Why Can't We Make Another Dubai?

0:00 Dubai chocolate. Dubai chocolate. Laboo. Laboo. Let's just kick back at the matcha rave with a Dubai chocolate labu. But 15 laboos or a property in Dubai? I'll go with the property in Dubai. That will never be just a trend. For as vapid as Dubai might be, no one can say it failed. When we look back at this period's economic miracles, we'll probably put the Gulf States alongside countries like China and Poland with Dubai being the mascot of this growth. Seeing all this money, influencers, and goodwill flood into the UAE, other countries have been trying to make their own version of Dubai. Ironically, like

0:45 the fortunes of many people who've moved there as a get-richqu scheme. But you got to ask one thing. Can we as a species even make another Dubai? One thing to clear up, Dubai did not get rich because of oil. At least not in the way it's usually told. [Music] Dubai is usually pointed to as the poster child for economic diversification. Often praised for its success in getting rid of its oil dependence. Yet one, when Dubai was dependent on oil, it was much, much poorer and smaller than it is today. The growth of its other industries is what propelled it into being the center of

1:33 the Middle East. Two, Dubai doesn't have that much oil at its peak, producing as much as Australia does today, and they're nowhere near a pro state. And three, Dubai's oil is in Abu Dhabi. Dubai is of course not an independent country but just one emirate of seven in the United Arab Emirates. The federation was created in 1971 as the British forces which were occupying the so-called crucial states left. A common theme in early Emirati history was the balance of power between this new federal government and the emirates especially when it came to lucrative energy resources. In fact, Ross Alqa didn't join until 1972 because they thought they could find oil in their

2:20 territory and two crucial states never ended up joining. Both Qatar and Bahrain being independent countries to this day. The vast majority of Emirati oil has been and is found in Abu Dhabi. And even before the British left, Abu Dhabi paid for the development of the other Emirates with their oil revenues, schools, hospitals, roads, and the sort. The Truchial States development fund would pay for infrastructure in the poorer northern Emirates and pave the way for the state funded development which the UAE pioneered. After independence, Abu Dhabi Shik Zed would lead the new federation, promising his Emirates oil resources would benefit all the federation's members, even if Abu

3:07 Dhabi had sole control over its extraction and profits. As a compromise, the ruler of Dubai would become vice president and prime minister of the UAE. And on the Federal Supreme Council, Dubai would be given veto power. Yet even as one part of the UAE, Dubai has a fair amount of autonomy over its own affairs, the two most important in making its economic model, control to make its own free zones, and over its frankly insane infrastructure. Dubai had been a pretty small city for most of its history, dependent on fishing and pearling, but by the early 1900s had garnered a reputation among merchants. As far back as 1901, Dubai

3:53 had been declared a free city for Arab and Persian traders to migrate to, becoming a center for regional trade and reexports. By the time it had joined the UAE in 1971, it was already fairly wealthy because of this openness to trade and people. The idea of being a free city is half of what made Dubai so rich. Even in the modern day, it seems like half the city is free zone. Freezone. Free zones. The city has over 20 of them, most created in the early 2000s. Unlike in the rest of the country and wider region, these zones generally allow for 100% foreign ownership of capital, the free import and export of goods, no citizenship requirement for the

4:40 company's workers, and of course, zero taxes on it all. Each is supervised by an independent authority. Though these are pretty dependent on the chic and they get highly industry specific like Dubai maritime city, healthcare city, internet city, media city, the production and studio cities, the outsource city and Dubai Silicon Oasis. Beat that valley. Some of the more substantial ones include the Dubai airport free zone, a logistics center around the Dubai International Airport holding over 1,600 businesses. The Dubai Multicommodity Center established to promote commodity trading, especially of gold, holding gold refineries, metal vaults, and the city's commodity

5:28 exchange. Roughly a fifth of the world's gold supply now passes through Dubai every year, and DMCC is reported to account for a little over 10% of the entire city's foreign investment. And last, the Dubai International Financial Center, the city's most important free zone, holding thousands of financial services and businesses. What's made them special is they operate their own independent court system modeled after English common law, which most global firms are designed to run under being from an English common country. And they only operate in this small area of the city. With all these free zones, it's no wonder the Emirates brags that they're

6:14 the number one on the effect of taxation on incentives to invest index, if you've ever heard of that. Ironically, the city's 2000's boom was sparked by the dependence on one industry. Oil? No, we went through that. Fintech, not at all. Slavery, maybe a little. development. That's the one. Commercial and residential real estate shot Dubai's economy to the moon. Look at the GDP growth. Look at the population graphs. Line certainly went up. Ever since 2004, foreigners have been allowed to fully own property in Dubai. Besides the typical symbols of this development, the

7:01 Burge Alera made in 1999, the Palm JRA opened to the public since 2006 and the Burj Khalifa in 2010. The driver of Dubai's growth has been overinvestment into luxury properties like villas and hotels. Nothing says it better than the leftover buildings from the 2008 financial crash. Around $300 billion dollar worth of real estate projects were cancelled, delayed or scaled back. Now empty shells of this boom are left over throughout the city. The Dubai Pearl, Palm Jebel Ali, Palm Dera and most famously the World Islands, most of which are still barren patches of sand. But the city eventually recovered and in

