking, planning, and investment. If a place with nothing but sand and desert made it this far and created these kinds of attractions, can you imagine what other countries —more blessed by natural resources and wonders— could do? Having resources at hand is not enough. Again, look at the country with the largest proven oil reserves in the world: Venezuela. Located on the most septentrional coast of South America, this country should be a world power by now. Blessed with magnificent natural scenarios, obscene amounts of oil being exploited for more than a century now (“Zumaque I”, the first commercial oil well in the country, started producing oil in 1914), a strategic location in the middle of the Caribbean and right next to the Atlantic Ocean… and what do we know this country for? Political turmoil, hunger, poverty, and economic instability. It is what you do with the resources at hand that matters in the long run. And the House of Maktoum, the ruling royal family of the Emirate of Dubai, has been looking toward the future since its foundation in 1833. Dubai’s Problems But not all that glitters is gold. Dubai might sound like a utopia for its rulers and owners, but it surely is more like a dystopian place for those without money or power. Several problems have arisen in the region in recent years despite the overall favorable conditions, the constant flow of investments, and the growing flow of tourism. The global economic crisis of the late 2000s hit Dubai’s real estate projects. Prices collapsed throughout the emirate around 2009, and it was found that more than two hundred construction projects were canceled between 2009 and 2011. Things got so bad that Abu Dhabi had to bail them out with a TEN-BILLION-Dollar loan. So, yeah, nothing guarantees that exponential growth could be sustainable indefinitely. Dubai’s workers are the ones who mainly see the dystopian side of it all: migrant labor abuse is a massive problem in the UAE and some of its neighboring nations. Workers who live in less than wealthy conditions coming from South Asia (India, Pakistan, and Bangladesh mainly) represent the gross of Dubai’s population, consisting of almost 85% of foreigners. These workers often face poverty and slavery-like conditions since their passports are withheld by unscrupulous companies that force them to work until they complete inhumanely sized projects. These conditions are getting a bit better lately, as regulations have been set in place regarding weekly off time for all workers, paid vacation days, and a binding work contract. But there’s still a lot to improve, and exploitation is still a harsh reality. And, yes, just as we said at the beginning of this video, oil projections seem to indicate that Dubai’s oil reserves are going bye-bye in the next twenty years. Hence, a proper and more profound diversification of the economy seems more urgent than ever. OUTRO Experts are beginning to point their fingers (and their capitals) at the aerospace industry and the ever-growing tech market currently dominated by China. 39-year-old Sheik Hamdan bin Mohammed Al Maktoum has a world-class challenge in hand as the next-in-line Sheik to bear the responsibility of building a better, more significant, more luxurious, and wealthier Dubai. Only the sands of time will tell if he will succeed at this titanic enterprise or if the famous line of the former ruler of Dubai (and his grandfather) Sheik Rashid bin Saeed Al Maktoum will become a prophecy: “My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.”