A Pestel Analysis Of Dubai Economics Essay

Expatriates make up at least 80% of Dubai’s population, and consist mainly of Indians, Pakistanis and Filipinos, who take the emirate’s low wage jobs. The government is attempting to address this imbalance through “Emiratisation” (replacing expatriates with local employees), but most native graduates prefer well-paid work in the public sector. Expatriates from rich Western countries, along with Iranians and Lebanese, are employed mainly in white-collar capacities, and middle class Indians are increasingly influential. Dubai’s population, which was 183,200 in 1975, has been growing by up to 7% a year. According to the official census, it was 1.2m at the end of 2005, although many feel this underestimates the real size of around 1.5m (Wealth through knowledge, 2009). Dubai’s official religion is Islam, and the call to prayer is heard five times a day. But the emirate’s commercial ethos and cosmopolitan inhabitants preclude strict enforcement of religious rules. Muslims make up about half the population, comprising UAE nationals (mostly Sunni); expat Arabs and Pakistanis (also Sunnis), and expat Iranians (Shi’ia). Most Indian expats are Hindu or Catholic. There have been terrorist alerts in Dubai since the start of the American-led invasion of Iraq in March 2003, but the risk is deemed relatively low by the British and American governments. Dubai’s high standard of living tends to mitigate radicalism. Even the meager wages of expatriate laborers are generous compared with salaries in their native countries. Ambitious UAE nationals aspire to an MBA from Harvard or MIT, and a job at the Dubai regional office of Citibank or Microsoft (Wealth through knowledge, 2009). UAE citizens have a very high standard of living, western lifestyle, and their financial positions have continuously increased over time. This has allowed for a very materialistic high society with lots of money to purchase houses, cars and other material items. The society is open and free with all types of hotels, restaurants, tourism, recreational activities and sports. The multicultural nature of the country allows for many foreigners to go there to work in well-paying positions. An overall country analysis shows the future trends of development and expansion that the UAE is undergoing will lead to an estimated 4.8 million people living there by the year 2010. Dubai is quickly aspiring to enrich its cultural scene with the $13.6 billion development of the Dubai Cultural Village. This development will include art museums and performing arts centers as well as libraries, schools for music and dance, rare book stores and open spaces for recreation.

Legal

In today’s uncertain world of globalization and emerging markets, Dubai’s economic and cultural growth is underpinned by a legal and regulatory framework, which has been developed to support and promote important local and international businesses in Dubai and is continuing to develop. “A recurring theme when deciding where to do business is the suitability of the legal and regulatory framework in the particular local jurisdiction.” (Tarbuck & Lester, 2009) The willingness of international business to set up and operate in Dubai, and the success of local Dubai businesses is clearly evident to Dubai’s healthy and dynamic legal and regulatory framework.

Dubai’s legal system is founded upon civil law principles and is partly influenced by the Islamic Shari’a Law. There are federal codes of law which apply in Dubai and the other emirates dealing with the most important and fundamental principles of law, which include, commercial, civil, companies, civil procedure, immigration, intellectual property, maritime, industrial banking and employment law. However in contrast, many of the laws enacted by the Ruler of Dubai relate to matters which are more administrative in nature, such as the establishment and operation of government affiliated entities.

The UAE federal constitution allows all the emirates to have its own judicial authority but all emirates other than Dubai and Ras Al Khaimah have brought their own judicial systems into the UAE Federal Judicial Authority. Dubai has chosen to retain its own independent courts which are not a part of the UAE Federal Judicial Authority. Dubai’s courts will first apply federal laws, such as the company’s law or the civil code, as well as the laws and decrees enacted by the Ruler of Dubai.

In Dubai courts, matters and cases are heard by one or more judges. Juries do not apply. Also, judgments of some higher courts may apply. This is not because they are obligatory on lower courts but in order to provide useful evidence of future judicial interpretation and practice.

In Dubai, there have been several developments and several special areas have been introduced that have different laws and regulations. These areas are known as “Free Zones” and are very good areas to conduct businesses since most of these areas have attractive and flexible conditions. Some of most well known free zones in Dubai are Dubai International Financial Centre, which is better known as the DIFC, Jebel Ali Free Zone and Dubai Media City. Some of the attractive and flexible conditions that are provided for doing businesses in these areas are 100% foreign ownership of companies is granted, major tax concessions and duty exemptions and no limits on profit earning or any sort of profit sharing. Free Zones have been excellent enough in developing Dubai’s reputation as an attractive place to perform a business.

Other great policies of Dubai are that there is no federal corporate or income tax charged in the UAE. There is no value added tax or sales tax and there are also no exchange controls and restrictions on foreign trade.

However, Business licensing is most important not only in Dubai but also the whole of UAE. “Any person wishing to perform business in Dubai (other than through a licensed agent) requires a license and the license impacts on the scope of the activities that the licensee may carry on.” (Tarbuck & Lester, 2009)

Economical

Despite the booming years Dubai saw from the year 2002 to the late 2008, Dubai faced financial crises caused by the property bubble that exploded. Most revenues Dubai was receiving is from the property development and the real sectors. However, recently this has changed too. Opportunity in oil and gas never existed for Dubai and still doesn’t exist. Dubai produces approximately 240,000 barrels of oil a day and substantial quantities of gas from offshore fields. Dubai has a share in UAE’s gas revenues of only about 2%. It is believed that Dubai’s oil reserves have diminished significantly and are expected to be finished in the next 20 years.

