Summary of the Dubai Reading
Kazim (2010) wrote a historical article about Dubai, tracing the economic steps of this important city from the early XIX to the beginning of the XXI century.
Dubai in the Early Colonial Period (1820-1945)
Kazim reports that the British took over the area known as the Trucial Emirates (the current United Arab Emirates, UAE) with the destruction of the Al-Qawasin, an Arab mercantile group, in the 1820s (Kazim, 2010, pg. 75). The British leveled the existing key mercantile cities, took over the ports and established their colonialism, which contained the trade only within the British Empire. This was a harsh blow to a region which traded with both East and West since immemorial times, and the population was more than halved during the XIX century (Kazim, 2010, pg. 75).
The main trade fostered by the British - and particularly by their Indian merchant communities, the Banyan and the Khojah - was the pearl trade. Pearls became the major export of the region (Kazim, 2010, pg. 76). The British established regular steamer service to the area and, to ensure the Gulf ports could pay for imports, they developed other cash export commodities such as opium. Of great importance to Dubai was the 1902 closure of the ports of nearby city Lingah, after which Dubai took over as a major steamer port (Kazim, 2010, pg. 78). In 1904, the Sheikh of Dubai, Maktoum bin Hashar abolished the customs duty and declared the city a free port. The other trading cities declined and Dubai rose to prominence not only by its opium and pearl trade but also importing and re-exporting goods within the British Empire (Kazim, 2010, pg. 79). Thus was the vocation of Dubai as a trade city was established.
Dubai in the Later Colonial Period (1945-1971)
The pearl trade declined because of the rise of the Japanese cultured pearl industry. Because of the import and re-export of goods, Dubai continued as a major trading city, central to British interests in the region (Kazim, 2010, pg. 79). Sheikh Sa`id and Sheikh Rashid initiated many projects to enhance the commercial importance of Dubai and the Arabian Gulf. Major projects were the deepening and renovation of the port and the construction of Dubai`s airport, all financed with British money. The Dubai government accommodated the interests of the British and the merchant classes by borrowing money against future oil income (Kazim, 2010, pg. 81). This period witnessed the growing numbers of foreign workers, and by 1968 half of Dubai`s population was composed of immigrant labor. In sharp contrast to older mercantile cities of the region, which exported local commodities, Dubai became a hub for the international exchange of goods produced everywhere (Kazim, 2010, pg. 82).
Dubai in the Early Postcolonial Period (1971-1995)
In the aftermath of British decolonization, Dubai continued to play its intermediary role as a major redistributor of goods, as well as a main oil exporter. It witnessed the rise of multinational corporations (MNCs) and decided to facilitate their arrival with the establishment of the Jebel Ali Free Zone in 1985 (Kazim, 2010, pg. 83). The free zones allowed investors to repatriate all of the invested capital and profits, with a 50-year long tax break, and complete freedom to recruit expatriate personnel. Such zones, particularly Jebel Ali, were a great success, with the establishment of over 800 MNCs by 1995.
Dubai in the Later Postcolonial Period (1995-2010)
This era witnessed both the attraction of several multinational investors to Dubai and the rise of the city as a global investor itself (Kazim, 2010, pg. 85). There was the creation of more than fifteen free zones, such as the Dubai Media City and the Dubai Financial District. New MNCs included CNN, Reuters, BBC, Standard Chartered Bank, and Barclays Capital. New land ownership rules led to a construction boom, and by October 2009 Dubai had constructed over 390 skyscrapers (Kazim, 2010, pg. 87). The service sector was 74% of Dubai GDP in 2007, while oil had declined to a mere 5%, marking the transition of Dubai to a modern, diversified service economy.
Reflection
The Kazim article showed a fascinating side of the Dubai economy and was thoroughly based on historical facts, which add to the credibility of the author. Thus, I agree with Kazim’s statement “the history of Dubai illustrates the larger processes about the rise and decline of earlier cities in the region” (Kazim, 2010, pg. 74). Indeed, commerce has been a trademark of Gulf cities, because of their privileged location connecting the Eastern and Western worlds, since the Dawn of Men. Dubai played its strengths and has been winning the game. For example, when they suffered a major blow in the pearl trade because of Japanese competition, they moved on and further diversified their trade, displaying adaptability within tradition.
