Dubai’s economy is among the most diversified in the region, thanks to factors such as a highly attractive business environment that has brought in large amounts of foreign investment. Despite producing little oil, growth has been affected in recent years by the knock-on effects of the fall in international oil prices and a consequent slowdown in neighbouring hydrocarbons-dependent territories. However, this has benefitted other sectors, such as transport, tourism and other indirectly related activities.

A moderate oil price recovery in 2016, plans to step up infrastructure investment ahead of Expo 2020 and further diversification of the economy by boosting manufacturing output mean the emirate has one of the most dynamic short- and medium-term growth prospects in the region.


According to data from the Dubai Statistics Centre (DSC), the emirate’s GDP at current prices was Dh397.2bn ($108.1bn) in 2016, representing 31% of the UAE’s total GDP of Dh1.28trn ($348.4bn), as reported by the World Bank. The DSC noted that Dubai’s economy grew by 2.9% in 2016, down slightly from 4.1% the previous year. However, World Bank figures recorded slightly higher real GDP growth for the emirate of 3% in 2016, down from 3.8% in 2015.

In the first quarter of 2017 Dubai’s GDP was recorded at Dh98.4bn ($26.8bn). This gave an early signal that GDP growth would be around 3.2% for the year, meaning it would outpace the 2016 growth rate. The largest sector of the economy by percentage of GDP in the first quarter of the year was wholesale and retail trade, including the repair of motor vehicles and motorcycles, accounting for 24.8% of output. This was followed by transport and storage with 12.3%, financial and insurance activities (11.8%), and manufacturing (9.4%).

Unlike the country as a whole, oil and gas production contributes only a small amount to Dubai’s economy, which is diversified across a range of non-hydrocarbons activities and is dominated by services and trade in particular.

While contributing little to overall emirate GDP, sectors with the highest growth rates in early 2017 were water supply, sewerage, waste management and remediation activities, which increased by 50.1% but still contributed 0.0% to GDP; human health and social work activities, growing by 13% and contributing 1.1%; and arts, entertainment and recreation, which grew by 11.5% and made up 0.2%.

Growth Outlook

Growth is expected to pick up pace in the coming years. In late July 2017 Sheikh Ahmed bin Saeed Al Maktoum, second deputy chairman of the Dubai Executive Council and chairman of the Department of Economic Development, announced projections that GDP growth in the emirate would rise to 3.1% in 2017 and 3.6% in 2018. This was anticipated to be particularly supported by real estate, manufacturing and tourism growth of 4.3%, 3.3% and 5%, respectively, in 2017, and 3.8%, 4.1% and 5.1% in 2018. The IMF expected even stronger growth, forecasting in April that the emirate’s economy would expand by 4% in 2017 – considerably above the MENA average of 2.3%.

In conversation with OBG, Soheir Elsabaa, senior economic adviser for policy and strategy at the Dubai Executive Council’s General Secretariat, agreed that the growth outlook for 2017 seemed promising. “The macroeconomic environment looks positive. Both exports and re-exports are improving, and unemployment is down as well,” she said.

Fahad Al Gergawi, CEO of the Dubai Investment Development Agency (Dubai FDI), said he believed both foreign investment in the emirate and the performance of the wider economy would see a growth spurt towards the end of 2017 and into 2018. “We are starting to feel an upswing in the economic cycle. It also helps that companies are beginning to feel more comfortable with the slowdown, and are now willing to accept more sustainable levels of growth rather than focusing on seeking the unsustainably high levels witnessed in the past,” he told OBG, predicting that the trend would improve further in 2019 as a result of projects related to Expo 2020. 

The emirate’s rate of economic expansion in 2017 was expected to outstrip that of the UAE as a whole, which was held back by factors such as continuing austerity policies in Abu Dhabi at a time when Dubai is loosening the fiscal taps (see analysis). In June 2017 Dubai’s largest bank, Emirates NBD, revised its national growth forecast for the year from 3.4% to 2%, largely due to the decision by the Organisation of the Petroleum Exporting Countries in May not to increase its oil production quotas.

