Dubai a World Leader, but...

임남규 부장l승인2011.10.03l0호

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Burj Khalifa and Hotel Burj Al Arab are all landmarks that bring Dubai to mind. Dubai was a small trade port city in the 1960s. At that time the primary source of income came for Dubai's citizens came from pearl diving. Dubai experienced rapid growth due to oilfield development in the early 1970s and the powerful leadership of the Al Maktoum royal family. The development plan of Dubai served as a good model for other Middle Eastern countries. However, Dubai has recently experienced some setbacks beginning in 2009 due to delays in debt repayments. Due to this incident, some other problems have surfaced due to rapid development. There has been a particular focus on migrant workers and their living conditions and on the environmental problems brought about by their rapid growth. Therefore, the Dubai development paradigm has been opened for reconsideration. We will examine the good and the bad of Dubai’s development. Dubai vital statistics
Location: part of the UAE in the Middle East, the second largest economy in the UAE.
Land area: 3,665 square kms (about twice the size of Jeju Island). It accounts for 5% of the total area of the UAE, and 90% of Dubai is desert.
Population: about 1,803,000 (National Statistical Office of Dubai, 2010)
Economy: GDP (300.1 billion US dollars as of 2009)

Dubai's future: becoming a world transport hub
Dubai has understood the need to diversify its economy for quite some time due to the limitations of its oil supply. To that end Dubai has focused on becoming a global transport hub as a way to promote future growth.
Therefore, Dubai has worked hard to become an international crossroads for trade. Dubai created the JAFZ (Jebel Ali Free Zone). Along with Jebel Ali Sea Port and Air Port. This zone has caused foreign capital and trade to flow through this city-state. It is the first exclusive industrial zone in the Middle East. This zone has a surface area of approximately 99,173,553㎡. 5,110 companies have already moved in, and most of them entered Dubai in order to set up storage areas. The Free Zone accounts for roughly 40% of the trade in Dubai. The Free Zone receives some special considerations because of the self-governing administration area that operates outside the government's control. Companies that operate in the free zone are able to have unlimited foreign currency transactions and no duty charges.

World class developments
If someone mentions Dubai, Burj Al Arab or Burj Khalifa might come to mind. Both of these properties are among the best in the world in quality, scale, and design. Burj Al Arab is world famous as a 7 star hotel. It was the first major project carried out by Sheikh Mohammed. It is located on a man-made island 280 meters from the coast. The hotel is 321m high. It is the tallest hotel in the world. Room rates are also extremely high. Burj Khalifa has become another symbol of Dubai. It is famous in Korea because it was built by a Korean company. It is the tallest building in the world, and it includes a hotel, apartments, offices, an observatory, and a spire. It stands as a symbol of Dubai’s wealth and leadership in the Middle East and around the world.

Dubai’s development plan
The key areas to Dubai’s diverse economic growth are: financial services, logistics, and tourism. The DIFC (Dubai International Finance Center) has made a continuous effort to reduce its debt exposure. The government has planned the extension of transportation routes. (subway lines 320kms, monorail track 270kms, bus route 3,000kms, and marine transportation routes 450kms). The government has also made plans to increase transportation capacity by 30%. Therefore, the Dubai Department of Transportation estimates the growth in the number of public transport passengers will be up to 2,000,000. The tourist industry is the most important factor in Dubai's economic development. This past year 9 million foreign tourists visited Dubai compared to 8.6 million the year before. Dubai was the 7th ranked city in the world in the number of foreign tourists in 2010.

Dubai’s troubled financial services industry
On November 11th, 2009, Dubai World, the largest state enterprise in Dubai, announced it would not be able to meet payments to several of its subcontractors. This caused a shock to Dubai’s economy and in turn the world economy. Most of the buildings in Dubai are owned by foreign companies, but this announcement shook the faith of many of these multinational corporations. The ripple effect has caused real estate values to fall by 58% since 2008. The man-made island “The World” has halted construction since the developer Nakheel announced a moratorium or a legally authorized period of delay in payments to subcontractors due to compliance with other legal obligations. This situation is similar to the Dubai World crisis at the end of 2009. These incidents have served to put the brakes on the rapid growth of the Dubai economy. Dubai has struggled with guest worker problems. Many workers have immigrated there from India, Pakistan, Bangladesh, and Indonesia in order to find work. However, these immigrant workers often face poor working conditions. One worker complained, “I have a family of five in my hometown in India, and I get paid 600 dirham (about 200,000 won) for a month of work even though I work six days a week and more than 10 hours every day. In addition, my employers are 3 months behind in paying me.” He is not alone in these problems. Many workers live in labor camps which are located in the desert around Dubai. The only cooling systems present are fans. On the other hand, an employer said, “We pay wages regularly, but some labor management companies steal most of the payroll to cover costs for food and housing.” Environmental problems are also serious in Dubai. The average carbon dioxide emission per capita in Dubai is the highest in the world; It is double that of the United States. Two of the main reasons for this problem are excessive air conditioning and the high rate of private automobile use. On average there is one car for every two people. Dubai is located in the desert, so water shortages are also a major problem. Dubai has only one seawater desalinization plant. If the plant breaks down, Dubai’s water system will shut down because there is no natural fresh water source. Dubai has run various mega building projects. However, the projects have caused many side effects. One of these projects is Ski Dubai. It is famous for being a ski resort in the desert. However, the facility wastes electricity and emits huge amounts of carbon dioxide from the cooling system.

Dubai’s hope for the future
Dubai’s two main businesses have experienced reflection benefits from the democratization of the Middle East. Due to the public disturbances at other Middle Eastern tourist destinations Dubai has experienced an uptick in tourism. Investors have also come back to Dubai for safe investment opportunities. These benefits will be enhanced by support funds from Abu Dhabi. Abu Dhabi transferred 20 billion dollars to Dubai during the Dubai World crisis, which led to Nakheel’s moratorium announcement in 2009. These days, Abu Dhabi has secured a surplus of funds due to rising oil prices.

Interview

Ki-Wan Kim, President,
LG Electronics Middle East & Africa Regional Company

Q) What was the reaction of major companies when the Dubai shock happened?
A) Many companies left Dubai and moved to Abu Dhabi.

Q) What do you think about the poor working conditions in Dubai?
A)The climate is too harsh for guest laborers. However the Dubai government has improved working conditions.

Q)Do you think the development of Dubai can serve as a role model for Korea?
A) No. Dubai and Korea have very different environments. Therefore it would not make sense for Korea to imitate Dubai.

Q) What do you see in Dubai’s future?
A) The bubble in the real estate business in Dubai will break in 3 to 4 years. However, Dubai has good distribution, finance, and traffic infrastructure. Therefore the possibility of Dubai remaining a key market is real.

The rapid development of Dubai has been gradually delayed by hidden troubles. However, Dubai’s government has quickly enacted countermeasures. Major economic organizations and companies are still optimistic about Dubai’s future. Although Dubai has various issues to deal with, people do not want to see Dubai disappear into the desert again. The Observer hopes Dubai is able to effectively deal with its problems and become a true global city.
임남규 부장  yahoo@ynu.ac.kr
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