The deal to normalise relations between Israel and the United Arab Emirates (UAE), announced on August 13th, was a diplomatic coup. Might it be a commercial one too? Moneymen in Dubai, the UAE's largest financial centre, are hoping to cash in on increased investment and travel between the two countries. Israelis are expected to join the hordes of well-heeled foreigners who have opened businesses or bought swanky pads in the coastal emirate.
Dubai, one of seven emirates that make up the UAE, will be glad of the custom. Its media may be full of feel-good financial stories—drooling, for instance, over the recent foundation-pouring for the world’s tallest hotel, set to rise to 82 storeys, and the unveiling of “the world’s highest infinity pool”—but closer to earth things look less impressive. Thanks to overbuilding, property prices remain far below peaks reached six years ago. Covid-19 has clobbered an economy built largely on retail and hospitality. Low oil prices have strengthened the headwinds: Dubai is not hydrocarbon-rich but its economy feeds on petrodollars.
Adding to the challenges, Dubai faces increasing international pressure to clean up its act. It has long been less than discerning about the provenance of money flowing in. Its property market is heavily stained with laundered loot. If Dubai is forced to tighten standards, that would dent business in the short term, complicating its efforts to push its way into the premier league of financial centres.
Viewed over a longer timeline, Dubai’s growth has been spectacular. In the 1950s, as the City of London was about to ride the Eurodollar boom, Dubai was little more than a fishing village, with 20,000 souls and no airport. Today it is a metropolis. Its financial centre, which first began to take off in the 1990s, is a super-regional champion, serving as a gateway for investment from and to the Middle East, South Asia and Africa. Underpinning this is its stable polity and high quality of life: it offers the region’s ritziest penthouses, finest dining and best shopping and entertainment.
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