Dubai and Singapore Tales of Two Cities
Story of Growth and Development
Singapore in Numbers
Dubai and Singapore – Saga of Success and Failure
The competition for one of the leading financial hub of the world is going on. The two prominent cities fighting for the position are Dubai and Singapore. Today Singapore is leading but can Dubai catch it is real question.
Singapore a tiny state of 704 sq. km with population of little above 5 million is one of the best destinations to do business. It is ranked 1st by World Bank and this ranking is there last year also. All the economic and social indicators show it is leading to be one of the best places to live in the world. It is close to the all the developed world on indicators of development. It is world’s third richest country and country having very high number of millionaires.
This all is achieved in just 47 years. This is marvelous vision and planning of the leaders put Singapore raced ahead of the others.
Singapore got independence in 1965. The planning and foresight of the leadership is responsible for Singapore’s resilient and diversified economy. Even though do not have natural resources like oil, gas etc like GCC countries still it has done very well in building the economy. Singapore economy is very well diversified.
Main contributor to the economy
The GDP is consisted of three main factors; Agriculture 1%, Industry 28.2 % and Services 71%. This is very well diversified economy. Tourism contributes around 3% of the GDP and Tourism Development Board of Singapore is working on strategy to increase to 5%.
The Industry – Total Tourist arrival in Singapore is around 14 million and is key industry. Singapore’s best industry is its financial services industry. It contributes around 12% to the GDP of the country. This is not the only factor it has one of most robust banking sector and best regulation. This has made it the financial capital of emerging Asia “Asian Tigers”.
The Second important industry is its Port and Logistics. Singapore has one of the world’s best and busiest port and transshipment hubs. Singapore port is considered as one of the best port which has handled almost 30 million TEU containers and it is expanding its capacity to handle 50 million TEU by 2020. This is big jump. PSA International is the flagship company handling port and logistics across the world and owned by Government of Singapore is success story.
Singapore stands top in World Bank Report on Trade and Logistics in 2012 surpassing the Germany the leader in 2010. In down market the performance of the Singapore is extremely good. PSA International own and manages 29 terminals across 17 countries in Asia, Europe and America. It handles world’s one 7th of total container transshipment throughput and 5% of total container traffic. This is one of the biggest industries of Singapore. It has world’s busiest and best refrigerated container (Reefer) handled 1.32 million containers.
Even though it is a very small state it has one of the best banking and finance sector. The banking and finance laws are one of the best in the world. The financial crisis has least effect on this sector which is most prone to the affect. It has double taxation avoidance treaties with 52 countries this has helped Singapore in building Private Equity Transaction and Investment Banking opportunities. Clean of clear taxation laws of Singapore is second important factor. It has 17% flat corporate tax max. The personal tax rate are also attractive, maximum is 20%. There is no tax on capital gains and dividend on Singapore Company as well as foreign earnings.
It has served very well to the fast growing economies of China, Malaysia, South Korea, Japan and Indonesia. The banking is serving these countries in terms of financial needs and cross-border transaction and financial. Singapore played a key role in growth of China and South Korea along with Malaysia and India.
Sovereign Wealth Fund – Even though Singapore is small country without very big natural resources, still it has one of best and biggest Sovereign Wealth Fund. Singapore has two funds Temasek and GIC (General Investment Corporation). Temasek Manages around 198 Billion USD and GIC has another 150 Billion USD. These two are the most active funds in Emerging Market. Temasek has 11 affiliates. GIH has 8 offices world over. It manages fund for Singapore government. These two funds are professionally managed.
Debt – Singapore has very good foreign exchange reserve almost 250 Billion USD. It has debt within manageable limits.
Singapore Airline is the carrier of the Singapore. Singapore Airline is one of the best airlines in the world with very good connectivity. This has made Singapore for travel across world.
Singapore Tourism - In 2011 total tourist arrival are more than 13 million and Singapore tourism is planning to increase it to 20 million by 2015. It is very beautiful city state with natural beauty. Singapore Bird Park is one of most important tourist destination.
What Made Singapore a Success Story?
Singapore is a success story. Success can not come without planning and efforts. The leadership has planned in the fast changing world. Three big economies which have growing very fast along with one old horse have fueled this growth. Singapore has served very well to the needs of China, the second biggest economy of the world at growing at above 10% for long time, and then South Korea, India, Malaysia and Japan. It has also served very well to growing clout of Indonesia, Vietnam, Thailand and Taiwan. It is at the center of emerging Asia called as Asian Tiger economies. This is the story behind Success if Singapore.