7:49 the year 2024, sales on the Palm JRA were up 25% from the year before. Something similar to property transactions valued at over $2 million, attracting UHNWIS, ultra-igh net worth individuals, has been Dubai's strength for a while, banking on them bringing their businesses, talents, and knowledge with them. knowledge. An Emirati official once said in his bureaucratic way that the way to grow was to open new market opportunities by the creation of new networks and create employment and knowledge inensive and high value ad sectors aka get rich people to move there by building nice houses. The Dubai

8:35 Land Department can only tax them once though when they make the first property transaction. Then no more as the Emirate has no income, wealth, or inheritance taxes. But many wealthy people don't end up bringing their businesses. Instead, they buy a Dubai villa as a vacation home, leaving their assets scattered across the globe. That can crowd out locals, raising the price of housing. But I don't think the city's officials care. Around 90% of the city's population is made up of immigrants. The vast majority of Dubai's population is thus not locals who choose to live there despite the high cost of living. Development might be the one sector the

9:21 city doesn't let foreign business touch. Building has always been quite blurry between private companies, the government, and the royal family. Muhammad bin Rashid has been the ruler of Dubai since 2006. He himself is a billionaire real estate developer and although his top staff was generally made of merchants and finance guys until the great recession, the royals took over after his son is the chairman of the DIC meaning he is the authority by which the DIC courts must answer to. His other son is the co-chair of the Dubai Executive Council. And his nephew is the chairman of Emirates Airline, Dubai World, and the Investment Corporation of

10:08 Dubai, the State Sovereign Wealth Fund. If you're interested in the city's real estate, and you look around, one name you'll see again and again is Mr. Mr. Mr. Mr. This is the largest real estate developer in the city. And although it's technically private, it's basically an arm of MBR to play in the city how he wants. The largest investor in MR is Dubai's sovereign wealth fund owned by his nephew and the second Dubai holding the chic's personal investment portfolio. And the CEO of MR himself has said that he doesn't do anything without talking to his highness. He is the man who gave me unimaginable opportunities.

10:55 It truly is a global city which got rich off of foreign businesses, foreign investment, and openness to foreigners, maybe to an unhealthy degree, having some of the worst working conditions for immigrants on Earth. Much more than oil, Dubai got rich off of financial globalization with their properties being a place to park overseas cash. One part of its economic story, the physical creation of the city is dominated by the government and one man in particular, but the other attracting global businesses is almost hyper libertarian. I don't even know what you would call the ism of its system. Whatever it's called and whatever the consequences of it might be, there are plenty of places

11:41 around the world that would love to copy this ism. It's almost cookie cutter how exact these cities are trying to follow Dubai's model. Get rid of business regulations, allow total foreign control of assets, advertise some BS about tourist destinations no one wants to go to, and of course, don't make foreign companies pay tax no matter what. The infrastructure development part, actually building the city, they do to varying degrees of success. Take the Gujarat International Financial City. They've set up India's first multi-services special economic zone aka a no tax area to attract over 400 global

12:27 firms including some pretty major banks. They advertise themselves as having India's first automated waste management and district cooling systems. Wow. But the comparatively small amount invested into them, only $20 billion, makes it seem like it hasn't really taken off since it opened in 2007. Or how about Port City Colbo in Sri Lanka, specifically advertised as being an offshore center for Indian businesses. They're also a planned city with a businessfriendly regulatory environment. Daring. And for their infrastructure, how about a fintech ready financial ecosystem? Physical infrastructure. That's the past. Batumi in Georgia has

13:14 set up a free economic zone in hopes of attracting individual entrepreneurs, having one of the lowest tax rates in Europe. However, they rely too much on foreign hotels and companies to come in and build the city for them. A similar problem is found in Nigeria's next super city, EcoAtlantic. In a slide deck presented to interested parties, they promised to be 100% privately funded, likely to get approval from local governments who are frequently fiscally constrained. Here's a glimpse of what they've promised. A free zone, no taxes, complete foreign ownership, a great wall, and Africa's largest mall. Here's a glimpse of what they've actually built

14:02 since 2009. A patch of sand and three buildings. And let's not forget what was taken from humanity when Acon City, the Wakanda of Sagal, was cancelled. Acon himself said it was quote 100,000% still on. But even with $6 billion of funding, this is what his city ended up looking like. It's not enough to just promise tax incentives and give foreign companies special treatment. No business wants to invest in a failed project. The city actually has to get built, hopefully by people with some stake in it. EcoAtlantic is a vanity project

14:49 proposed by two billionaires. Dubai is a city whose chic gets legitimacy to rule based on how fast it grows. MBR might have monopolized development to himself and his family and gotten fabulously rich off of it, but at least it's a prerequisite before they could become the tax haven adjacent free city which they're known for being today. And hey, in the 21st century, with all this new money floating around, skirting across the globe faster than it's ever done before, the incentive to be a free city has never been greater. If you can capture even a fraction of that flow, you can get an entire society rich quick. It's no wonder why everyone wants

15:36 their own Dubai.