While the decision does, indeed, affect the national oil economy, it is expected to have a limited direct impact on Dubai, and the bank’s view on the outlook of the national non-oil economy remained unchanged. The IMF forecast economic growth would stand at 1.3% for 2017. In the October 2017 update of its World Economic Outlook, the IMF projected total GDP growth would rise to 3.4% in 2018 before settling into a range of 3.1-3.2% in the years leading up to 2022.

Population & Gdp Per Capita

The size of the emirate’s population was nearly 2.7m in 2016, according to the DSC, making up around 29% of the national population. Approximately 70% of residents in Dubai are male, largely due to the number of expatriate labourers there. The size of the active population in the emirate rises to 3.8m during the working day, as around 1m people employed in Dubai reside in other emirates, such as Sharjah and Abu Dhabi. The size of the resident population has risen from 1.9m at the start of 2011, an increase of 40%. This is equivalent to a compound annual growth rate of approximately 7% – a rapid pace by international standards. The population of the UAE as a whole grew by 19.1% over the same period, and the IMF expects the national headcount to expand at a similar rate between 2018 and 2022.

GDP per capita for the country as a whole was $37,622 in 2016, according to World Bank figures, placing the UAE 23rd-highest in the world and second-highest in the Middle East. This figure was down from $39,101 in 2015 and $44,450 in 2014 due to the fall in international oil prices. In practice, the country’s residents are even wealthier by global standards than these figures suggest: in terms of purchasing power parity – taking into account the local cost of basic goods – the country ranked sixth in the world, at $72,419 international dollars in 2016, an increase from $70,246 in 2015.


Members of the active workforce who were employed in 2016 reached 99.6%, leaving an unemployment rate of only 0.4%. One reason for the very high labour force participation rate is the fact that the population is heavily dominated by foreigners, whose residence is often tied to their job. The high cost of living also dissuades individuals from risking gaps between jobs. As a result, and due to the dynamism of the local economy, 99.7% of the non-Emirati workforce was employed in 2016, according to the DSC.

Unemployment is also low, if slightly higher, among the citizen workforce, with 97.1% of active Emiratis employed. This high rate is in part due to the large volume of government jobs available to local citizens. As a note, a substantial number of people who initially come to the emirate on a tourist visa to seek employment are not counted in workforce statistics.


The emirate’s inflation rate stood at 2.9% in 2016, according to the DSC, down from 3.7% in 2015. Education costs led price increases, with an annualised rise of 6.3%, while the cost of communications and transport fell. As of December 2017 annualised inflation was 2.2%, and monthly inflation averaged 0.1% for the first 11 months of the year. The IMF forecast national inflation would reach 2.1% in 2017 and increase marginally to 2.9% in 2018. The introduction of a 5% value-added tax (VAT) in January 2018 is set to put upward pressure on inflation, but the extent of price hikes resulting from the new tax is expected to be limited. This is a one-time price increase, and total inflation could be moderated by falling prices in other sectors.

Foreign Trade

The value of Dubai’s non-oil foreign trade was Dh1.3trn ($347.3bn) in 2016, up approximately 2% on 2015, according to the DSC. Imports were worth Dh802.5bn ($218.4bn), up 5%; exports were valued at Dh143.3bn ($38.2bn), up 8.6%; and re-exports came in at Dh330.4bn ($89.9bn), down 7%. Direct trade accounted for Dh535.6bn ($145.8bn) of the import bill, Dh129.4bn ($35.2bn) of exports and Dh165.1bn ($44.9bn) of re-exports, while free zones made up Dh233.8bn ($63.6bn), Dh12.3bn ($3.3bn) and Dh165.4bn ($45bn) of imports, exports and re-exports, respectively. Customs warehouse trade comprised the remainder.

