Dubai's Economy Is In Deep Trouble - Here's Why

this is the Dubai that you know skyscrapers influencers money crazy Mega projects never ending construction site and to Major International Hub a symbol of wealth opulence and luxury and a success story that was built from nothing in the middle of a desert but if you look past what's on the surface what's underneath is a lot more interesting behind the gimmicks and the luxury Dubai is a money-making machine driven by a strategic Vision careful planning and some really smart decisions that ended up creating a one-of-a-kind economic model a model that's radically different from how any of the world's most developed countries make their money and that helped Dubai become the first golf economy to succeed after running out of oil but now something has changed and after Decades of working just fine the Dubai's economic engine is now for the first time ever in serious danger and if the Emirate wants to survive it needs to change radically and very soon so how did it get so bridge in the first place why is it not enough anymore and what is the future of the Dubai miracle [Music] now Dubai's story of economic survival May remind you of what people are facing today after all the entire world just saw a decade of booming economies and roaring stock markets when it seemed like the party would never stop until it Came Crashing Down I mean just take this survey showing that more than half of Americans who make six figures are now living paycheck to paycheck struggling to pay their rent and make car payments sending credit card debt to its highest levels in two decades what's clear is that everyone can be at risk but do you think CEOs and hedge fund managers are letting their money waste away in savings accounts and traditional Investments well they're not they're pouring hundreds of millions into assets that aren't correlated to the stock market and according to a recent report by Citibank the asset with the lowest correlation to the stock market of any major asset class was 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found oil and even though compared to other places in the region its oil reserves were very small it still meant that the small town suddenly had a lot of money at its disposal and second Dubai got a new ruler Sheikh Rasheed bin Saeed al-maktoum who came up with the vision of Dubai as we know it very early on the Sheikh realized one thing unlike their neighbors Dubai's oil reserves were not big enough to last for very long and they would run out in just a few decades and they needed to be extremely smart about how they used the oil money while they have it so that they can survive once it's gone this was an example of a pretty Visionary and strategic thinking especially since Dubai was surrounded by other Gulf states that were just spending money left and right as the oil money started coming in the Sheik used it to start quickly building infrastructure that Dubai needed to connect with the rest of the world its first airport roads hotels and then Dubai got lucky once again up until then there was another city in the Middle East that basically basically held the position that Dubai has today a city where Western companies had their Regional hqs a city with fancy restaurants and luxury shops where rich and powerful people from the region went to have fun and spend their money back then this city was the capital of Lebanon Beirut also known as the Paris of the Middle East but in the 1970s things changed when the Lebanese civil war broke out suddenly Beirut was off the map and the spot of the Region's Multicultural capital of luxury fun and money was empty and Dubai knew that this was its chance the ruler of Dubai loosened laws to allow Western Banks accountancies and Law Offices to set up branches in the Middle East offering them a safe and Western friendly environment the rich room all over the Middle East who had their money parked in Beirut now started to transfer them to banks in Dubai where they now also had all these Professional Services right in their backyard and they no longer had to fly apply to London or Zurich to hire a first-class Western lawyer to enhance this Sexes even more the ruler of Dubai quickly expanded the local airport and launched their own Airline which not only made Dubai more accessible but it also diverted traffic from other airports in the region and turned Dubai into an important air hub for all of the Middle East and North Africa and in turn allowed it to bring in even more tourists who had come to spend their money in Dubai's ever-growing array of shops hotels and restaurants and to top it off Dubai's government launched another plan that ended up creating its most important industry real estate since the mid-1990s Dubai started bringing in millions of workers from India and Pakistan as cheap labor for construction sites and putting all of its remaining oil money into building an enormous amount of real estate following the rule if you build it they will come and it worked since the 1990s Dubai has been building more and more Inc incredible real estate projects bringing in more tourists and businesses and eventually getting rid of its oil dependence just as its oil reserves were getting depleted so that by now revenues from oil make less than five percent of its GDP so that's the secret of the Dubai Miracle the construction industry and an ecosystem of companies surrounded tourism and Retail that lives off tourists and Banking and Financial Services provided by Foreign companies