Dubai is also an international financial center. Dubai International Financial Center is ranked 37th within the top 50 global financial cities. Dubai’s top import sources are Japan, China and USA. Whereas, Dubai’s top re-exporting destinations include Iran, India and Saudi Arabia. The Jebel Ali Port which was constructed in the 1970’s has the largest man made harbor in the world and is ranked eighth globally for the volume of the container traffic it supports.

Dubai is also a major hub for service industries such as IT and Finance. Dubai also has industry specific free zones such as Dubai Media City and Dubai Internet City which make up the TECOM (Dubai Technology, Electronic, Commerce, and Media Free Zone Authority). Most multinational IT companies are members and have offices in TECOM area.

The Dubai Financial Market was established, in the year 2000 as a secondary market for trading both local and foreign securities and bonds.

The Dubai government’s decision to diversify from a trade based, oil reliant economy to a hospitality and service based, tourism oriented economy has made property more valuable, which has appreciated property prices tremendously between the years 2004-2006. Some of the major development projects that exist in Dubai are the Emirates Towers, the Burj Khalifa, the Palm Islands and the Burj Al Arab.

Dubai’s property market has experienced a major downturn from late 2008 as a result of the property bubble that exploded due to the financial crises caused by the global recession. By the beginning of 2009, the situation had become worse with the global economic crises which had taken a big dive that decreased the property prices, the rate of construction and increased unemployment. But the major trouble now is that the economy which was heavily dependent on real estate prices, had fallen more than 50% in a year unlike its wealthier neighboring emirate, Abu Dhabi. It is estimated that Dubai’s total debts are estimated to exceed $ 50 Billion.

Political

The United Arab Emirates is located south of the Persian Gulf on the Arabian peninsula. It is a constitutional federation of seven Emirates. These seven states or better known as “emirates” in the region are Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Qaiwain, Ras Al Khaimah and Fujairah. Dubai is the financial capital of UAE and Sheikh Mohammad Bin Rashid Al Maktoum is not only the ruler and prime minister of Dubai but also the vice president of UAE. The federal system of the UAE government includes a supreme council and a council of ministers or cabinet. The supreme council is the top policy making body in the state and is made up of seven rulers, each from one of the seven emirates. Whereas, the council of ministers is headed by the prime minister and is the executive authority of the federation. There is also a 40 member federal national council which has both a legislative and supervisory role. Each of the seven emirates have their own local governments and have several municipalities and departments. The relationship between the federal and local government is placed down in the constitution and allows for a specific amount of flexibility in the distribution of authority. The concept of “majlis” is a traditional way or approach people use, which gives them an good opportunity or a great way to interact or communicate with their rulers.

“Dubai shares legal, political, military and economic functions with the other Emirates within a federal framework, although each emirate has a jurisdiction over some functions such as civic law enforcement and provision and upkeep of local facilities.” (About Dubai)

Dubai is the second largest emirates by size after, the capital Abu Dhabi and has the largest population. Dubai’s main sources of revenue are hospitality and services, tourism, real estate and development, financial services and petroleum and natural gas.

Due to the flexible policies for both local and expatriate population introduced by the Dubai Government, Dubai has attracted world attention through many of its large innovative projects and sport events. This increased attention had made Dubai emerge as a “global city” in the world today.

Technological

The UAE region is composed of a large population of very young professionals who are extremely technologically-knowledgeable. The IT industry relates to the tourism, hotel, computer and IT service sectors. The number of Internet users in the GCC region has increased ten-fold since 1998. The Internet and IT software solutions industries in the Gulf region have doubled the rate of Europe. Estimates of personal computer sales in the GCC show about 12% growth in the quantity of units sold by 2003, compared to the global growth of 8%. The UAE has the most satellite, Internet and mobile phone users in the Middle East. Specializing in the field of supply and implementation of transport systems, Dubai Technologies has grown into an unrivaled leader in the supply & installation of Automatic Fare System, Route & Destination Display Systems, Electronic Taximeters and complete Fleet Management Systems. On 9 September 2009, Dubai inaugurated its metro network, becoming the first urban metro network in the Gulf’s Arab states. It is hoped that the system will ease the daily commute for thousands of the emirate’s workers. With an economy increasingly based upon financial services, air transport, property development and tourism, Dubai has a rapidly growing population and severe traffic congestion problems. The population is forecast to increase by 6.4% annually to reach three million by 2017, with tourist numbers projected to reach 15 million by 2010. The Metro will be fully integrated within the network operated by the Roads & Transport Authority (RTA), a body created in 2005. Routes will be organised around the backbone provided by the rail system. The sales of tickets for Dubai Metro started simultaneously with the launch of the Red Line. The system uses Nol cards, which are sold at 22 outlets in Dubai. The Nol card is a smart card used in Dubai to pay for the range of RTA transport modes used. Dubai Metro served about 1.74 million passengers during its first month from the time of operations starting, according to the statistics released by the RTA. The average number of passengers travelling on the Red Line has been estimated at 57,000 per day (Dubai Metro, 2010).