Pearls, precious stones and metals accounted for the leading shares of imports, exports and re-exports in direct trade, with proportions of 32.3%, 54.9% and 38.1%, respectively. In regard to the emirate’s free zones, machinery, sound recorders, TV and electrical equipment accounted for the largest share of imports (49%) and re-exports (55.7%), while prepared foodstuffs was the largest category of exports, making up 34.5% of the total. In the first quarter of 2017 the total value of non-oil foreign trade rose 2.7% year-on-year, to Dh327bn ($89bn).

Trade Partners

China was the largest exporter to the UAE in 2016, according to the Federal Competitiveness and Statistics Authority, at Dh82.4bn ($22.4bn), or 11.9% of total imports. It was followed by the US with sales of Dh75.4bn ($20.5bn) and India with Dh68.9bn ($18.8bn). The trio held the top-three positions, in the same order, in 2015.

The largest market for non-oil exports from the UAE in 2016 was Switzerland, purchasing goods and services worth Dh21.4bn ($5.8bn), or 12.7% of the total. The nation was followed by India with Dh16.8bn ($4.6bn) and Saudi Arabia with Dh10.8bn ($2.9bn). India led the field in 2015, followed by Saudi Arabia and Oman, with Switzerland in fourth place.

In regards to re-exports, the UAE’s leading market in 2016 was Iran, receiving 14.2% of the total with a value of Dh30.5bn ($8.3bn), ahead of India in second place with Dh24.5bn ($6.7bn) and Belgium in third with Dh15.4bn ($4.2bn). Iran and India held the same positions in 2015, followed by Iraq.

Foreign Exchange Framework

The currency of the UAE is the dirham, and like many other regional currencies, it is pegged to the US dollar. With a framework that was introduced in 1997, the dirham is pegged at a rate of $1:Dh3.67. The rationale for maintaining this fixed exchange rate includes the Gulf countries’ status as large producers of oil, which is priced internationally in dollars, as well as their substantial expatriate populations, who require some degree of exchange rate stability and certainty to protect the value of their remittances and savings. With such a large expatriate population, remittances make up a substantial and consistent portion of the economy. “Even though an economic slowdown affects consumers’ capacity to save and send money home, remittances is a healthy industry in the UAE,” Osama Al Rahma, CEO of Al Fardan Exchange, a remittance house, told OBG.

The fall in oil prices beginning in mid-2014 and the rise in the value of the dollar around the same time – which put pressure on non-oil exports and made countries in the region more expensive for many foreigners to visit – led to speculation that some GCC countries might move to revalue or even abandon their peg system. None did so, and in mid-2016 the UAE monetary authorities said they remained committed to the fixed rate. Pressure has since abated further. “The strong US dollar had an effect on tourism numbers in 2016, but it has become less of an issue over the last two or three months as the greenback has weakened slightly,” Mathias Angonin, sovereign risk group analyst at Moody’s Investors Service Middle East, told OBG in August 2017.

Development Strategy

The emirate’s medium-term development vision is laid out in Dubai Plan 2021, a sequel to the first major development strategy, Dubai Strategic Plan 2015. While Dubai Plan 2021 covers multiple aspects of development, the economy is one of its six main themes, laid out in a rubric for the emirate as a “pivotal hub of the global economy”. The economic pillar has three main aims: achieving sustainable and resilient economic growth, making Dubai one of the world’s leading business centres for activities such as trade, logistics, finance and the international halal economy, and making Dubai the most business-friendly city in the world, as well as the preferred international destination for foreign investment.

Dubai Plan 2021 is supported by a variety of more specific initiatives, including plans to make Dubai a smart city (see ICT chapter), boost the contribution of small and medium-sized enterprises to GDP, and facilitate the development of the emirate as the capital of the global Islamic economy and a model for other sharia-compliant systems (see analysis).

