If Dubai sneezes, who gets a cold?
But even ultra-affluent Dubai is fragile these days. You see, this gem of the postmodern, globalized economy doesn’t really produce anything of value — its oil accounts for only about 5% of gross domestic product. Its economy relies on services, tourism and … that’s about it, actually. Those elaborate hotels, malls, amusement parks and skyscrapers? Heavily leveraged — built out of the shifting sands and the same intoxicating thin air that sustained Wall Street until recently.And Dubai may be going down. The oil-rich neighbors that helped finance its boom have seen oil prices plummet, and worldwide, credit for speculative real estate projects is drying up. On Wednesday, the Dubai Financial Market closed lower than at any time in nearly four years; down 61% this year. Sooner or later, even the suntanned loafers here are going to feel the pinch.
I’m tempted to cheer, but unfortunately, the pain won’t be confined to the super-rich.
Nearly 80% of the United Arab Emirates’ population is made up of migrant laborers brought in to build Dubai’s skyscrapers and clean its luxurious hotels. These migrants come from India, Bangladesh, Pakistan, Uzbekistan and other poor and fragile regions, and once in Dubai, they work long hours in poor conditions, earning an average of $4 a day.
But it’s still more than they’d earn at home, and the wages they send back to their families help fuel development in their own countries. The U.A.E. is the world’s third-largest sender of remittances; its migrants send an estimated $6.5 billion to their home countries each year, an amount that rivals (and for some countries dwarfs) formal international development aid. If opportunities in Dubai (and other wealthy, migrant-dependent regions) diminish — and they will — many of those migrants will be forced back home, reducing remittances and increasing the pool of labor in fragile states already struggling with high unemployment rates.