ECONOMIC DIVERSIFICATION IN THE GCC
INTERNATIONAL MONETARY FUND 13
quality upgrading—indicators of export quality have shown only slight improvements in the GCC
since the early 2000s, and remain low compared with other regions (Figure 7).
Box 3. Dubai’s Road to Growth and Diversification
Starting with few natural resources, a small population, and limited infrastructure, the Emirate of
Dubai has seen remarkable growth and transformation of its economy over the past couple of
decades. Dubai’s favorable location in the oil-rich Gulf region, its tradition of openness to trade, and
capital and labor inflows—both skilled and unskilled—have served the economy well. Dubai has built a
modern infrastructure and instituted a business-friendly environment and regulations to promote the city
as a trade and finance hub in the region. It launched projects in aluminum (DUBAL, now part of Emirates
Global Aluminum), transportation (Emirates Airlines and two large airports), trade (Jebel Ali Port), finance
(Dubai International Financial Center), and tourism (more than 500 hotels). During 2000–13 real GDP
grew on average by about 9 percent per year, compared with a GCC average of 5.6 percent. In the early to
mid-2000s trade, construction and real estate, transportation and logistics, and finance were fast-growing
sectors, while manufacturing, transportation and logistics, and tourism led growth during and after the
financial crisis of 2008. Exports (including re-exports) grew very strongly, by an average of 30 percent from
2000 to 2011, as the economy developed.
While Dubai has successfully transformed itself into a modern economy, challenges remain. Despite
high growth rates in the 2000s, productivity has not grown and labor productivity declined during the real
estate boom. The major explanation
of low productivity gains is the
concentration of economic activity in
sectors with limited productivity
growth, such as tourism, retail trade,
and construction. Further, despite
diversifying more successfully than
many other oil exporters, exports are
concentrated in gold and jewelry as
well as tourism and transportation
services, and despite strong growth
are insufficient to cover imports.
Exports of services in the United Arab
Emirates (data are not available for
Dubai) have been rising due to tourism and transportation and logistics, but the net services balance has
been in deficit since 1990.
What lessons can be learned from the experience of Dubai for the rest of the United Arab Emirates
and the GCC at large? Its business-friendly environment, light regulations, modern infrastructure, and
efficiency in project implementation showcase Dubai as a model for the region. However, replicating the
same model to create financial, trade, tourism, transportation, and logistics hubs in a limited geographic
region may be difficult for the whole country and its Gulf neighbors.
0
100
200
300
400
500
600
700
Exports Re-exports Imports
Dubai Trade Composition, 2011
(U.A.E. dirham billions)
Other
Machinery, sound recorders, TV and
electrical equipment
Products of chemical and allied
industries
Plastics, rubber, and articles thereof
Mineral products
Prepared foodstuffs, beverages, and
tobacco
Base metals and articles of base metals
Pearls, precious stones, and metals