Focus On Industry

Another focus of development efforts is industry and manufacturing. In June 2016 the authorities launched Dubai Industrial Strategy 2030, which was developed by the Jebel Ali Free Zone Authority and Dubai Industrial Park, together with Dubai’s Executive Council. The strategy is based on five goals: raising manufacturing output (which accounted for 9.2% of the emirate’s GDP in 2016, according to figures from the DSC); improving the knowledge base and increasing innovation; transforming Dubai into an internationally preferred manufacturing hub; promoting environmentally friendly and energy-efficient manufacturing; and making the emirate a hub for halal products.

The strategy specifies six priority segments: aerospace, maritime, aluminium and fabricated metals, pharmaceuticals and medical equipment, food and beverages, and machinery and equipment. According to Elsabaa, the Dubai industrial strategy is already yielding results. “The number of factories is growing; the manufacturing sector growth rate rose to 3.4% in 2016, compared to a 2.9% GDP growth rate, though there is potential for more development of the logistics sector,” she told OBG.

Investment Environment

Dubai is subject to the UAE’s foreign investment rules, which limit foreign individuals and entities to up to 49% ownership in most companies. This threshold does not apply to free zones, where 100% foreign ownership is permitted. However, this framework could soon see significant changes. There has been periodic discussion about the possibility of relaxing or lifting limits on foreign ownership in some sectors, particularly in the wake of the 2014-15 oil price decline. In July 2016 local media reported that the federal government had informed the World Trade Organisation that it was working on a new investment law that would allow for 100% foreign ownership in certain activities. In January 2017 Sultan bin Saeed Al Mansouri, the UAE’s minister of economy, confirmed in a media statement that the planned law would allow for full foreign ownership in specific sectors, although these have yet to be publicly identified. In September 2017 Al Mansouri said the law had been finalised and submitted to the country’s legislative bodies for approval. The change forms part of wider efforts to boost non-oil economic activity in the country, which the federal authorities aim to raise from 70% in 2017 to 80% by 2021.

Fdi Trends

The total stock of foreign direct investment (FDI) in the emirate stood at Dh270.7bn ($73.4bn) at the end of 2015, according to the latest available DSC figures, up from Dh247.2bn ($67.3bn) in 2014. Wholesale and retail trade, including the repair of motor vehicles and motorcycles, accounted for the largest share of foreign investment by far, bringing in Dh103.5bn ($28.2bn), or 38.2% of the total. Financial and insurance activities comprised the next largest share with Dh59.8bn ($16.3bn), or 22.1%, followed by real estate activities at Dh58.8bn ($16bn), or 21.7%. Portfolio investment stock was worth Dh8.2bn ($2.2bn), while the value of other foreign investments stood at Dh124.1bn ($33.8bn). The emirate attracted Dh25.5bn ($6.9bn) worth of new FDI in 2016, according to Dubai FDI, down 11% from the previous year’s figure of Dh28.6bn ($7.8bn). The number of new investment projects fell by 11.5% in 2016, to 247.

Despite these drops, Al Gergawi told OBG that the performance was a relatively strong one, especially from certain sources. “We saw a lot of investment from Canada, for example, which became the number-one foreign investor for the first time,” he said, noting that investment from the country was particularly strong in the real estate sector, but also in aviation, logistics, IT, food production and clean technologies. Canada represented 30% of total FDI inflows during 2016, followed by the UK with 13%, France with 11%, Spain with 8% and the US investing 7%. While not ranking among the top-five investors, interest from China in the emirate is also growing. “Lots of Chinese companies are increasingly using Dubai as a hub to access and manage their investments in Africa, and the recent move to provide Chinese visitors with visas on arrival is boosting investor interest,” Al Gergawi told OBG, noting that four out of the five largest Chinese banks have offices in the Dubai International Financial Centre. 

Non-residential construction was the largest FDI recipient in 2016, with 34% of the total, followed by accommodation and food services (26%), and science, research and development services (6%). Strategic investments made up 92% of inflows, and 73% of inflows by value involved advanced technology.

