The Major Sectors of the Dubai Economy - Essay Example

Running head: ECONOMIC PAPER DUBAI Economic paper Dubai Insert Insert Insert 19 November Outline Introduction Analysis Effect on property and construction industry Effects on financial service industry Effects on tourism Conclusion Economic Paper: Dubai Introduction Dubai is part of the seven United Arab Emirates federations which are located on the coast of the Persian Gulf. The other federations of the United Arab Emirates are Abu Dhabi, Sharjah, Ajman, Umm al-Quwain, ras al-Khaimah and Fujairah. Dubai is by far the most populous emirate of the federation. Dubai’s economy is one of the most unique the world over. Dubai’s economy is mainly driven by the property and construction industry which has greatly increased in recent years. The industry increased greatly during its boom years of 2007 (anon. Para 3). Other sectors that help fuel the Dubai economy include trade (16 %), free port activities (15 %), tourism (11.6), financial services (11%), oil, and natural gas (6%). As shown above the oil industry accounts for a very small contribution to the growth of the economy. In fact Dubai’s oil reserves account for only 2% of the oil reserves of the United Arab Emirates. Therefore there was need for the diversification of the economic revenue sources to increase the revenue for the consulate and prevent overreliance on Abu Dhabi. The government therefore created several measures to help in the diversification of its sources of revenue. The government initiated construction projects which would encourage tourist into the country. During these stages the government mainly relied on oil as the main source of initiation of the development projects. To promote foreign investment into the country, the government opened free trade areas; this attracted many multinational companies to set up their bases in the areas. The government also facilitated the creation of a free port where goods are not charged any duty. The creation of the free port and the government initiated development activities led to the development of various sectors of the economy. The notable examples are the tourism and the construction industry. However the revelation by the government that it was unable to pay its creditors led to a reduction of investor confidence in the country which threatens to reverse the gains made by the government to improve its economy. The reduction in investor confidence has affected several sectors of the economy. This paper attempts to show the level in which these sectors have been affected and how they are coping up. The government used the revenue collected from the oil to initiate major development projects which have led to the current economic success of the consulate. What triggered the economic growth of Dubai were the government’s initiatives in the construction industry and the creation of a free port. During the initial stages of the world’s financial crisis Dubai was largely unaffected and its economy continued to thrive despite the setback which other countries in the world faced due to the crisis. However declaration by Dubai that it is unable to pay its debt have impacted on its economic growth and halted the development in various fields of the economy. Analysis Almost all the major sectors of the Dubai economy have been affected by it credit crisis. However the most adversely affected is the property and construction industry which is the main contributor of the economic growth in Dubai. In this paper will focus on the effects on the property and construction industry, tourism and the financial services sector. Effect on property and construction industry The property and construction industry Dubai accounts for 22% of the economy of Dubai. The country has many phenomenal constructions in the world. It is has the highest sky scrapper in the world. The property boom of Dubai started in 2004 and lead to the appreciation of the value of many properties. The property and construction industry offers employment to many people in the country. Hence the contraction of the industry due to the debt crisis of the industry affected the economic growth of the country the most. The credit crisis led to the depreciation of the values of houses, some depreciating by as much as 50 percent. The government also cancelled half of the construction projects which it had been planning. The reduced growth of the property and construction industry was will make the market not to be able to cope with the demand for the housing (Kerr and Wigglesworth Para 4). By October 2009, 30 to 40% of the construction projects had been suspended due to lack of funds to facilitate the projects. This has led to the decline in the construction related jobs hence increasing the unemployment levels (George Para 3). Effects on financial service industry Dubai is ranked among the countries which has the most developed financial service industry in Asia. Its stock exchange is ranked as 32nd in the world. The cropping of Dubai’s credit crisis forced led to a reduction in the market capitalization of not only its stock market but also the stock market of other countries. The governments used to look for credit to finance its activities from the stock market. However after the revelation of the debt crisis of the government, the government withdrew from the stock market due to decreased levels of investor confidence. However the confidence is slowly returning and the government has even returned to the stock market (Kerr and Wigglesworth Para 2) Effects on tourism The government of Dubai has put so much emphasis on the attraction of tourists into the country. It has made many magnificent structures to attract tourists into the country. These include the Burj-Arab hotel, the only seven star hotels in the world and the man-made palm islands. The government intends to attract 15 million tourists by the year 2015 (anon Dubai economy para 3). The Dubai tourism industry had initially been affected by the financial crisis which faced the whole world. When the government announced that it was unable to pay its creditors due to lack of funds, the tourism industry was in the process of recovery from the effects of the financial crisis. Therefore it was not much affected by the Dubai credit crisis as it had already passed its worst patch. In fact during the credit crisis of Dubai the tourism sector helped in the recovery of the sectors which were worst affected by the crisis. Conclusion The credit crisis of Dubai seems to have affected almost all the areas of its economy. This crisis led to decreased levels of investor confidence in the country. However the government has taken effective measures and there has been a rebound in the economic growth. This has led to increased investor confidence enabling the government to re-embark on the stalled construction and development projects. The economy of Dubai is expected to experience growth in this fiscal year. Although this growth will be lower than the growth which occurred during the stages before the beginning of the credit crunch, it shows that the economy recovering slowly. Works Cited Anon. “Dubai Economy.” Economy watch. 2010. 20 November 2010. http://www.economywatch.com/world_economy/dubai/ George, Shannon. The Effects of Liquidity Shortage on Construction Projects 2010accessed on November 20, 2010 http://www.ehow.co.uk/list_7261463_effects-liquidity-shortage-construction-projects.html. Kerr, Simeon and Wigglesworth, Robin. “Half of Dubai’s property projects scrapped.” Financial times. September 27 2010. 20 November 2010. http://www.ft.com/cms/s/0/8a4b91a8-ca67-11df-a860-00144feab49a.html#axzz15sweInMn Kerr, Simeon and Wigglesworth, Robin. “Investors hail Dubai’s return to markets.” Financial Times. September 29 2010. 20 November 2010. http://www.ft.com/cms/s/0/1b923912-cbe6-11df-bd28-00144feab49a.html#axzz15sLEI5n7. Read More