Page 50 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

CHAPTER 1 Floating on Wealth 35

way, born out of necessity—Dubai’s oil reserves pale in comparison
with those of Abu Dhabi, the UAE’s capital and dominant contributor
to oil exports as a percentage of GDP. By the year 2005, for example,
Dubai and its neighboring emirate Sharjah exported a mere 6 percent
of the UAE’s total oil exports. 27
Through investment in (and promotion of) nonoil sectors such as
shipping and logistics (Dubai Ports World), transportation (Emirates
airlines), financial services (the Dubai International Financial Centre),
and telecom (Etisalat), the Dubai government has broadened the
scope of economic activity in the emirate. The creation of free zones,
in which foreign entities can fully own their businesses, has attracted
a large pool of multinational firms. If nobody is paying direct taxes,
how is the government generating income?
Some sources of public-sector income include

■ Real estate income, including rental fees on office space in
free zones and other property-related charges
■ Income related to companies in which the emirate is a
majority or significant shareholder
■ Privatization initiatives in which stakes in government-
owned companies are either sold or publicly listed
■ Fees collected by utility companies
■ Fees for visas and other government services
■ Municipal surcharges on the hospitality sector
■ And so on

Another potential source of public-sector income, returns from
international investments by government-linked investment vehicles,
has come under significant pressure during the financial crisis and
global recession as a result of the use of leverage and the choice of
investments. Many people have questioned elements of the emirate’s
overseas investment strategies and the use of debt to support them.
As the dust settles, it is becoming increasingly apparent that not all of
Dubai’s major investments will be winners. Dubai’s public-sector rev-
enue model certainly has both strengths and weaknesses, but its
diversification serves as an important case study throughout the
region. As noted recently by an executive based there, “Dubai may
have no taxes, but its government has plenty of ways to generate
income.”