Total FDI inflows to the wider UAE were worth $8.99bn in 2016, according to the UN Conference on Trade and Development. The national figure was up from $8.8bn the previous year, although down on the 2014 figure of $10.8bn. The 2016 total was the largest in the Arab world, ahead of Saudi Arabia in second place with $7.45bn. The UAE is also a major investor in its own right, with $15.7bn of FDI outflows in 2016, again the largest in the Arab world and accounting for more than half of all FDI outflows from the West Asian region.

Free Zones

A major contributor to Dubai’s economy is its network of free zones, which allow for 100% foreign ownership, no minimum capital requirements and full repatriation of profits, among other benefits. The zones largely limit companies registered in them to conducting business within the zone itself, exporting and re-exporting. The Dubai Free Zones Council lists 20 such zones in the emirate, including four industrial and logistics zones, three media zones, three ICT zones, two financial zones, two aviation zones and two education zones.

One of the major zones in the emirate is the Jebel Ali Free Zone, which is located adjacent to the emirate’s main port of the same name. The zone, which has a primary focus on industry and logistics, is 48 sq km in size and is home to more than 7000 companies. Another major free zone, ranked among the largest in the world, is the Dubai Multi Commodities Centre, which is focused on commodities trading and hosts more than 13,000 firms.

The emirate continues to launch new free zones, including the Dubai Design District, a dedicated hub for design- and fashion-related industries. The first phase of construction began in 2016 and it will be able to host 400 firms when completed. Mohammad Saeed Al Shahi, COO of the zone, told OBG that 200 companies had signed up and were present in the zone or in the process of moving there. Construction of the $272m second phase began in 2016 and is due for completion in 2019. Plans for a third phase, with a focus on entertainment and hospitality, are also in the development pipeline.

Dubai South is another zone that is currently in the works. Previously known as Dubai World Central, it is a 145-sq-km urban development area to the south of downtown Dubai, centred around Al Maktoum International Airport. The zone will contain a 21-sq-km logistics district, a 6.7-sq-km aviation district, a large mixed-use commercial zone and an exhibition district that will be the location of Expo 2020. The area also hosts a significant residential element, as Dubai South is expected to become the home of around 1m people by 2020.

The zone is anticipated to form part of a logistics corridor with the Jebel Ali Port and free zone, to which it will be linked via a bonded highway, avoiding Customs duties on goods moving between the two areas. “Dubai Free Zone Council does a good job of ensuring that there is coordination between the various zones, and that competition is not excessive or particularly damaging to any individual zone,” Ahmed Al Ansari, acting CEO of Dubai South, told OBG.

Construction work began on another new free zone, Dubai Wholesale City, in November 2016. The $8.1bn project is being developed by Tecom Group as the largest wholesale hub in the world, built on a 50-sq-km site. Tecom Group is a real estate development unit of Dubai Holding, a private conglomerate belonging to Sheikh Mohammed bin Rashid Al Maktoum, vice-president and prime minister of the UAE, and ruler of Dubai. It operates 11 business communities, including free zones Dubai Internet City and Dubai Media City. Dubai Wholesale City will be home to the Dubai Food Park, which is an area dedicated to the food industry that will include a wholesale market aiming to serve the retail sector, restaurants and hotels, as well as a logistics zone, and an area for processing and packing.

Business Environment

The UAE’s position at the top of the regional FDI leaderboard is underpinned by an attractive and ever-improving business environment. The country ranked 21st out of 190 countries in the World Bank’s 2018 ease of doing business index, up five places over the previous year. While the emirates are not ranked separately, the UAE was by far the highest scoring in MENA. The UAE was one of the top-10 most improved countries in the 2017 report, driven in large part by new regulations implemented in May 2017 by the Securities and Commodities Authority, which helped push up the UAE’s ranking in protecting minority investors from 48th place in 2016 to ninth. It slipped slightly in this category to 10th place in the 2018 edition.

