Is Dubai Poised for Greatness?

In this discussion, I provide an overview of Dubai’s current economic status, its vision, and my forecast for its future.

In 1975, the UAE’s GDP stood at 14.72 billion USD. By 2005, GDP had grown to 180.6 billion USD. In the 2010’s, it reached north of 350 billion USD, where it generally remains today. Over the last decade, the UAE – especially Dubai & Abu Dhabi – have attempted to diversify their economies to pivot away from oil as the principal driver of economic success. More specifically, diversification “implied shifting the focus from labor-intensive and conventional sector to a more innovative, knowledge-based, skilled labor and technology driven economy.”[1] Unlike other gulf countries seeking to diversify, the UAE has actually been hugely successful; in 2022, hydrocarbons represented 30% of the UAE’s GDP and 13% of its exports.[2] Dubai’s soft power has also increased as it has successfully sought to make itself a hub of tourism in the Middle East.[3] Dubai markets itself as a place for business, a city of innovation, a gateway to trade, and a financial hub, and continues to pass positive legislation to liberalize. For instance, with this New Year, Dubai actually scrapped its sales tax on alcohol[4] – a surprisingly liberal move from a conservative Muslim country (its neighbor, Qatar, did not permit sales of alcohol during the FIFA world cup 2022).[5]

At the heart of Dubai’s strategy is foreign labor and expertise. Almost 90% of the UAE is composed of foreigners.[6] Nearly all Emirati civilians are employed by the government in nonproductive capacities.[7] Or, as the New York Times puts it, “the entire economy hinges on foreigners, from the low-wage workers who build skyscrapers and pump gasoline to highly-paid executives and Instagram influencers.”[8] Foreign workers are lured to Dubai with high salaries & no taxes, but very few actually become citizens (save for some exceedingly wealthy individuals).[9] Even recent moves to open up citizenship to foreigners are dependent upon royal grace and are unlikely to spur a tsunami of citizenship grants.[10] A synopsis of expatriate goals are to stay for a short time period, earn high incomes, and move on. In this discussion, we will term that approach a ‘mercenary model’ of economic growth.

Can the mercenary model work? If Dubai targeted growth and diversification without access to vast amounts of capital, the answer would generally be ‘no.’ This is because they completely lack the ability to train their own workforces. By every measure, UAE universities are bad. They publish little research, do not churn out qualified professionals, and are ranked extremely poorly.[11] If the UAE had labor available, they would have been deploying it instead of hiring expensive expatriates from abroad. Developing capable universities is extremely difficult, especially when the outputs are likely to be anathema to autocratic Islamic rule. But, with enough cash, the UAE has been able to make do, and again the proof is in their current success in diversifying. There are no reasons why thoughtful foreigners earning large incomes cannot drive economic growth. Innovators looking to develop new tricks, methods, or knowledge induce changes in the world.[12] Supply-driven developments tend to drive technological change and improve productivity – driving economic growth.[13] Even consumer products are often invented by the supply side (see for instance the history of bacon and orange juice).

But we must be careful in mitigating praise because official numbers obfuscate the continued reliance on hydrocarbons. Almost 50% of the UAE’s GDP comes from hydrocarbon-fueled construction.[14] The buildings constructed need to be financially successful either to enable economic activity or for living. The latter will not contribute nearly as much to GDP, while the former is dependent on industry or service-sector work, but under 9% of the UAE’s GDP currently comes from manufacturing, and will the UAE really outperform financial centers like London, Paris, New York, Singapore, and Hong Kong to dominate the financial industry (whose professionals also need to be highly educated)? Long-term growth will be dependent upon the brilliant expatriates fervently developing new technologies, whose work should be reflected in international patents filed by the UAE. Yet the UAE filed only 3K patents in 2021 (just 69 were filed by residents) and have less than that in force;[15] in comparison, France filed a total of nearly 70K patents in 2021 alone. In other words, most of the expert labor is generally contributing to other endeavors like real estate development and finance, and not technological development or innovation. The UAE may find solace in their marketing promise – the growth of tourism – which is expected to contribute almost a fifth of GDP by 2026.[16] It’s an interesting strategy that can pay off, but requires a shift in narrative. Foreigners are no longer pushing development in a traditional sense, they are helping to develop a playground for the rich. Can a country’s entire economy rely upon attracting international wealthy people to hangout? Over 50% of Macau’s GDP comes from tourism, over 30% for Aruba and the Maldives, so it is possible. But the sum of all three’s total GDP was less than 40 Billion USD in 2021. Presuming the UAE continues to hire foreigners to service wealthy tourists (to prevent its citizens from feeling the shame of becoming a disenfranchised and subservient tourist workers, as Jamaica Kincaid convincingly argues)[17] then the total possible rent from tourism are generally unlikely to make up for the returns from oil.