Other authors, such as Menoret (2014), support Kazim’s opinion and extend it further. Menoret (2014) also questioned what the world could learn from Dubai. His twofold answer was that trading cargoes could become the engine of great success if you attracted top rated partners, and that economic growth could be engineered by strong government push (Menoret, 2014). This author posits that a generic free market strategy could have turned Dubai into a mere satellite of the Western world, but the city rulers were able to foster a competitive environment, calling Dubai a “misplaced Asian tiger in the Gulf” (Menoret, 2014).
Naturally, there would not be a powerful Dubai were there not booming free markets both East and West of the city. However, like many cities in the nearby Levantine region can attest, being in the crossroads of worlds and markets is not by any means a sure path to success. The vision of Dubai’s ruling elite, since the XIX century, furthered its growth and allowed it to grow from one of the major ports of the Gulf into a truly global, modern hub, where the World meets and rejoices.
Summary of the Abu Dhabi Reading
This article focused on Abu Dhabi flexing its economic muscle as it enters the XXI century with an increasing oil economy, petrochemical industries, and huge overseas investments (Davidson, 2010, pg. 101). The author also reports on Abu Dhabi`s ventures into a New Economy, to reduce the focus on oil, contrasting them against the "seemingly problematic diversification" of Dubai (Davidson, 2010, pg. 102).
The Hydrocarbon Economy
Davidson indicated that Abu Dhabi was to reach an oil output of 3.5 million barrels per day in 2010, mostly sold to China and other Pacific Asian countries (2010, pg. 102). Even with this high production, estimates indicated Abu Dhabi's oil reserves should last until 2100. Several MNCs operated on Abu Dhabi oil, such as BP, Shell, Exxon, and Total, alongside the Abu Dhabi National Oil Company (ADNOC), bringing expertise and technological input to the region. Gas reserves are larger elsewhere in the Gulf region, but Abu Dhabi controlled 3.4% of the world's natural gas reserves (Davidson, 2010, pg. 103). Nearly all of the remaining sectors of the economy is linked to the oil powerhouse, the major competitive advantage of the city.
Oil-Related Industrialization
After the first oil boom, state-owned heavy industry companies were founded, focusing on plastics, fertilizer, petrochemicals, and metals - all of them connected to the oil economy of Abu Dhabi. It was of notice the largest aluminum processing facility of the world, on a man-made island - aluminum production requires extensive energy resources, and albeit the diminishing gas prospects, Abu Dhabi has plenty of oil to sustain the metal production (Davidson, 2010, pg. 104-105). All of these oil-related products were exported, mainly to Asia.
Overseas Investments and Sovereign Wealth
The surplus oil has generated a lot of foreign revenues to Abu Dhabi, which government used it in significant overseas investments. As of 2008, Abu Dhabi Investments Authority (ADIA) had an estimated US$ 630 billion in investments, likely the world's largest sovereign wealth fund (Davidson, 2010, pg. 106). Other two colossal sovereign wealth funds invest in North Africa and overseas oil investments (in partnership with ADNOC). A fourth fund, the Mubdala Development Corporation, has attracted considerable attention for its foreign investments linked to the New Economy of Abu Dhabi.
The New Economy: High-Technology Heavy Industries, Future Energy, Exclusive Real Estate, and Luxury and Cultural Tourism
Led by Sheikh Muhammad bin Zayed Al-Nahyan, the reformers wished to diversify Abu Dhabi's economy since the late 1990s, following in the footsteps of nearby economies such as Dubai, Qatar and Bahrain (Davidson, 2010, pg. 109). Such diversification might attend to the demand of qualified labor by the educated young nationals of the country.
