Dubai: An Attempt at Transmuting Sand into Gold

The 21rst century is witness to unprecedented developments, a hallmark of globalization, and no entity better exemplifies this progress than Dubai. The emirate plans to rival China's economic growth rate within the next decade, targeting 11% by 2015. Already surpassing expectations set for 2010, there is little doubt Dubai has become an economically diverse powerhouse in the Middle East. The large, vested interest in rapid expansion results from the fact that within ten years the current rate of oil extraction will deplete supplies, forcing Dubai to rely solely on alternative domestic productions. Luckily, heavy investment in growth sectors such as tourism, finance, manufacturing, and free zone privatization has allowed Dubai to reduce oil dependency to less than 6% of its gross domestic product (GDP). In essence, Dubai's objective is accomplished. However, the price aggregated during their expedited growth may prove to be too costly.

The massive amount of construction occurring (as seen in the image on the right) demands large quantities of immigrant laborers, specifically Indian expatriates. Theoretically, if worker supplies can continue to grow, aggressive building techniques pose no imminent threat. Unfortunately, Dubai's labor vulnerability is vividly apparent. Just recently, the Economist reported that 40,000 workers "expos[ed] the frailty of Dubai's economic boom" by bringing several large projects to a two-week standstill during a strike. Simultaneously, India's prosperity is providing competitive jobs for expatriates and forcing construction companies to raise wages. Heightened tensions stemming from increased costs, unstable work groups, and alternative employment are characteristics of economic volatility. Though Dubai continues efforts in improving laborer accommodations by placing pressure on respective employers, there is no adequate way to quell the increasing need for migrant workers.

Additionally, there are natural resource problems. A region containing over half of the world's identified oil reserves is, ironically, desperately struggling with energy issues. In 2005, blackouts and spikes in oil prices demonstrated even the Middle East is not immune from energy shortages and this presents a serious problem for a Dubai that depends on constant power to sustain its radical growth. To compound the problem, Dubai Electricity and Water Authority stated "power...demand is rising by an average rate of 20%...each year." Much like the worker strike that halted construction, if energy supplies dwindle to levels restricting ongoing projects, Dubai could find itself in a serious financial quandary. Billions of dollars invested in incomplete projects is sunk cash that will provide no return. However, even if Dubai is capable of obtaining enough natural resources and workers to complete constructions, future success is based on the assumption that incredibly large amounts of energy will be disposable. Although solar power may present a solution to this problem, it is far from established and only underlines the speculative nature of Dubai's growth strategy.


An alarming example that demonstrates the absurd amount of power expected to be consumed is Dubai's indoor ski resort (as seen in the image on the left). The structure will be approximately 400 meters in length and 18 meters high, housing over 6000 tons of snow at fluctuating temperatures below 0 degrees Celsius. This will be accomplished in an environment that frequently breaks 40 Celsius and can reach temperatures as high as 48 degrees Celsius. Though it appears no specific energy estimate has been publicly published, just theorizing about the amount of power required to keep a "warehouse" below zero in such a hot climate is astronomical. Considering the body of energy Dubai will depend on in the future and the lack of established, foreseeable alternatives, such an ambitious development plan is a high risk investment.

Dubai's problems are broader than just construction and resource dilemmas. Currently, the emirate is home to over 1.5 million people and roughly 70% are expatriate workers. As land development slows, available construction employment will decrease and substitute jobs will have to be found. The problem is that the jobs available will be imported professions requiring a certain degree of education. Even with recent improvements in teaching facilities, there will be a lack of instructors to appropriately accommodate the demand. One may argue that Dubai's large service industry will provide a niche for low skilled workers. Though this is true, it will still be impossible to satisfy the rapid assimilation of over a million laborers. Alternatively, the government could expel people, but since such a large majority of the population is expatriate, the risk of social upheaval makes this an unlikely solution. Furthermore, foreign investment and immigrant businesses have replaced oil but are far from permanent fixtures. Christopher Davidson from Shariah Finance Watch says that any economic swing triggered by aforementioned problems or instability rising in the region can create a massive evacuation of foreign capital. After extensive investigation, I believe the underlying issue surrounding all of Dubai's problems is the absence of developed social and economic infrastructure. Successful, rapid growth requires stability in both realms.

Investing heavily in tourist and service industries, massive construction, and outlandish amenities is a recipe for rapid but risky growth. The major focus of Dubai should be human capital and gradual political reforms; primarily, education and the creation of a stable and productive work force. Afterwards, Dubai should demonstrate economic and political stability within its own borders and with neighbors such as Iran to encourage foreign business growth. This plan would reduce the demand for natural resources and laborers and render Dubai self-sufficient, relying on less risky inputs. Unfortunately, the Arab world has proved to be remarkably stubborn and my proposal requires the distribution of wealth, not an appealing perspective granted the leaders of Dubai want to consolidate national pride in the form of extravagance and the population largely consists of immigrants.