There are two additional risks. The first is climate change. The Middle East is warming at twice the rate of the rest of the world.[18] Saudi Arabia is already adjusting its logistical infrastructure to support the summer Haj to Mecca as it is entirely performed outdoors for several days (the average haji spends between 20-30 hours outdoors, and 1/1000 religious visitors to Mecca dies), and many have to save up for long periods of time to perform the holy journey (the average age is 49 years old).[19] Kilometers of air conditioned tunnels have been created, hundreds of thousands of communal air tents, coated asphalt to reflect heat on pedestrian roads, shaded prayer tents on the Arafat plains, and an enclosed air conditioned canopy at a place where 300,000 pilgrims pass per hour to throw stones, (among other measures).[20] During Dubai’s long summer, which stretches from April to October, temperatures are regularly 41 degrees Celsius with a max of nearly 50 degrees Celsius, with plenty of humidity. A wet bulb temperature, taken on a thermostat covered in water-soaked cloth, of 35 degrees makes it impossible for humans to cool down (meaning they begin to cook).[21] Dubai is becoming an uninhabitable giant beach and by 2100,[22] is expected to be covered in water.[23] The UAE has fought back with massive public and private infrastructure to enable people to live indoors 24/7, and could raise its city a la mid 19th century Chicago to become a Middle Eastern Venice or perhaps build up walls to keep the seawater out at great expense, or even just water proof all submerged buildings somehow. Public projects are especially important as they are confronted with the negative impacts of heat on battery life (i.e. those used in air conditioned cars).[24] Would the world’s wealthiest prefer to travel to the new Last Vegas – Dubai – in these circumstances? There are some exceedingly expensive engineering solutions available for Dubai to allocate its remaining monumental resources towards.

The second is war. The UAE has been drifting away from engaging in regional squabbles as Dubai becomes predominant in directing foreign policy.[25] It aims to please all nearby states, even as tensions remain high, and focus on economic growth.[26] Assuming there is no spark to an extremely large conflict which includes the UAE, this policy will continue to be quite effective. Even the epochal “return of conventional warfare” ushered in by Russia’s invasion of Ukraine doesn’t change the equation much. The two nearby regional powers – Saudi Arabia and Iran – both have a lot of oil left, while the UAE’s begin to dwindle. Adding an extra couple million restive citizens across the deser

t, or across the gulf, would not be eminently useful – especially considering that the UAE’s future wealth will be based on human capital, services, and tourism, and not conquerable resources (hence the importance of oil).

But while the threat of war is distant, the risk it poses cannot be undervalued. A common framework for risk is to take the product of probability and impact of a material event. I argue that the impact is large, and therefore salient enough to merit discussion. Military power is determined by economic prowess and population size.[27] These measures suggest the UAE is not in a dominant position, particularly compared to bellicose regional powers Saudi Arabia and Iran.

Table 1: Determinants of military power of UAE compared to neighboring states

Country	Population Size (Millions, 2022)	Economy Size (USD Billions, 2022)
UAE	10	359
Oman	5	86
Saudi Arabia	35	834
Qatar	3	144
Bahrain	2	35
Iran	85	231
Pakistan	225	346
Kuwait	4	106
Iraq	42	184

Like Saudi Arabia, the UAE allocates an enormous proportion of its GDP towards the military. It is one of the largest spenders worldwide, spending 5.6% of their GDP on military expenditures in 2020 and almost 3 times that the decade before.[28] Like Saudi Arabia however (as evidenced by the current fiasco in Yemen), the UAE doesn’t get much for its buck. Middle Eastern armies are notoriously awful in combat.[29] Cultural, educational, and training factors which cause this weakness permeate the UAE’s armed forces. Addressing these factors is almost impossible as the very political system and underlying societies would have to adapt significantly.[30] Having been purged of any effective leadership, poorly led Soviet troops were unable to beat Finland (1939) despite having a far larger economy and outnumbering the Finns 10:1.

