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The following is excerpted from My Vision: Challenges in the Race for Excellence, a unique book in which His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, examines aspects of the UAE's unique development experience. While addressing the people of Dubai and the UAE, Sheikh Mohammed's wider audience also includes the Arab world. Dubai's unique development experience sets a creative example for the Arab world to follow. The book, therefore, represents a message of optimism that if all the constituents of any given society agree to excel in all fields, different cultures and religions can coexist without the slightest problem.
THE BANKS OF THE CREEK
The struggle for survival
The pearl industry was the backbone of the economies of the Gulf states in general and of Dubai in particular. A substantial number of the region’s population was engaged in the pearl harvest or involved in professions related to trading in pearls. Pearl trading prospered so much in Dubai, that it became one of the Gulf’s major trading centres for this precious commodity.
Although diving for pearls brought some relief to the region’s population, it involved unbearable difficulty and suffering. Divers and sailors suffered the most in what amounted to a ferocious battle to earn a living for their families. But the people of the region were steadfast in this harsh struggle for survival and suffered its calamities without flinching.
When young Gulf citizens hear the stories of what their fathers and grandfathers had to endure to survive, they think they are the stuff legends are made of. They cannot believe that those tales of suffering are true because nowadays, they have all the luxuries of modern civilization and cannot imagine anything else. I still remember how deeply I was touched whenever I heard about the suffering of divers. We must remember them with gratitude and appreciation, and be proud to be the descendants of such great people – people who overcame immense challenges.
The pearl crisis
Throughout its history, the Gulf region, including the area that is now known as the United Arab Emirates, played an extremely important role in world trade, as an important transit point for sea cargoes and desert caravans.
The rulers of Dubai contributed to the stability of the emirate and the prosperity of its trade, by opening its doors to foreign traders and entrepreneurs, and providing them with a variety of facilities. This wise policy bore fruit, had a positive impact on the emirate’s economy, and earned Dubai its dominant trading status in the region.
Dubai’s prominence in the pearl trade allowed its economy to prosper and transformed the emirate into an important regional centre for producing and marketing pearls. It was therefore only natural that Dubai suffered more than other Gulf cities from the collapse in demand for natural pearls. This was a consequence of the worldwide Great Depression of the early 1930s and the introduction of the cheaper Japanese cultured pearl at the same time. People all over the region suffered from the loss of their major source of income and regional trade fell sharply.
Because of the Great Depression, international trade also fell by more than half its pre-recession value and the global economy slumped into decline. Factories shut down all around the world and hundreds of thousands of people lost their jobs.
When people cannot afford even the bare necessities, they obviously cannot afford luxuries. The global demand for a broad range of luxury goods, including natural pearls from the Gulf, fell dramatically. Some countries even banned the importing of luxury goods altogether because of the collapse of their currencies. But the most deadly blow to hit the Gulf pearl was the cultured pearl. Despite being very difficult to differentiate from natural pearls outside of a laboratory, the cultured pearls were considerably cheaper than their natural counterparts.
With the demise of the mainstay of the Gulf’s economy, the people in Dubai and other Gulf cities suffered an extended economic recession. The years that followed the crash of the pearl trade were some of the most challenging in the whole region, and Dubai was not excluded. People had depended heavily on the pearl trade, and its demise led to mass bankruptcies and unspeakable hardship. Yet the region’s population in general, and that of Dubai in particular, was so resilient, so accustomed to hardship, and so confident in God’s mercy – and in themselves – that they managed to survive the recession.
Many traders successfully shifted to trading in other goods and the diving dhows were transformed into cargo and passenger vessels, while divers tried to scrape a living by fishing, farming and all other sorts of menial jobs. Dubai was more fortunate because of the strategic location of its natural harbour, the Creek, and the enlightened economic policies of its rulers. It consequently managed to attract more ships, trade, traders and entrepreneurs than others. Like a phoenix rising from the ashes, the pearl-dependent economy diversified into all sorts of other trades and ventures, allowing the emirate to prosper again and become the unchallenged hub of Gulf trade.