"Plan Abu Dhabi 2030" focused on a few high-technology industries such as aerospace, computer microprocessors, shipbuilding, and defense. All of these endeavors are based on international partnerships where Abu Dhabi provides capital and specialized MNCs provide technology and labor, in an attempt to "leapfrog decades of research and development" (Davidson, 2010, pg. 111) and enter the First World. For example, the Mubdala sovereign wealth fund bought an 8.1% share of AMD (American microprocessor manufacturer), and together they established a joint venture to produce microprocessors and related products in Abu Dhabi.
Abu Dhabi invested in green industries, such as companies which research carbon-capture technology. Its greatest investment, however, was the long-term contract with South Korea to develop nuclear power plants, which should meet 30% of Abu Dhabi needs by 2012 (Davidson, 2010, pg. 115).
Unlike Dubai, which caters to a middle-to-high-income market, real estate in Abu Dhabi focused on the high-end market (Davidson, 2010, pg. 117). Furthermore, there is strict construction zoning and great concern about separating the more conservative Abu Dhabi nationals from foreigners, to avoid problems experienced at Dubai.
Albeit secondary to the other sectors of the New Economy, this investment shines with the Saadiyat Island, a major cultural hub with branches of the Louvre and Guggenheim museums (Davidson, 2010, pg. 120). Moreover, Etihad Airway made an aggressive move against the local competition of Qatar Air and Emirates Airlines, having placed a US$ 43 billion order for 200 new aircraft.
Reflection
The Davidson article was interesting and complete in its depiction of modern Abu Dhabi economy. The city has a thoughtful plan to play right its competitive advantage, that is, its massive and growing oil production. However, I find it hard to agree with the author’s statement “unlike the more urgent and seemingly problematic diversification that has taken place in Dubai and elsewhere in the Gulf” (Davidson, 2010, pg. 101), Abu Dhabi can carve a sustainable and diversified economy.
The main point of the New Economy ventures is the trade between Abu Dhabi’s cash – fueled almost entirely by oil exports – and the technology and specialized labor provided by the MNCs from developed countries. In less than a decade, the new factories and technology installed will be old, and Abu Dhabi will be where it started, having to trade yet again cash for technology. This is hardly sustainable; in fact, it is the exact opposite of sustainable development.
For the high-tech economy to be sustainable, massive R&D investments would have to be made in the local universities and laboratories, for the local scientists to generate knowledge and innovation. Furthermore, a segregated society – as suggested by the author on many occasions in the article – is hardly conducive to innovation. If there are any doubts, I indicate that Davidson visits notoriously innovative cities, such as Seattle, San Francisco, New York, London, Tokyo or Hong Kong. They are all inclusive cities, not segregationist.
Another author, Krieger (2007), indicates, “Winning over the Louvre was merely the first step in Abu Dhabi's grand plan to transform itself into the cultural capital of the Middle East.” The author further calls Saadiyat Island “perhaps the most ambitious cultural development project ever conceived” (Krieger, 2007). I posit that of all the New Economy ideas, Saadiyat was likely to be the only one sustainable – and the very one that Davidson calls “secondary” (2010, pg.119). The concept of a touristic destination, with the Louvre, Guggenheim, festival, parks, theme parks, all served by an excellent airline and plenty of new planes, can attract a multitude of tourists, becoming a de facto cultural destination of the world. As nearby Dubai can attest, a service economy is diversified and sustainable, and not dependent on oil.
References
Davidson, C. (2010). Abu Dhabi's Global Economy: Integration and Innovation.
Encounters, 2(Spring), 101-127.
Kazim, A. (2010). The Rise of Dubai: A Social History of the Commercial Cities in the
Gulf. Encounters, 2(Spring), 73-99.
Krieger, Z. (2007, August 6). Buying Culture; by Luring Western Institutions like the
Louvre and Yale, Abu Dhabi Aims to Become a Global Arts Center. Newsweek
International. Retrieved from Questia.
Menoret, P. (2014). THE GULF STATES-The Superlative City: Dubai and the Urban
Condition in the Early Twenty-First Century/Dubai Amplified: The Engineering of
a Port Geography/Demystifying Doha: On Architecture and Urbanism in an
Emerging City. The Middle East Journal, 68(4), 642. Retrieved from Questia.