If a war erupts between Dubai and its neighbors, and their opponent has more manpower than the 10 million UAE civilians can muster, how can the UAE fight? One option is to hope drone technology of all kinds will be able to replace most of human ‘inputs’ into war, such as logistics and combat. Given the chaotic and everchanging conditions of war, this would be extremely difficult and require a lot of high-end educated labor to focus on developing this… we’re not there yet.

Another option is to deploy mercenaries. In line with Dubai’s ‘mercenary model’ discussed before, Dubai could outsource the fighting to foreign, well-paid fighters. If those fighters can protect the UAE from serious attacks, perhaps the UAE’s now-diversified and concentrated economy could hum along. But since their neighbors employ drones and missiles and are relatively close by, it would be unreasonable to expect no impact at all on the glittering glass cities built by the Persian Gulf. Expatriates would flee Dubai and return to their home countries. But, for the sake of argument, let’s assume that the conflict doesn’t involve these types of attacks and remains entirely a conventional ground war. Would hordes of mercenaries succeed in securing Dubai against a regional power? A major pro in favor of Dubai is its appreciation for the market economy, but this benefit is tempered by political factors.

A market economy enables Dubai to levy resources more efficiently for war. In some ways it’s inevitable in a market capitalist economy for war to become privatized, or for aspects of war to become privatized. To not do so would be problematic, both technocracies and socialist systems struggle to allocate resources efficiently. In its own Middle Eastern wars, the United States even hired private contractors to directly and lethally participate in hostile environments (see the history of blackwater for instance). But would people really fight for the UAE in the way they fight for America? Can you pay someone enough to expose themselves to artillery in deadly heat? Even Russia is finding it difficult to send their sufficient numbers of young men – inundated with propaganda – into the deadly fracas of Eastern Ukraine today.[31] Who will spend 2 months of your wages when you’ve died? Volunteering for ideological reasons would also be surprising. The UAE does not have a history that appeals to volunteers, except perhaps their connection to Islam. In defending the exposed desert home to the UAE, mujahideen-type combatants will have trouble waging irregular warfare better suited to difficult broken terrain found in, say Afghanistan.

But just as important as having enough men is to have quality leaders. Given the importance of logistics and politics in war,[32] having great leadership would be a “must have,” for the UAE. But once again, the lack of top education will hamper the UAE’s military’s effectiveness. Typical measures of educational quality among the broader citizenry do not rank the UAE as a top performer.[33] While the UAE’s literacy rate is generally high, the quality of education tends to be poor.[34] Under present employment circumstances, citizens do not feel incentivized to work hard in school because the UAE government “provide[s] [its] nationals with access to public sector jobs at high wages and benefits as a means of accessing their share of the economic rents. The system affects the education and career choices of nationals, who typically seek the minimum credentials needed to access public sector jobs, with less concern for developing the skills needed to contribute to productive jobs in the private sector.”[35] There is no Saint Cyr Military Academy, no West Point. How will soldiers receive high quality theoretical knowledge or practical experience (short of counterproductively going to war)? Without fostering critical thought and education, the UAE’s soldiers and officers are destined to perform sub-optimally in modern war. Even the current leaders of the UAE do not boast bright credentials. Both Sheikh Mohamed bin Zayed Al Nahyan – the current president – and Sheikh Mohammed bin Rashid Al Maktoum – the current vice president, prime minister, and minister of defense – have no advanced education to speak of. The same goes for the heir apparent of Dubai, Sheikh Hamdan bin Mohammed Al Maktoum.[36] Their only education of demonstrable quality consists of short stints in military training programs to develop soldier skills (and not, say, strategy). As the UAE is autocratic, having leaders of dubious quality is a massive risk. In short, war would be a calamity.

As a result, Dubai’s leadership therefore better do everything it can to keep its kingdom at peace. For the UAE to enter any serious conflict would be devastating. Now the question of ensuring a peaceful middle east should be the most important foreign policy priority, though doing that well is an entirely separate matter.

Conclusion

As long as the UAE continues to invest in its economy, stays away from conflict, and prepares for its inhospitable future, its mercenary model will pay off if they fully pivot to a knowledge economy – which is unlikely – or accept becoming a tourism-dependent economy. The UAE will become a diminished middling power in the Gulf.