The search for alternatives
They say that throughout human history, achievements were the products of dreams and ideas. In the following chapters, I will attempt to shed more light on the goals of the dreams, visions and ideas that shaped the region until the middle of this century and thereafter.
Dubai is determined to promote its international competitive edge. We are indeed competitive, thanks to our strategic East-West location, our sophisticated infrastructure and our tax-free economy that offers investors quality, cost-efficiency and minimum bureaucracy.
Such economic concepts look very modern indeed and a tax-free economy is not only ahead of its time now, but will remain so in the foreseeable future. Regardless of their sophistication and development levels, most countries have, to date, failed to reach an economic formula that allows them to even consider abolishing taxes. If we want to be more realistic, we must admit that taxation has become something of a self-perpetuating industry in many countries. Ever since the end of the Second World War, this industry has never stopped growing and is now generating all sorts of systems and rules that affect all aspects of human life.
Some tax systems have become so complicated that many Westerners cannot complete their annual tax returns without the help of a chartered accountant. If today a tax-free economy is viewed as progressive and ahead of its time, consider how advanced this economic concept would have been 100 years ago?
Although I am using the latest terminology while writing about the concept of a modern tax-free economy, I sometimes feel that I am merely repeating concepts Dubai knew a century before the WTO was established. Such concepts were among the most important reasons for Dubai’s prominence in the trade arena.
In 1902, following an increase in taxation across the Gulf at the Persian port of Lingeh, Sheikh Maktoum bin Hasher, the Ruler of Dubai at the time, abolished all customs duties on imports. As a result of Sheikh Maktoum’s liberal policy, Indian goods flooded into the city’s port shortly thereafter and Dubai soon became the Gulf’s hub for re-export to neighbouring ports or inland markets, such as the Buraimi Oasis. A large number of prominent Gulf merchants soon moved to Dubai and made it their regional headquarters.
Sheikh Maktoum’s successor, my grandfather, Sheikh Saeed bin Maktoum, continued to adopt open economic policies and free trade from all sorts of duties, including those previously imposed on the export of pearls, the largest trade segment by far at the time. This contributed to Dubai’s growing prosperity and allowed the city to become one of the region’s most important pearl-trading centres.
Although the UAE was one of the largest beneficiaries of that trade in the Gulf region, it was similarly one of the hardest hit by its demise.
Dubai entertained other economic activities at the time, a large part of which was in one way or another related to servicing the pearl trade. During the seventeen years between the start of the Great Depression of 1929 and the end of the Second World War in 1945, the emirate searched for alternatives to the pearl trade and did not leave a single stone unturned in an effort to sustain its economy and provide its residents with basic services.
In 1937 Sheikh Saeed signed a sole proprietorship agreement for oil exploration with the Trucial States Petroleum Company. The agreement with the company, which was affiliated with the Iraq Oil Company, took twenty months to negotiate and granted the exploration rights for seventy-five years against an annual royalty of 30,000 Indian rupees.
Dubai had high hopes of discovering oil in its territories, especially when the company promised to pay the Government of Dubai 200,000 rupees within two months of discovering oil in commercial quantities, in addition to three rupees against each exported barrel of oil. Unfortunately, the company failed to find oil and relinquished its concession.
Dubai had no other option but to resume focusing on what it knew best: trade in general and re-export in particular. Traders used to import duty-free goods to Dubai in bulk quantities at competitive prices and re-export them tax-free to the region’s markets. Gold was the most important re-export item from Dubai, especially after the Second World War, and picked up sharply when many countries in the region banned its import for economic reasons.
The Government of Dubai strongly supported the re-export trade by building a modern international airport in 1959 and deepening and developing the city’s natural creek, which was and still is one of its major economic resources. With time, and having accumulated sufficient experience and expertise, Dubai became one of the foremost gold reexporting centres and the favourite regional headquarters for a large number of banks and companies involved in marketing the precious metal.
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My Vision is priced at AED 75.