Economic trends

Dubai: the UAE’s hedge against oil

With a well-connected transport hub, Dubai is driving growth and job creation beyond oil

The news that Dubai is now the world’s busiest international airport, surpassing London Heathrow, is a timely reminder that not all Middle East economies are dependent on energy as a mainstay of growth and job creation.

With oil prices plunging 60 per cent, much attention is justifiably focused on the Middle East’s traditional dependence on hydrocarbons as a lifeline.

However, such attention makes it easy to overlook that there are a few oases of economic activity that are not only uncorrelated with oil, but starting to achieve meaningful, critical economic mass.

A superficial look misses the fact that Dubai has very strong economic fundamentals

Among oil-producing countries, the UAE – the second-largest economy in the Middle East – has been the champion of GDP diversification. Over two-thirds of its GDP now comes from non oil. And most of it comes from the Emirate of Dubai.

Tourists, business travellers or those on short stays often leave Dubai wondering what real and sustainable drivers underpin the economy. This is because a superficial look misses the fact that Dubai has very strong economic fundamentals.

Top international hub

The fact that Dubai Airport is now the world’s busiest international airport, surpassing London Heathrow, which had held the top spot for years, is a poignant proof point.

According to Airports Council International, 70.5 million international passengers passed through Dubai Airport in 2014, against Heathrow’s 68.1 million. Numbers have roughly doubled since Dubai entered the global airport Top 30 just seven years ago, increasing nearly seven-fold since 2000. Dubai Airport Duty Free is now the largest in the world, with revenues of about USD 1 billion a year.

Aviation activity is set to account for almost a quarter of employment in the emirate by 2019

And Dubai’s climb up the international aviation ladder does not end there. Another airport closer to the deep port of Jebel Ali, has plans for six runways and ultimately 160 million passengers. An exclusive free-zone corridor will link the new airport, creating a perfectly integrated logistical hub.

The new airport’s cargo facility has already opened, with limited passenger traffic, and will provide a massive boost to job creation in Dubai. The sheer scale of the project means that aviation activity is set to account for almost a quarter of employment in the emirate by 2019.

Strategically located in the middle of major global trading routes, Jebel Ali is already the largest man-made port in the Middle East, and the largest between Asia and Europe. The current expansion plan will make it the largest port in the world. Revenue generated by the port accounts for roughly a quarter of Dubai’s GDP but we estimate that, including indirect revenues from ancillary activities, the true figure is close to 40 per cent.

Increased global trade could benefit Dubai

Creating such large-scale transportation hubs can make a country escape its geographical limitations and the perceived inevitable fate of commodity-gifted economies.

Dubai’s economy, while still dependent on the region’s oil wealth through second-round effects, is in fact more closely connected to global trade now, and lower oil prices could actually translate into increased trade which would benefit Dubai.

By building economic sectors that are revenue-generating in themselves, Dubai has created positive externalities that encourage other sectors to flourish

Dubai’s creation of such a well-connected transport hub also serves as a powerful magnet for corporations intending to operate regionally or globally. In other words, by building economic sectors that are revenue-generating in themselves, Dubai has created positive externalities that encourage other sectors to flourish: financial services; tourism based on business, conference and leisure; and related logistics activity.

In the long term, the UAE has already built its hedge against oil: Dubai.

A version of this article first appeared on beyondbrics on 03 February 2015

 

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