The winners of the UAE’s attempt to diversify are the expatriates. To be perhaps excessively succinct, they will ‘take their money and run,’ and continue selling expensive work to their comparatively uneducated clients best symbolized by Saudi Arabia’s ‘The Line’ project – a ‘linear smart city’ planned to be 170 kilometers long, covered in mirrors, and cost hundreds of billions of dollars.

[1] Aradhana Talwar, “From Oil to Diversification of the UAE: An Economic Perspective,” Diplomacy & Beyond, Feb. 17 2022, https://diplomacybeyond.com/from-oil-to-diversification-of-the-uae-an-economic-perspective/ [2] “United Arab Emirates – Country Commercial Guide,” Trade.Gov, https://www.trade.gov/country-commercial-guides/united-arab-emirates-defense#:~:text=The%20UAE%20ranks%20%238%20overall,in%202020%20(CIA%20Factbook), Accessed Jan 9, 2022. [3] “UAE: How Dubai became world's best tourist destination amid Covid,” Khaleej Times, Jan 24 2022, https://www.khaleejtimes.com/travel/uae-how-dubai-became-worlds-best-tourist-destination-amid-covid [4] Vivian Nereim, “Dubai Suspends Alcohol Tax,” New York Times, Jan 2 2023, https://www.nytimes.com/2023/01/02/world/middleeast/dubai-alcohol-tax.html#:~:text=Dubai%20started%20the%20new%20year,businesses%20amid%20growing%20regional%20competition. [5] Bill Chappell, “Here are things World Cup fans are restricted from doing in Qatar,” NPR, Nov. 19 2022, https://www.npr.org/2022/11/19/1137783957/world-cup-qatar-fan-restrictions-alcohol#:~:text=In%20Qatar%2C%20regular%20fans%20won,and%20hotels%20around%20the%20country. [6] GMI Blogger, “United Arab Emirates Population Statistics 2022,” GMI, Dec 26 2022, https://www.globalmediainsight.com/blog/uae-population-statistics/#:~:text=According%20to%20sources%2C%20the%202021,11%25%20or%201.15%20million%20today. [7]The Associated Press, Umm al-Quwain, “A lifetime of perks in UAE help cushion wealth gap,” Alarabiya News, Nov 4 2014, https://english.alarabiya.net/perspective/analysis/2014/11/04/A-lifetime-of-perks-in-UAE-help-cushion-wealth-gap [8] Vivian Nereim, “Dubai Suspends Alcohol Tax,” New York Times, Jan 2 2023, https://www.nytimes.com/2023/01/02/world/middleeast/dubai-alcohol-tax.html#:~:text=Dubai%20started%20the%20new%20year,businesses%20amid%20growing%20regional%20competition. [9] Cleofe Maceda, “World's highest-paid expats revealed: Where UAE stands,” Gulf News, Oct 11 2018, https://gulfnews.com/how-to/your-money/worlds-highest-paid-expats-revealed-where-uae-stands-1.2288674; Ollie A Williams, “Why the World’s Wealthy Have Quietly Moved to Dubai,” Forbes, Sep 26 2021, https://www.forbes.com/sites/oliverwilliams1/2021/09/26/why-the-worlds-wealthy-have-quietly-moved-to-dubai/?sh=593f881d18c6 [10] Natasha Turak, “The UAE is now offering citizenship to foreigners, and the economic gains could be ‘transformative,’” CNBC, Feb 1 2021, https://www.cnbc.com/2021/02/01/the-uae-is-offering-citizenship-to-foreigners-sees-economic-potential.html. [11] See for instance US News’ Global Rankings – filters applied: Asia, United Arab Emirates. [12] Nassim Taleb, The Black Swan (Random House, 2010), pp.169f [13] Geroski, P. A., 'Where Do New Technologies Come From?', The Evolution of New Markets (Oxford, 2003; online edn, Oxford Academic, 1 Nov. 2003); Brian Kelly et. al., “Measuring Technological Innovation Over the Long Run,” NBER Working Paper 25266 (Revised Feb 2020). [14] “United Arab Emirates - Industry, Value Added (% Of GDP),” Trading Economics, https://tradingeconomics.com/united-arab-emirates/industry-value-added-percent-of-gdp-wb-data.html#:~:text=Industry%20(including%20construction)%2C%20value,compiled%20from%20officially%20recognized%20sources. [15] “Statistical Country Profiles: United Arab Emirates,” World Intellectual Property