Despite the recent rises in oil prices since the start of 2002, the oil-producing nations of the Arabian Gulf appreciate that they must increase their efforts to diversify their economies, with Dubai often taken as an example. Its national airline Emirates on April 30th announced that its profits had increased by 13.5% to $164m for the 2001-02 financial year and is looking to order yet more aircraft. The emirate on April 24th also said that it was looking to secure half of the world's gold trade through the metals and commodities centre it launched on the same day. However, for the moment tourism and banking remain two of the largest sectors in the Dubai economy, with projects to entice tourists to the city well underway and the UAE central bank announcing on May 1st that the country's banking sector assets had increased by 8.14% to the end of 2001 over the previous year.
Although oil prices have risen by around one third in the first four months of 2002, peaking at around $28 per barrel in early April, international analysts have been pushing for greater economic reform and diversification in the oil-rich countries of the Arabian Gulf. When prices have been depressed, these countries have introduced reform programmes and initiatives, such as that introduced in 1998 by the Saudi crown prince Abdullah, but have often been forgotten in times of high oil revenue. With rapidly growing populations used to state support from cradle to grave and gradually emerging private sectors, most economists believe that governments should make more effort to promote the private sector as a driver for the economy, and tax it.
Saudi Arabia is generally seen as the reform laggard of the Gulf Co-operation Council (GCC) countries in the regard, with the UAE, and especially Dubai, regarded as leading the way. As Dubai's oil reserves have declined and production has fallen from around 400 000 barrels per day in the early 1990s to around 165 000 barrels per day today it has moved into alternative industries, promoting itself as a regional banking and IT hub, while building on its reputation as a tourism and transport centre.
An example of Dubai's growing regional role can be seen in its national airline Emirates, which since its establishment in 1985 has grown at a pace far faster than its competitors and is seen as the backbone of Dubai's efforts to be regional transport and tourism hub. Despite the troubles affecting the global airline industry in recent months, the group announced record profits on April 30th of $164m for the past 2001-02 financial year. Aside from the problems it faced after September 11th, which forced it to temporarily cut some scheduled routes, it also owns 43.6% of SriLankan Airlines, which suffered a devastating attack by the Tamil Tigers in July 2001. The chairman of Emirates Group believes that, aside from taking action in autumn this year to minimise the fallout from September 11th, the airline also benefited from the fact that it does not yet fly to North America.
Emirates reinvigorated the civilian aircraft industry in November 2001 when it announced that it would buy 51 wide-body aircraft from Boeing and Airbus in deals worth $15bn. Following its recent profit announcement, the company has also said that it is looking to order yet more planes, likely to be more Airbus A380s and Boeing 777s to complement its existing fleet of 37.
Dubai, which has long been a centre for trade, announced on April 24th that it had launched Dubai Metals and Commodities Centre (DMCC) with a view to cornering half of global gold trade, in addition to trading in diamonds and other key commodities. This free zone, which will allow 100% foreign ownership and a 50-year tax holiday, follows in the footsteps of other ambitious Dubai free zone projects such as the Jebel Ali Free Zone, launched in the 1970s, and the Dubai Internet City. Dubai currently has a 10% share of global trade in gold, amounting globally to some 2300 tonnes per year. However, recent trends indicate that the city has been losing out to competitors, and exported only 280 tonnes in 2001, compared with 660 tonnes in 1998. Most of this goes to India, the world's largest gold consuming nation, which has deregulated its gold trade in recent years, denting Dubai's prominence in the region.
Banking has also been prominent in Dubai, with the emirate trying to promote itself as a regional banking hub. This has worked to a certain extent, despite a longer history of the sector in Bahrain, with UAE banks increasing in size over the last year, according to a UAE central bank report released on May 1st. Total assets for banks in the UAE increased by around 8.4% to $81.6bn and total deposits increased by 7.5% to $49.8bn, while net foreign assets rose to $41.4bn.
However, it is in its ambitious tourism projects that Dubai has most made a name for itself. Work is underway on the first of two palm island projects off the coast of the city - at a total estimated cost of $3bn, which will add 120km of coastline each. Most of this is expected to be taken up by hotels and resorts, but will also involve a marine park, shopping malls and villas. These are expected to go for around $550 000 each once the island is completed in September 2003, with the second such island to be finished in June 2004. The hotel group Kempinski was the first to sign up for a plot on the islands last year, and on May 7th project officials announced that the local Al Habtoor group would build a $65m hotel. Nearby is the Dubai Marina project, which will see a new city surrounding a 130 acre lake at an estimated cost of around $10bn and expects to house 100 000 people within 10 years.