IntroductionThe United Arab Emirates is an amalgamation of seven independentstates located in the Arabian Gulf region. The Arabian Gulf borders the region to the north, Saudi Arabia to thesouth and west, and Oman borders it from the East. Before to the oil discoveryin the 1950s, the country was a poor colony of Britain.
Oil brought swifteconomic growth and development to the area and the UAE declared independencein 1971. Large parts of the country is a desert. However; UAE’s oil is consistsof one-tenth of the world’s total oil and 92% of it, is in Abu Dhabi. ThePopulation of the UAE is estimated to be around 3 million. Abu Dhabi is thecapital and it is the largest Emirate and It serves as the financial,transportation, oil producing, and the political capital of the country. Dubaion the other hand, is the trading hub of the entire Gulf region. What was a relatively an obscure fishingvillage just 4 decades ago, has become one of the wealthiest and most dynamiccountries of the world.
The unprecedented infrastructure development isvirtually in every block of the UAE. This redoubtable ambition and willingness to adapt to globalization isquite impressive and frankly bold for a relatively conservative Arab country (Delgando,Mansur, 2008, p. 16). Boom-and-bust cycle like the one we witnessedin 2008, which nearly brought Dubai’s financial system to its knees. Nearly 8years ago, the emirate of 2.
2 million people almost defaulted on itsdebt after a real estate bubble burst, causing property prices to sink to halfwhat they were before the crises. The logical model proposed addresses restructuringsome of UAE’s economic, legal, and financial policies to prevent a bust cyclesimilar to that of 2008. We suspect, by implementing the logicalmodel’s proposed policies, a boom in trade, tourism and finance will reshapeand repair damages caused by the bust. As a result, Dubai again will restoreits ambitious goals and future funds will be being allocated to build new bigprojects. However, some experts and pundits fear the additional investment forthe Expo can be too big for the UAE’s economy to handle (Torchia, Salemm, 2013, p.
3). restoringthis image is indicative that the world is recognizing the strengths of UAE’spolitical stability and its multifaceted economy (Torchia, Salemm, 2013, p.2). On the other hand,serious challenges still exist, and the logical model’s recommendations arguesfor UAE leaders to restructure theirpolicy on managing growth instead of creating more growth if they are seriousabout preventing another bust. My Research shows that the Expo will drawover 25 million visitors and create 277,000 jobs and infrastructure spendingwill reach $6.8 billion and an overall spending may reach $18.3 billion (Torchia, Salemm, 2013, p.
3). LogicalModel SummaryAnalysisAs a result of a 2002 degree allowing foreigners tobuy properties in Dubai, an unknown fishing village turned into a global hub.An unprecedented property boom was felt in every block ofthe emirate and it lasted for seven consecutive years.
Regulations were so loose,and properties were sold for a large profit within weeks of their initialinvestment. Investors were buying and selling daily for profits – without anyattention to live in Dubai. Due the credit crisis and the global recession of2007, the lending dried up, many foreign investors left and confidence in theemirate’s over-inflated real estate market dissipated and real estate valuesdropped to about 50% of the original value and the stock market fell 70%,thousands of workers, mostly Asian laborers were sent back to their homecountries. A myriad of housing projects were stalled or scrapped (Torchia, Salemm, 2013, p.
3). Dubai’s economy is estimated at $90 billion,however, these figures are predicated upon grandiose projects announced byDubai’s real estate developers in the past year, including a replica of the TajMahal, a residential area with a giant pyramid, and an apartment complex withpenthouses worth $250 million each. Experts predict that interest in realestate would now rise further.
While the Expo will result in long-term benefitsto the Dubai economy and the real estate market, the short-term impact needs tobe managed carefully to avoid the inevitable boost turning into inflation orover-development (Delgando, Mansur, 2008, p. 16). Solutions and Recommendations Thegovernment must take serious steps to limit the risks to overt another bust.There are a number of policy measures included in the model which the governmentof Dubai can implement to manage booms.
For instance, regulating land transactions by instituting a fee and other penaltiesis key to deter property speculators. Also, setting rules on banks to restrictmortgage lending and limit loan exposure can be very effective to promote slow– yet sustainable growth – and can substantially help bring confidence to thestock market. Thus, there is no way to prevent shares from rising, becausethe excitement factor and the happy sentiment is driving market’s confidence upthe roofs. However, it will take few years for Expo-related spending to have apalpable impact on the financial market and will initially rise exponentiallyand then slow down as spending decreases. The Expo will bring about huge economic benefits and we are alreadyseeing signs showcasing rapid growth (Gabrial,Rosenthal, 2015, p.
23). Government transparency is anotherbig problem that Dubai and the UAE must tackle. The government continues toobfuscate the truth about the size of Dubai’s debt. The estimates show that itis around 110 billion dollars, but experts believe that it is higher than thatand Dubai’s leaders have no option but to come clean if they really want toestablish and gain investors’ trust which is paramount for sustainable andhealthy growth. In the 2008 bust, the alarming exposure of Dubai’s outstandingdebt at the time was a catalyst for Western investors to flee the scene.Moreover, Nakheel, the main government-owned developer nearly brought Dubai to thebrink of defaulting on its debt, because so much had been borrowed to buildaudacious and luxurious projects.
If it was not for a $20bl loan from Abu Dhabiand Saudi Arabia, Dubia’s ship would have sunk. Nearly 50% of the money wasused to bail out Nakheel. Furthermore, doubling ortripling a transaction tax on property investments is a great policy to to helpinvestors seek compensation if a project falls through. The combination ofbrave rules and weaker economic conditions internationally – can help Dubaitremendously – because foreigners make up most of its population (Gabrial,Rosenthal, 2015, p. 23). Conclusion Dubai could become the Berlinor the NYC of the Middle East by providing the amenities and a conducivebusiness environment that is tantamount to what major commerce and trade citiesprovide while offering a more strategic location with less costs. Nearly two billion people surround the UAEand they are looking for better work and investment opportunities in a regionthat is replete with conflict and ciaos. That being said, the government needs to implement more reforms to address issueslike: Mistreatment of Asian workers, securing fair wages to those laborers,instituting caps on raising rent by landlords, restructuring the economy,managing growth, and most importantly, going back to what Dubai’s economy wasfounded upon: Tourism, transportation, trade, and logistical services.
Theuncertainty in the region is looming as a result of the Arab Spring and ongoingconflicts. Although Dubai’s economy is not reliant on oil revenues, a goodchunk of its investors do. Dubai leadersmust rely on long-term investors who are financially sound and can survivefinancial storms, rather than just turning a blind eye to short-terminvestments that aim only at immediate profiteering with no intention to investin Dubai in the long-term (Torchia, Salemm, 2013, p. 3).