Economic Interests

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Dubai and Qatar playing it smart


 

File:Dubai night skyline.jpg

Dubai

Two nations that have seen substantial change over the last decade, Dubai and Qatar have both used the vast amounts of oil found in their countries to improve their economy, but more importantly both have realised they cannot become too reliant on a dwindling resource. They have used the money from oil sales to diversify their economies and improve conditions for the public, a stroke of genius that many other oil rich states could benefit from copying.

The year 1966 has become famous for many reasons; The World Cup win for England, the first man on the moon in USA, but for Dubai it has become famous because it was the year they first discovered oil. This changed the country beyond recognition as they grew and became a modernised civilisation. But instead of becoming dependent on their new source of revenue, they have used it to invest in different areas of their economy, namely the tourism and business sectors. A property boom during 2004-2006 was the result of Dubai increasing the value of their real estate through extravagant building projects: The Palm Islands (man-made islands), The Burj Khalifa (tallest building in the world) and Dubai Mall (one of the largest malls in the world). Dubai was the fastest growing city in the world in 2008 and a number of economic free zones (low or no tax) have seen businesses flock to the emirate. Dubai has become an important financial hub, has a world class airport and created various knowledge and silicon centres, while its heavy links to the western world and largely America make it one of the most trusted nations in the Middle East. This was a smart move to diversify their economy (an underrated yet important economic strategy) as the oil discovered was never going to last forever and now only accounts for around 5% of GDP. The oil discovered was actually relatively small and would only last around 30 years (with much of the oil now gone) so the government made a long term decision to make sure Dubai could keep progressing past this point and despite the world wide recession slowing down the economy, there is already talk of recovery.

The Burj Khalifa is the tallest building in the world, financed by the Dubai government

Qatar’s story is similar; they discovered oil in the 40’s and saw their economy explode into life, though the difference is Qatar discovered a whole lot more reserves. The country has 15 billion barrels of oil which should finance the country for another 40 years and has the third largest natural gas reserve in the world. This has seen Qatar boast a high standard of living (comparable with Western states), the second highest GDP per capita in the world and be able to have one of the lowest tax rates in the world – with no income tax. Qatar is now trying to follow Dubai’s lead in diversifying their economy, with plans to develop a knowledge economy. Projects are already under way with a “Qatar science and technology park” set up in 2004 and “Education city” set up which holds many international collages. The Qatar Financial Centre provides world class financial services for businesses including capital support, and further investment in the business sector shows willingness to broaden the economy. The hosting of the FIFA World Cup in 2022 is another big step which has put the country on the map with football fans and shows a country expanding into new areas. But the state still relies overwhelmingly on oil and gas sales, accounting for 70% of the government revenue, 60% of GDP and 85% of exports. Qatar has not quite reached Dubai’s level of diversity and still has a long way to go to develop a similar sort of reputation.

RANK
COUNTRY GDP – PER CAPITA (PPP) DATE OF INFORMATION
1 Liechtenstein
$ 141,100
    2008 est.
2 Qatar
$ 102,700
    2011 est.
3 Luxembourg
$ 84,700
     2011 est.
4 Bermuda
$ 69,900
      2004 est.
5 Singapore
$ 59,900
      2011 est.

Qatar second in CIA GDP per Capita rankings

But with backing of its natural resources, Qatar can afford to takes it’s time with expansion. In fact, unlike Dubai, Qatar were resilient to the global financial crisis and in 2010 had the world’s highest growth rate. This shows Qatar has a more solid foundation to rely on compared to Dubai, who have suffered from recent fluctuations in the market and a break of their property bubbles which saw “Dubai World” (the government’s investment company) have to be bailed out by their richer neighbours Abu Dhabi. Qatar might also see an accelerated improvement in their infrastructure as the World Cup nears, with the internal transportation system needing an overhaul.

Qatar had the highest growth in 2010, near 15% and well above the global average

Both countries deserve applause for using their natural resources to diversify their global strengths, as a reliance on oil and gas would leave them exposed to any crises in those markets. It is also good long term planning as their natural resources will run out one day and they will need a new way of financing the country. Dubai were a big success a few years ago, but the recent world economic crisis had a serious effect on an economy that is now too reliant on tourism and foreign investment (both factors outside their control). For Qatar, their economy is secure, but they could free the conditions on businesses that frighten off foreign investment for example; the need for a Qatari national to own 51% of the company and the confusing laws on immigrations and social relationships that conflict with Western customs.

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2 thoughts on “Dubai and Qatar playing it smart

  1. Hi I just wanted to say the info you have wrote is good, however you are comparing Qatar to Dubai which is not fair in a sense as Dubai is NOT a country, it is an emirate/city in the UAE. If you wanted to make a more fair comparison of oil reserves and economy of these countries, you would have to compare Qatar to the UAE, not Qatar to Dubai. Abu dhabi is the capital of UAE and has huge oil reserves, whereas Dubai has very small oil reserves and generate 95% of their income from business and as you mentioned only 5% from their oil. There are also the other 5 of the 7 Emirates of the UAE which also have oil reserves and gas, but the richest emirate is indeed Abu dhabi.

    • That is a good point. I chose Dubai as it had diversified so much, so it was a similar situation to what Qatar could have if they stop relying so much on oil. But your right they are different.

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