for the Middle Eastern Elites it's a model that's completely different to how economies of most highly developed Nations work unlike them Dubai doesn't really have significant natural resources anymore or with a few exceptions any globally successful companies and it's almost entirely dependent on foreign investment and while this model has worked for Dubai so far it's probably not going to work for much longer because the context in which the Emirate was able to do so well has changed and not in a good way the thing is that Dubai was both Lucky and unlucky for not having nearly as much oil as the other places in the Gulf on one hand it meant it had to work hard to get money through different ways but on the other hand it was a big advantage since all the gulf countries were spending their oil money in Dubai and the city faced basically zero competition in what it offered but that situation is changing and it's changing incredibly fast according to the latest report by the IMF the gulf countries are in a very serious danger of running out of money before running out of oil because the global demand for oil is likely to decrease much faster than previously thought and because their gigantic spending will more and more outsize their decreasing oil revenues according to the IMF the gulf countries could deplete their financial reserves as soon as 2034 which poses an enormous risk for their future economic survival what it means is that they have to completely restructure their economies and they have to do that much faster than they thought otherwise they will be facing some pretty nasty scenarios and the oil-rich golf countries are well aware of this that's why they have all been announcing Grand plans for restructuring their economies and getting rid of their oil dependency in the coming years like Saudi Arabia and its Vision 2030 and that is very very bad news for Dubai because the solution that all the gulf countries came up with is to basically copy Dubai's economic model in exactly the same way and so all of them are now opening up loosening their loss and regulations trying to attract tourists and putting enormous amounts of money into building grandiose construction projects basically everything that Dubai has been successfully doing for decades but this means that Dubai will no longer be the only country in the region to offer all of this instead it will now have all its neighbors trying to do the same thing basically it means that the supply and demand in the Gulf will completely change in the following years and with severe consequences for Dubai and that will most likely threaten the remaining pillar of Dubai's economy the real estate and the construction industry as well previously the enormous expansion and the Evermore grandiose projects were financed by Dubai's oil revenues but now that the oil is not there anymore the real estate sector is instead dependent on money that's mostly coming in from abroad either from investors that pay for the development of new real estate or people who then buy that real estate often also as an investment naturally this system will only work as long as this money keeps coming in and while this applies to any real estate market anywhere in Dubai this has extreme proportions because of the sheer scale of how much is being built because with 3.5 million people Dubai built on average more housing units than London and New York combined mind and this imbalance is further increased by the fact that ninety percent of Dubai's population is made up of foreigners who came to Dubai for work and since it's basically impossible for them to get an emiratic citizenship one day they will leave which means that a most of the apartments in Dubai are bought as a temporary investment rather than for a lifetime home ownership and B the demand could never be sustained by the local population and that makes the entire sector extremely vulnerable if the performance of the other two parts of the Dubai economy goes down and the Allure of Dubai as a place to work and invest your money disappears The Real Estate sector will come crumbling down as well now the advantage of Dubai is that it has a fairly competent leadership that has previously shown to be capable of strategic thinking and planning for the future and they are very aware of the unfortunate situation that Dubai is in and so they're actively trying to completely rebuild the Dubai economic model before it hits the wall That's why in January this year they announced its New Economic Vision which is basically to turn Dubai into a real economy built on homegrown businesses technology and an educated population but that would have to be done very fast and it would be incredibly difficult at the moment Dubai is completely dependent on foreign workers and foreign money its local population is very small and it doesn't have the advantage of a quality education system developed industry or highly skilled domestic labor now this doesn't mean that Dubai will collapse tomorrow in a month or even in a year it has previously shown to be remarkably resourceful and the Dubai government is actively trying to find a way to avoid the problems on the horizon but one way or another this is an end of an era for Dubai and it will either manage to completely transform or its economic Miracle might not be around for much longer [Music]

Channel: Explained with Dom

Views: 955,683

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Id: JlJeM-feeh8

Length: 12min 7sec (727 seconds)

Published: Tue Feb 14 2023