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The Secret of Dubai’s Success

DUBAI – As governments across the Middle East try to wean themselves off natural resources and build diversified, resilient economies, they should take some lessons from Dubai. It’s a remarkable story.

In less than a generation, Dubai has transformed itself into a major center for investment, commerce, and high-end culture. Although the 2008 global financial crisis hit the city-state hard (owing to its exposure to inflated real-estate assets), it recovered quickly, as evidenced by its bids for events such as the World Expo 2020.

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How Dubai managed not only to survive, but to thrive, in the wake of the crisis warrants closer scrutiny. So, this past summer, I began investigating the so-called Dubai model of resilient growth, and the challenges that may lie ahead for it. As part of my research, I conducted more than 40 in-depth interviews with government officials and business elites, and fleshed out my findings with secondary data sources.

Dubai’s growth and resilience is attributable to its “ABS model” of attraction, branding, and state-led development. Just as a car’s anti-lock braking system prevents it from skidding out of control in dangerous situations, Dubai’s three-prong strategy keeps its development agenda on track, even during economic crises.

With respect to state-led development, Dubai’s approach is typical of Gulf states. Its society adheres to tribal traditions that afford its ruling elite, headed by the royal family, a paternal and omnipotent role in determining the direction and form of economic development. This means that “Dubai, Inc.” can quickly and seamlessly adapt to changing economic circumstances.

Dubai is sometimes called the Singapore of the Desert, because, like Singapore, it has experienced enormous state-directed economic growth, and benefits from proactive, visionary leadership that has turned a small city-state with limited natural resources into an important international entrepôt.

Moreover, Dubai has done a good job of branding itself to attract the foreign investment and labor needed to achieve its growth ambitions. Like New York, Shanghai, and Las Vegas, which have all enhanced their images through architecture, Dubai conveys its innovation-oriented identity through its cityscape and skyline, which has around 150 skyscrapers, more than any other city except New York and Hong Kong.

Dubai also has the first 3D-printed office building, stunning manmade islands, the world’s only (self-proclaimed) “seven-star hotel,” shopping malls combined with aquariums, indoor skiing, and skydiving facilities, and an array of iconic buildings and amusement parks. It also hosts the world’s most expensive horseraces and other lavish sporting events.

Dubai’s brand is further strengthened by its political stability, safety, tolerance, cultural diversity, and high standard of living, which are a draw for skilled expatriates from around the world. Moreover, the emirate appeals to foreign investors with special economic zones that few other states can match.

Two billion people live within a four-hour flight radius of Dubai, so it is unsurprising that it has emerged as a compelling location for visitors and investors alike. As one businesswoman I interviewed put it, “Dubai has all the ingredients of an extremely popular attraction for investors and tourists from around the world,” with “a substantial number of Arab youth aspiring to come and live the ‘Dubai Dream.’”

Dubai has complemented its competitive advantage in attracting high-skill workers and investment with labor policies that also bring in lower-skill foreign workers to power its growth engine. But reliance on foreign workers could run into structural problems down the road. While firms can quickly shed workers during hard times, this then results in labor shortages when conditions improve. Higher-skill workers, in particular, take much longer to attract than to let go.

Another risk is that, while the emirate has enjoyed a long period of political and economic stability, a significant regional upheaval could cause foreign workers, whatever their skill level, to take flight, regardless of the promise of high salaries and an attractive lifestyle. Dubai’s reliance on foreign labor thus threatens its long-term economic capacity to withstand future shocks.

Aware of these potential risks, Dubai’s leadership has just approved a comprehensive plan to overhaul education aimed at developing indigenous human capital. Dubai’s ruler, Sheikh Mohammed Bin Rashid, said that, “We look forward to developing a new generation of students that is equipped to use the tools of the future.”

Educational reforms will likely require a generation or more to bear fruit. Singapore eventually managed to develop a highly skilled base of indigenous talent by making large investments in education and setting completion of post-secondary study as a national priority. The city-state now scores near the top in science and math on international tests.

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The ABS model explains Dubai’s economic resilience and its quick recovery after the global financial crisis. But it also helps the emirate adjust its strategy to account for new challenges. Just as a car’s ABS makes it easier for a driver to slow down or change course to avoid dangerous obstacles, Dubai’s state-led development apparatus can realign its attraction and branding activities in accordance with its growth goals and changing circumstances in the Middle East and beyond.

On the other hand, if the government fails to fix its structural problem – under-developed indigenous human capital – it will essentially be driving a more dangerous car, one in which it will become difficult or impossible to avoid obstacles without the wheels locking up.