The Burj Al-Khalifah soars above almost a kilometer into the air, towering over the skyline of Dubai. The skyscraper is a testament to soaring ambitions of Sheikh Mohammed bin Rashid Al Maktoum and the elite that surrounds him. A century ago Dubai’s primary industry was pearl diving, and few outside of the region had heard of it. Today, unlike it’s neighbors that are dependent on oil wealth, has a flourishing economy and the center of global networks of trade and finance. In today’s podcast episode, will be charting the spectacular rise of Dubai and examine the factors that have led to its success. I will be focusing on the rise of Dubai as a center of trade and logistics, the role of immigration in providing the manpower for development, and the country’s ability to import institutions that generate wealth for the city’s elites.
In 1853 the Sheikh of Dubai signed a treaty with the British Empire promising to stamp out piracy in return for cash payments and a promise of autonomy. Dubai became a coaling station for British steamships, and became an entropot where merchants from throughout the region traded pearls, spices and gold. After the independence of India, the government of India banned the import of gold to conserve on foreign exchange. A massive smuggling trade almost immediately. By 1970, Dubai was importing 370 tons of gold a year, one fifth of the global total and Dubai’s first international airport was built to service this trade.
Massive infrastructure projects gained an economic logic of their own. Nearly 16,000 Ton Equivalent Units of cargo pass through the Jebal Ali port every year, making it the busiest port in the middle east and the sixth busiest in the world. 90 million passengers pass through Dubai International Airport every year making it the third busiest in the world. The United Arab Emirates earned $27 billion in direct export revenues from transportation exports. More importantly, Dubai has leveraged it’s position as a logistics hub through the creation of Free Zones. Free Zones are areas in which foreigners are allowed to start companies without local partners, repatriate 100% of profits, avoidance of tariffs and customs duties, and bureaucracy and infrastructure specifically built to suit the needs of business. The Jebel Ali Free Zone generates over $80 billion of trade a year, and is the home to 7,300 international companies.
Dubai’s booming economy could not function without the city’s massive immigrant labor force. In 2005, 90% of Dubai’s population was non-Emirati and the percent has likely only increased since then. Immigrants make up 96% of Dubai’s labor force, and over 99% of the private sector labor force. The overwhelming majority of migrants in Dubai are low skilled manual workers from South and South East Asia. One quarter of Dubai’s population comes from Dubai, especially from the state of Kerala, and there are twice as many Indians in Dubai than Emiratis. The overwhelming majority of these people work as housemaids, construction workers, and retail staff. It is the opportunity to earn high wages that attracts millions of workers to Dubai. A housemaid in Dubai earns around $450 a month, and construction workers can earn slightly more than that. While this is abysmal pay by developed world standards, it is far higher than what can be earned in India or Pakistan. Migrants to the United Arab Emirates on average save 70% of their income in order to send approximately $24 billion to their home countries every year.
However, labor conditions for migrant workers can be harrowing. Hundreds of migrant construction workers die every year thanks to lax safety standards, domestic servants regularly suffer sexual abuse, and despite the fact it is illegal, many workers have their passports confiscated. These abuses must be understood in the context of Dubai’s Kafala employment system. Migrants must gain sponsorship from a Emirati employer, and can only work for this employer. An employee cannot leave an abusive employer, and employers have the power to place major roadblocks for those employees trying to leave Dubai. The result is a system where potential for abuse is rife.
Finally, Dubai has succeeded by replicating the institutions of wealth generations. Dubai has emerged as a hub of business for entrepreneurs from nearby countries where doing business is hard. Dubai’s predictable laws, and pro-business regulation offers a stark comparison to the chaos of Somalia or the stifling bureaucracy of pre-reform India. The Somali airlines, and largest telecommunications company are operated from Dubai. Similarly, Dubai currently has 10 billionaires born in India, as many of India’s entrepreneurs find Dubai a more congenial place to do business. Similarly, as I mentioned earlier, Dubai has created Free Zones with rules favorable to international business. One example that epitomizes this the Dubai International Finance Centre. The DIFC does not operate on Dubai law, but instead on Common Law based upon Anglo-American precedent. The judges in the DIFC come from the United States, and in principle function identically to judges in New York City or London. To be clear, Dubai is not a democracy or anywhere close. However, the rulers of Dubai have found that institutions that constrain their power under specific circumstance strengthen their overall power.
Dubai has grown from a minor trade depot to one of the world’s most important centers of trade and finance thanks to it’s investment in trade infrastructure, it’s openness to immigration, and it;s ability to adopt institutions that sustain growth. Dubai today is a nation of contrasts and paradoxes. Despite being located in the most oil rich region in the world, Dubai relies upon trade and finance for it’s economic success. It has created an environment where modern business can thrive despite a political system that has changed little over the last two centuries. It is a country where some of the wealthiest people in the world in man made islands alongside migrant workers living and working under the harshest conditions. Thanks to the economic success of Dubai, these contradiction are of immense importance to the world.
The Geography of Present-Day Smuggling in the Western Indian Ocean: The Case of the Dhow, ESMOND BRADLEY MARTIN
Merchants’ role in a changing society: the case of Dubai, 1900–90, Fatma Al-Sayegh
Demography, Migration, and the Labour Market in the UAE , Françoise De Bel-Air