This high ranking was further boosted by its strong performance in the paying taxes category: it placed first in the world for the sixth year in a row. The country has an effective tax rate and mandatory contributions of 15.9% of business profits – most of which takes the form of social security contributions paid by employers for their employees, at a rate of 12.5% – compared to 32.6% in the region and 40.1% in OECD countries. Taxes are, however, rising, given the introduction of VAT in January 2018. There has also been speculation that the authorities may start to tax corporate profits (see analysis). Nevertheless, the tax system is highly efficient, with firms spending just 12 hours per year on tax administration, compared to a regional average of 203.4 hours.

The country performed similarly well in getting electricity, ranking first in this category, up from fourth place in 2017, and dealing with construction permits, up from fourth place to second. The areas in which the UAE can still improve are trading across borders (91st), getting credit (90th, although up from 101st with the introduction of consumer credit scores to banks and financial institutions) and resolving insolvency (69th, but a large gain on its 104th rank in 2017). The country’s performance in the last of these received a boost with a new bankruptcy law that was implemented at the end of 2016. “There have been a lot of changes to business environment-related laws, including the new bankruptcy law, which will make doing business here easier and more transparent, thus attracting more investment,” Elsabaa told OBG.

The UAE also ranked high in the World Economic Forum’s “2017-18 Global Competitiveness Report”, at 17th out of 137 countries. It scored particularly well in the goods market efficiency category (third), thanks to high levels of competition; infrastructure (fifth), due to high rankings in transport subcategories, particularly road, air and port infrastructure; and institutions (fifth). It scored in the top-40 countries in all 12 pillars, with the only categories in which it ranked below top 30 being higher education and training (36th), due to somewhat lower secondary and tertiary school enrolment rates, and health and primary education (33rd).

Vat Introduction

The introduction of VAT on January 1, 2018 was expected to boost the business environment in certain respects, particularly the transparency of local firms. “Whether or not a company has to pay VAT, it will still have to start reporting its financials, which is important for the evolution of the economy,” Vineet Kumardudeja, CEO of the UAE unit of India’s Bank of Baroda, told OBG.

The move is part of a wider GCC initiative to bring in tax revenue on consumption at a rate harmonised across the bloc. The GCC Supreme Council in December 2015 agreed to create a unified legal framework introducing VAT, with the aim of ensuring that implementation in one member of the bloc does not drive business to another. In February 2016 the six nations agreed they would implement the new tax at the beginning of 2018, and Bahrain became the final country to sign the GCC Unified Agreement on VAT in February 2017. In May 2017 Saudi Arabia published the text of the agreement, which provides for a number of common principles that all countries must adhere to when implementing their VAT systems, and in July issued its own VAT law.

Despite such progress, Forbes reported in August 2017 that it appeared unlikely that all six countries could adopt the tax simultaneously at the beginning of 2018, as planned. However, the UAE and Saudi Arabia did indeed launch, and others were likely to introduce the scheme before the end of 2018.

The move to introduce VAT has raised the question of whether other taxes will follow, in particular a corporate tax. However, Elsabaa said she thought this is unlikely in the near future. “There has been some discussion of bringing in a tax on corporate profits, possibly starting with listed companies only, but there has been no announcement confirming this and I do not think it will be implemented in coming years,” she told OBG, adding that she doubted it would have a major impact on the business attractiveness of the emirate, given the widespread imposition of such taxes elsewhere. Currently, the only major businesses that pay corporate tax are oil and gas companies – which also pay production royalties – and branches of foreign banks, which pay a rate of 20% on profits in some emirates, including Dubai. The introduction of personal income tax appears more unlikely still. “There have been rumours about personal income tax, but I confirm that this issue has not been discussed at any level,” Elsabaa added.


Factors such as more investment spending and the approach of Expo 2020 point to stronger economic growth in the years ahead. Neighbouring Abu Dhabi is also likely to relax its austerity policies, with positive knock-on effects for Dubai.

Furthermore, the rising price of Brent crude in early 2018 suggested a potential for increased government revenues and accelerating economic growth in the near term. Although Dubai’s own oil production is low, any increase in oil prices would allow a higher level of federal spending resulting from an upswing in economic activity in neighbouring emirates. This would also positively affect countries conducting international business in Dubai.