To better understand Dubai’s economic development, it is important to examine the regional and historical context within which it emerged. Dubai, as most of the golf states, is an authoritarian monarchy with a substantial bureaucracy that have ruled and transformed Dubai from a sandy desert into a big sky-high metropolis. Dubai started out after the accession of sheikh Khalifa bin Shakhbut Al-Nahyan, who killed his half brother sheikh Tahnun bin Shakhbut Al-Nahyan to gain power over sheikdom of Abu Dhabi, causing the rebellion and withdrawal of some members of the Bani Yas tribe, merchants, and a number of Al-Nahyan cousins who led by Maktum bin Buti and his uncle Ubaid bin Said Al-falasi settled at the mouth of the Dubai creek in 1833. The creek was a natural harbor and soon became a center for the fishing, pearling and sea trade. In the early 20th century Dubai was a successful sea port, the tiny original settlement evolved from a small fishing and pearl-diving community into a fully pledge sheikdom with political stability and an established ruling dynasty. Dubai’s market was the largest on the coast with 350 shops and a steady throng of visitors and businessmen. By the 1930s Dubai’s population was nearly 20,000, a quarter of who were expatriates.1
Maktum bin Buti and Ubaid bin Said Al-falasi assumed joint rulership of Dubai until 1836, when Ubaid died and Maktum became sole leader, establishing the Al-Maktum dynasty that still rules today. The new Al-Maktum sheiks soon proved themselves to be excellent negotiators and master of regional alliances, managing to consolidate their position further and fend off major attacks by continuing to balance their opponents against each other and allowing Dubai to continue to grow. 2
In parallel to Dubai’s successful management of regional balance of power relations, the Al-Maktum family itself became an internal pillar of strength, providing domestic ruling stability characterized by the early relationship with Britain and its system of indirect control that would require the local rulers to sign anti-piracy peace treaties to accept the authority of small British residences and, in many cases, locally recruited British agents. These Truces elevated the ruling families above other members of the local elite and ensured them British Trucial protection in the event of domestic insurgency. Britain singed treaties with whichever family happened to hold the reigns of power at that time, and required the rulers to sign not only on behalf of themselves, but also on behalf of their future sons. This effectively created a system of long lasting British-dependent dynasties, the “Trucial States”, of which Dubai’s Al-Maktum family became a prime example.
These treaties were renewed annually from 1936 until 1953; when a general “perpetual treaty” was signed by all of the rulers, which was to remain in place for over a century. In 1982 a second layer of treaties was added to this continuous agreement in order that Britain could directly control all aspects of the Trucial States’ foreign affairs. This treaty had three basic clauses, forbidding the rulers from entering into agreements with non-British parties, from allowing non-British parties to visit their territory, and forbidden from selling or mortgaging any part of the territory, unless it as to British agents. By signing these documents, the Trucial states relinquished external sovereignty and became British protectorates without any transfer of territorial sovereignty or application of English law. However the early desire to keep British involvement in the lower gulf to an absolute minimum was contradicted when other powers , like France, became involved into the middle east, forcing Britain to add more repressive elements of political dependency to their relationship with Al-Maktum family and other Trucial sheikhs. Given the fears of foreign involvement in the region, The United Kingdom assumed responsibility for the sheikhdoms´ defense and external relations without changing the original regimen of an Arab monarchy where each ruler has virtually absolute power over his subjects. Britain then prohibited the import of technology as part of its repressive measures affecting tremendously the pearling industry, the main surplus generating activity during the 19th century, and foreign entrepreneurs who sought to introduce new technologies to boost the pearling industry productivity.
Given the possibility of oil reserved and their potentially suitable locations as aircraft refueling depots, Dubai gained a higher economical value for Britain who immediately sought to exploit another low-cost effective means of preserving the status quo and marked the beginning of the rentier dependency that would reinforce British exclusive client status.
Oil exploration concessions added another layer to this rentier dependency. By the mid-twentieth century, every single sheikhdom was in receipt of at least one form of rentier payment, either oil concessions or air landing agreements to hold military bases.
Although soon reaching enormous proportions, rentier payments continued to grow with the bulk of the population remaining uninvolved in the wealth creation process. Indeed, some rulers believed that incomes from concessions and agreements from these guaranteed annual rents were to be their personal revenues. Thus when the non-rent relayed components of Dubai’s economy began to suffer due to regional and global recessions in the 1930s and 1940s, many of those outside of the ruling elite claimed that this external wealth should be distributed more evenly to improve infrastructure and revitalize the floundering local economy.
British- imposed controls over the markets and technologies of the pearling industry had rendered previously profitable surplus activity operations. Moreover, with most of the great powers and their colonies beginning to focus on self-survival during the Second World War, the markets slowed down and the pearling industry never recovered. Although Dubai had austere economic times especially with the British controls on technology, it became rapidly an attractive environment for re-export trading, a simple activity that required no technology or problematic foreign assistance, and thereby escaped British scrutiny. In the late 1890s and early 1900s Dubai suffered a major change beyond recognition. The political stability afforded by the British protectionist system and the Al-Maktum family’s lowering of taxes and tariffs were enough to position Dubai as the safest and most profitable free port of the lower Gulf, and a great place for merchant expatriates to relocate their business.
Sheikh Maktum bin hasher Al-maktum’s liberalization of the economy as the removal of as many trade barriers as possible, including customs fees, licenses for vessels, five per cent tax abolition, and exemption of tariffs for Dubai-registered boats and merchants gave birth to the foundation of a free port. Moreover, Dubai’s liberalized economy attracted far more British-registered boats increasing from only three or four per annum to over thirty-five by 1900. In a notable development, by the 1950s Dubai became the new business capital of the Trucial States, which achieved independence from the United Kingdom in 1971 and became the United Arab Emirates.
The boom of the 1900s made the creek begin to silt as a result of the increasing number of ships that used it, so Sheikh Rashid bin Said Al Maktoum decided to have the waterway dredged and reinforced the need for even greater physical infrastructural improvements, especially with regards to transportation.
Finally when oil was discovered in 1966, Sheikh Rashid utilized the oil revenues to spur infrastructure development in Dubai such as schools, hospitals, roads, modern telecommunications network, a new port and terminal at Dubai International Airport, the largest man-made port was created at the Jebel Ali surrounded by a free zone. Moreover, alongside such massive new construction, a large and complex business community began to diversify into new areas of trade that involved high amounts of capital such banking and financial sector. The storage and lending of money used by Dubai’s business was similarly formalized by the arrival of several foreign banks. Dubai’s formula for development was becoming evident to everyone. It provided visionary leadership, high-quality infrastructure, an expatriate-friendly environment, zero tax on personal and corporate income and low import duties. As a result Dubai quickly became a business and tourism center in the early 1990s. Petrocurrency investments in tourism infrastructure were being paid off greatly until the new emerging metropolis was hit by global economic slow down in the 2000s.
Following six years of rapid growth in November 26, 2009, the government of Dubai shocked the world when it announcedthat it would not be able to pay the 80 billion debts it has raised through Dubai World, the major investment company that supervises Dubai’s government projects. Dubai’s government proposed the creditors to agree toa debt standstill as it restructures Dubai World and works around the finances to pay back. The Dubai crisis has lead to a panic situation in the financial market as banks and financial firms lost in markets across the world concerning global investors and putting in doubt its economic transparency.