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Everything That Glitter is Not Gold
Dubai is a great success story for many. For many it is not so. Financial crisis has put many questions about the Dubai’s Business Model. This model has four pillars which bring development and growth to Dubai. This growth will bring wealth. When we compare it to Singapore, when Dubai its Per capita income is 200o USD where as Singapore has USD 500. The Singapore has travelled long journey to overtake and shine Dubai. Both the countries does not have oil wealth. Dubai has distinct advantage of one of sister of seven sister state of UAE run jointly, still they are independent. In UAE Abu Dhabi has oil, and it form the backbone of the UAE economy.
Dubai’s Pillars of Growth
There are basically four drivers of growth for Dubai but all of this revolves round the tourism. The first and foremost of pillar is Tourism. Dubai has developed itself a niche in the tourism. It has developed tourism in desert and it is a miracle in itself. Definitely this has helped Dubai. Dubai is at heart of Oil Rich gulfs marketing and tourism. Peoples travel to Dubai for shopping. Weekend entertainment trip and has very tourist arrival in Dubai. Dubai is expected to achieve almost 10 million tourist in 2012. It is 8th in the Global ranking on tourist arrival.
Dubai is shopping, it is heaven for the shoppers and for those we want to enjoy. Dubai has also developed other sports and events which has an integral part of Dubai’s strategy. Dubai hosts many sports and other events every year. This has developed market for it in very conservative Middle East. In Middle East there are limited opportunities of entertainment. Looking at this demand supply gap, Dubai developed this magnificent strategy to become capital of entertainment and shopping for Middle Eastern Countries. It has largely succeeded in it.
It has one of the best hotels in the world and maximum number of events. Not only the MENA but also India, Iran and UK have responded very positively. Dubai has done extremely well in developing itself as tourist destination for shopping and entertainment.
The Second Pillar of Dubai’s strategy is developing itself as trade and transshipment hub. Dubai Port has handled 10.7 million containers which less than half handled by the Singapore. It has developed strong foothold in this area as transshipment hub. There is long way to go. Dubai World Port owns more than 60 container ports in six continents and 10 new developments and 9 major expansions. This is world’s biggest port company by value and volume handled. This strategy has remarkably worked very well for the ambitions of Dubai to be global player in world of cargo handling. This strategy of Dubai is definitely working but the recession and some transactions has made it slow and difficult journey which is facing many challenges still doing very well.
The third pillar of the growth and development was Real Estate. Dubai has development which is catering to the needs of high end clients. Those who are looking for the super luxury can own real estate in Dubai. These developments are unique developments. The needs are created. This whole concept has development is something very different. These properties are developed for the imaginary customers and then a campaign is launched to sell these assets to them. The financial crisis has greatest impact on this sector. The buyers are disappeared and the companies are gone into restructuring.
The fourth pillar is developing Dubai as financial hub. To cater to the needs for financial center Dubai created DIFC (Dubai International Financial Center). It has done good job but definitely not as planned. Financial sector is worst affected by the 2008-2009 financial crisis and it has its impact on the DIFC.
Emirate – The Airline of Dubai
This is a fascinating story of growth and development over 25 years. It is the world’s largest airline. When airlines are facing tremendous pressure and profitability is going down, Emirate did extremely well and increased the profitability every year. It made $1.6 billion in profit in this difficult time and it is not a small achievement. It flies to more than 112 destinations across the world.
Emirate flies highest number of A380 the biggest long haul aircraft. Presently it has more than 25 will have 168 by 2013 will be flying 216 , A380 the ultimate flying machines.
Fly-Dubai is low cost airline growing very fast. It is second largest carrier by capacity on Dubai International Airport.
Aviation sector contributes around $37.4 billion i.e. almost 14.7 percent of economy. But if we look at the economy of Dubai then it is the major contributor to the economy. It directly supports 224,000 jobs and indirectly 209,000 jobs. It will contribute to the 22 % of the GDP by 2020. This will increase the clout of this sector on Dubai. Emirate is Dubai’s most successful company. It has greatly to the vision of Dubai.
Dubai Airport and Dubai Duty Free
Dubai International airport will be world’s busiest airport by 2015 handling almost 57 million passengers every year. The new expansion of the airport is carried out to increase the capacity to 90 million passengers every year. In 1987 it was just 52 destinations served today it serves more than 205 destination by operated by 108 airlines. It is big achievement. It has made DXB worlds one of best and busiest airport in terms service quality and traffic handled.
Dubai Duty Free is the place where travelers line to shop. The annual sell of the DDB will be $1.64 billion. In the first 9 months it has already achieved $1.16 billion. With the expansion of the airport and start of the new terminal the sales will be going to see a big jump over the period of time.
The third part of Dubai International Airport is free zone called as DDFZA. It is growing steadily and new facilities and companies are coming to start their businesses in DDFZA. It grew 82% during this year. DDFZA contributes to 2.27 % of the GDP.