Organization, https://www.wipo.int/ipstats/en/statistics/country_profile/profile.jsp?code=AE [16] Salma Saleh, Direct tourism contribution of Dubai to the gross domestic product of the United Arab Emirates from 2006 to 2026, Statista, Feb 14 2022, https://www.statista.com/statistics/795073/uae-dubai-tourism-contribution-to-gdp/ [17] See Jamaica Kincaid, A Small Place (Farrar, Straus and Giroux, 1988). [18] Karina Tsui, “The Middle East is warming up twice as fast as the rest of the world,” Washington Post, Sep 7 2022 https://www.washingtonpost.com/world/2022/09/07/middle-east-mediterranean-climate-change/ [19] Abdulaziz Mushi et. al., “A Longitudinal Study Regarding the Health Profile of the 2017 South African Hajj Pilgrims,” International Journal of Environmental Research and Public Health Vol. 18, No. 7 (2021). [20] “How will the haj change as global temperatures rise?” The Economist, Dec 20 2022, https://www.economist.com/interactive/christmas-specials/2022/12/20/how-will-the-haj-change-as-global-temperatures-rise [21] How will the haj change as global temperatures rise?” The Economist, Dec 20 2022. [22] Patrick Wintour, “‘Apocalypse soon’: reluctant Middle East forced to open eyes to climate crisis,” The Guardian, Oct 29 2021, https://www.theguardian.com/environment/2021/oct/29/apocalypse-soon-reluctant-middle-east-forced-to-open-eyes-to-climate-crisis. [23] Susan Kraemer, “All Of Dubai Underwater With Climate Change,” World Resources SimCenter, https://www.wrsc.org/story/all-dubai-underwater-climate-change [24] Intercel Frequently Asked Questions, Intercel, https://www.intercel.eu/frequently-asked-questions/temperature-effects-on-batteries/#:~:text=Battery%20life%20reduces%20at%20higher%20temperatures&text=Battery%20life%20is%20reduced%20at,%2C%20AGM%2C%20industrial%20or%20whatever, accessed Jan 9, 2022. [25] “Foreign Policy,” Embassy of the United Arab Emirates Washington DC, https://www.uae-embassy.org/discover-uae/foreign-policy, accessed Jan 9 2023; Mohammad Barhouma, “The Reshaping of UAE Foreign and Geopolitical Strategy, Carnegie Endowment for International Peace, Jan 4 2022; The Economist, “Israel’s New Government Will Test Ties with Arab States, Jan 3 2023. [26] “The UAE Foreign Policy: Balanced and Pragmatic,” Fanack.com, Sep 26 2022, https://fanack.com/politics-en/the-uae-foreign-policy-balanced-and-pragmatic~241337/, Accessed Jan 9 2023. [27] John Mearsheimer, The Tragedy of Great Power Politics (Norton, 2001), pp. 43ff. [28] “United Arab Emirates – Country Commercial Guide,” Trade.Gov, https://www.trade.gov/country-commercial-guides/united-arab-emirates-defense#:~:text=The%20UAE%20ranks%20%238%20overall,in%202020%20(CIA%20Factbook), Accessed Jan 9, 2022. [29] Norvell B. Atkine, “Why Arabs Lose Wars,” Middle East Quarterly Vol. 6, No. 4 (1999) s [30] Ibid. [31] The Economist, “Russia Risks Becoming Ungovernable and Descending Into Chaos,” Nov 18 2022. [32] See for instance, Correlli Barnett, Leadership in War: From Lincoln to Churchill (Naval Institute Press, 2014); Andrew Roberts, Leadership in War: Essential Lessons from Those Who Made History (Viking, 2019). [33] Our World in Data: Quality of Education, https://ourworldindata.org/quality-of-education, Accessed Jan 9, 2022. [34] The Economist, “Why Arab Schoolboys are Getting Trounced by Girls,” May 7 2022; The Economist, “The Tragedy of the Arabs,” July 5 2014. [35] Nader Kabbani and Nejla Ben Mimoune, “Economic diversification in the Guld: Time to redouble efforts,” Brookings Institute, Jan 31 2021, https://www.brookings.edu/research/economic-diversification-in-the-gulf-time-to-redouble-efforts/ [36] “Biography of H.H. Sheikh Hamdan Bin Mohammed Bin Rashid Al Maktoum,” https://hamdan.ae/en-us/biography, accessed on Jan 9, 2022.