What makes Dubai so rich and prosperous?
Ever wondered what makes Dubai so rich and prosperous?
Ever wondered what makes Dubai so rich? I did too. At first, I thought it was their oil that made them rich, but boy I was wrong. The oil in Dubai was discovered just 50 years ago and it accounts for only one percent of its earnings. So, what makes Dubai so rich? Curious to know how Dubai gained all its wealth? Well, just keep reading to know about the same.
Where it all started?
The maritime activities of Dubai are another sector from where it earns a lot of income. Earlier touted as a modest fishing town, today, the city has become a gigantic trading port. It has the ideal location for the maritime industry that attracts merchants from all around the world.
All these sectors and fields bring Dubai a lot of wealth. Consequently, both the locals and the outsiders enjoy a great quality of life. However, we must mention that while Dubai is rich, it is not the wealthiest state in the United Arab Emirates. The richest state in the UAE is the capital of the country, Abu Dhabi, owing to its oil reserves.
No Income Tax
These wealthy individuals come to Dubai to protect their wealth in a tax-free economy.
Dubai still charges a staggering 55% of taxes on oil companies and imposes taxes on foreign banks of 20%.
However, most people don’t have to pay income taxes, Which played a big part in improving its economic growth because it attracted a lot of wealthy individuals and increased investment in the city.
As these wealthy individuals tend to buy multiple real estates and consume more than regular people do, So consumption starts to go up as more wealthy individuals come and start spending more in Dubai, which improves the overall economy.
Low taxes played a crucial role in Dubai’s economic growth.
One of the reasons why Dubai has so many big skyscrapers is that foreign direct investment flows into their economy because of no property taxes.
It attracted many foreign real estate developers to come into the country and build luxurious skyscrapers to sell without paying taxes.
Luxurious properties probably are in high demand because Dubai has so many wealthy individuals eager to buy these properties.
During the financial crisis, Dubai’s real estate boom hit hard because of its high exposure to the global economy.
Many wealthy individuals and foreign businesses were declaring bankruptcies. There were not enough people willing to buy real estate at the time.
It resulted in more supply of real estate than demand which made the price of real estate go down significantly during the financial crisis of 2008.
Special Economic Zone
The benefit of the special economic zone is that international companies don’t have to follow sharia laws to operate in Dubai, which is applicable in the rest of the UAE. Instead, foreign companies that reside in a special economic zone are subject to different and light regulations. In Dubai, a special economic zone provides companies with tax cuts, low regulations, and other incentives which attract many multinational companies into the emirate.
Special economic zones tend to increase foreign direct investment because of low regulation and tax incentives which also improve economic growth. For example, Dubai's international financial center is one of the special economic zones in Dubai. Which has a separate judicial system chaired by a British judge, and its official language is English. It attracts many foreign banks and finance companies because of its tax advantages while also giving a favorable environment for them to operate in Dubai.
Immigration Freedom
Foreign investors flooded Dubai with their capital and started buying real estate in unprecedented amounts.
When Dubai opened the door for anyone to acquire real estate, it was at this time the main economic boom in Dubai began.
Demand in Dubai reached sky-high when foreign investors flooded the real estate market with their money which also boosted the construction of more skyscrapers and luxury apartments in Dubai because the demand was high.
The real estate boom was so high that 20 percent of all the cranes in the world operated in Dubai.
Today, Dubai announces new projects every year, whether it is about building the largest building in the world or building the largest indoor theme park in the world.
Building these huge skyscrapers and mansions requires a lot of labor. The dark side of Dubai’s growth was its exploitation of workers.
Workers from South Asian countries such as Pakistan, India, Bangladesh, and Nepal come to Dubai to work and send their salaries to their home countries.
These people were often desperate for work because they couldn’t find a job in their home country.
So Dubai authorities often take advantage of that and give these people lower wages and terrible work conditions. Workers can’t leave because they won’t find work in their home country and have to live in terrible conditions.
Although, it started to change as international organizations and foreign countries became aware of the working condition of laborers in Dubai.
In 2017, following international criticism, the UAE federal national council passed a new bill that gives workers 30 days of paid vacation every year, one day off a week, and medical insurance. The cheap workforce has played a role in transforming Dubai into a global business hub and a luxury tourist destination.
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