New airport expansion will see the increase in the freight capacity also. The cargo handled in 2011 is 2.18 million tons. This will increase to 3.1 million tons in 2018 and ultimately it will be 4.1 million tons in 2020 when the expansion will be completed.
Dubai Shopping Festival, ‘Festival City of The world’
Dubai is crowned as world’s festival city. It hosts maximum number of the different events in Dubai. It has also crowned as “World’s Best Event City”. These coveted standing has built the Dubai’s image as destination shopping and event. The biggest event is Dubai Shopping Festival. This is shopping mania where all kinds of entertainment is available to the people who are looking for enjoyment and tourist attractions.
Dubai is known as luxurious Tourist destination in the world. It will host more than 8.8 million tourist in 2012. Dubai is eighth most visited city in the world.
Some Important Events
· Dubai International Dance Festival
· International Zouk Flash Mob Day was a hit!
· Pullman Dubai Deira City Centre Welcomes New GM as Renovations Continue
· Shiba Restaurant introduces a speedy business lunch
· Dubai Shopping Festival to Bring Fabulous Prizes and More!
This is world’s tallest tower. The New Year eve light and fireworks will be great events. Last year’s magnificent Fireworks at Burj Khalifa can be seen from the 10 KM. It set the new world record of fireworks.
What Went Wrong
Dubai the Saga of Failure
Dubai the destination of luxury and lifestyle was gone burst on three years ago, on a day before Eid holiday in 2009. The glittering city is gone into burst. There are many questions what went wrong and many more answers. It was on chilling night of December 2009 when Dubai asked to its lenders for moratorium till May 2010 minimum so that the problem facing the company can be sorted out.
Before I can start talking on what went wrong, I would like to explain; what is Dubai. Glittering Dubai is basically made of three companies owned by its Rulers. These three companies own many smaller companies and development. This is Shinning and Ultimate Luxury Destination called Dubai.
· Dubai World
· Investment Corporation Dubai
· Dubai Holding
These are the entities in forefront of Dubai’s change of fortune. The plan is very good, but when we see it is very clear what went wrong. The Demand and Supply is the core problem. They started building a super luxury buildings and facilities for the super-rich. They are welcomed here from across the world. These facilities are built on the assumption that they will be able to sell the properties at the prices they are quoting. The financial crisis has made the difference. There is actually no demand for such properties, all of the demand is artificially created and these properties are second home or investment for the super-rich. When market changed the sell slowed down and the prices tumbled, this is core reason of collapse.
The secondary factors are as below
- Corporate Structure –
The first and foremost reason is the corporate structure created to grow the Dubai Empire. The structure is very vague and no one for sure who owns it and what are the legal status of the entities which has been created to grow and develop the Dubai to achieve the long term vision of the Ruler of the Dubai, unfortunately this structure which is not very clear to the world and specifically to the world of finance and money. When everything is going right considering these are government of Dubai companies and on miss-conception these are guaranteed by government of Dubai everybody lend them hand. Unfortunately even the Credit Rating Agencies while assigning them grade has not looked into the matter. The same agencies who are withdrawing the rating today on grounds of transparency and sharing of information has given them best Ratings. I can for sure the transparency and sharing of info is vague all the time and Rating agencies wanted to get rid of this so they are saying it. The second issue is even if it is sovereign guarantee which is not, a state can afford without any substantial income to count on. Today even the best of best like US and UK ratings are at stake, how these rating agencies have overlooked this for so long? The transparency and info sharing is not only matter of concern for Dubai but is of more concern for the Rating Agencies, they are more opaque and poorly controlled. Greece is an example of how the debt can be hidden and rating can be improved.
- Leverage – The critical issue is leverage. It is very clear, history repeats itself. Few years back the collapse of South Korean business conglomerate is clear lesson on excessive leveraging and its effect. Unfortunately lessons are not learnt and mistakes are made. The excessive leveraging which is not sustainable at is the second cause of the Dubai debacle.
- Project Finance – Infrastructure and big projects needs long term financing. Building a city is not a short term theme, one can not structure this long term projects with short term money. Big projects with long development time need properly designed Project Finance which takes into account all risk factor, in the case of Dubai, there is no long term financing for such project and when going get tough these projects are stalled and collapsed.
- Islamic Finance- Use of Islamic Finance by Dubai World is classic case of use of good words for bad purpose. Whole business model of Dubai does not fit into the model of Islamic Finance. The Sukuk structure is at dispute and all of financing and servicing of finance has to come from Halal sources in this case which is not, there for whole Islamic Finance Structure are null and void at inception. The structure is really very difficult, complicated and if goes to court of law then will be marred in long battle.