The Dubai economy is a centrally-planned free-market capitalism which is a big economy and growing at a high rate. The economy was initially based on the oil industry, natural gas and petroleum but has now diversified its sources of income.
The oil, petroleum and natural gas contribute only a small percentage (6%) of Dubai’s economic growth. The global market has a significant effect on the Dubai’s economy.
The global market has been experiencing ups and downs mostly resulting from global economic crises. Since Dubai has managed to position itself as an international trade center, it cannot avoid the effects of factors that affect global economy (Dubai Property Investment 1). One of the areas of Dubai economy that is greatly affected by the global market condition is the tourism industry. The company has put up luxury hotels, resorts and sporting events of high profile which are meant for tourism use.
Following the recent economic crisis, some of the foreign workers have been sent parking due to downtown in the tourism industry. The construction of magnificent of high rises and resort hotels has made Dubai a financial capital and a tourist attraction within the region (Persian Gulf). The global crisis has turned this boom into a burst.
The real estate and property industry has also been affected by the conditions in the world market. The government of Dubai has diversified the economy, making it service and tourism-oriented from oil-reliant trade. This strategy increased the value of real estates in the region. This created a property boom in the year 2004 to 2006 (Government of Dubai 1). The recent economic crisis has resulted to increased local and world prices. The demand for real estate has also decreased drastically.
The harsh conditions have also affected the Dubai’s international trade. Since the country has become the center of international trade, economic crisis that has hit most of the countries has also affected Dubai. Most of the foreign currencies have deteriorated against the dollar and therefore, importing commodities has become very expensive. This has reduced the market for Dubai commodities due to high prices.
Reasons that attract companies and countries to invest in Dubai
There are various factors that attract companies to invest in Dubai. The first one is the good security in the country. The country is considered one of the safest cities in the world. The country also has a liberal economic system and therefore, trade is easier to carry out. The companies registered in Dubai do not pay corporate tax. The country has a 5th best international airport in the world.
Impact of Dubai debt crisis on global economy
Dubai debts are approximately 80 billion US dollars with banks especially in Europe. The country’s debt problems have greatly shaken the European banks where most of the debts are owned. The country has been constructing extravagant buildings projects which were put on hold following the recent global economic crisis (Rahman 1). The banks feared that if the projects are not carried out, there are chances of defaulting on the loan. The debt crises also caused the banks to be extra cautious and try to avoid advancing more loans.
The debt crisis 2009 caused drastic fall in oil pieces, making the dealers to lose a lot of revenue. This disrupted the world market and especially the U.S. crude market which lost about 7% in revenue. The investors were approached to reprieve on payments for 60 billion U.S. dollars. This evoked fear on the investors and they felt that the debt problem might spill over to the world market.
The impact of Dubai debt crisis has also raised the need for risk management. This came with the announcement of one of the Dubai largest and most important conglomerate (CCTV.COM 1). Dubai World, in 2009, requested for delay in the repayment of 60 billion U.S. dollars which was a dangerous move. This caused panic across the world fearing that the lenders might collapse. The collapse of such company will cause a financial crisis on the global scale. This teaches the world the importance of risk management.
Dubai is a fast growing economy and the country has invested a lot in international trade. It has put up magnificent hotels and other structures that are meant to attract tourists. Initially, the country’s economy used to be reliant on oil industry, Petroleum and natural gas. Later, the government decided to diversify the economy by coming up with alternative sources of revenue like international trade. This nature of the economy has a lot of connection with the rest of the world and trades with different countries.
In other words, the country is part of the global economy. The country is therefore affected by the changes in the global market objectives. For instance, the recent global financial crisis affected the business. The currencies across different countries have been deteriorating since the global crisis of 2007 to 2009. This means that the price of imports is very expensive. The companies will therefore not export as much as when the exchange rate is low.
Most companies have been seeking for opportunities to invest in Dubai. The economy is attractive for investment. The country is peaceful and with enough security. The companies registered in Dubai do not pay corporate tax or income task. The company has other facilities that make it easier for investors to invest his money.
Dubai is therefore a good place for investment. Most of the companies, especially in Asia prefer to register their office in Dubai so that they do not pay corporate tax. In other countries, the corporate tax is very high. This attracts many companies to do their investment in Dubai. There is also a liberal economic system that enables investors to carry out their activities effectively without much interference.
CCTV.COM. Dubai debt crisis sounds new alarm for tightening risk management, 2009. Web. 11th October, 2011.
Dubai Property Investment. Property Investments | Properties In Dubai, n. d. Web. 11th October, 2011. < http://dubai.property-investment.com/dubai-whyinvest.php>
Government of Dubai. Why invest in Dubai? Web. 11th October, 2011
Rahman, Saifur . Dubai economy back on growth track, 2011. Web. 11th October, 2011. < http://gulfnews.com/business/property/uae/dubai-economy-back-on-growth-track-1.838548>