Dubai has always been a natural trade centre: Marco Polo spotted the possibilities in 1538 when he hailed it a "bustling seaport town prominent in the pearl, silk and porcelain trades". But even he might be surprised today to see how quickly Dubai is achieving its potential. A rising profile for tourism is playing its part, of course, but trade has always been an important part of Dubai's identity and now, after half a century of oil wealth, the emirate dubbed "city of merchants" is returning to its roots.
It was the arrival of oil that first altered Dubai's fortunes in the 1960s and led to several decades of rapid development. Most of what the wealthy emirate needed, or wanted, it was able to import. But as the oil shows signs of drying up the government's investments in manufacturing, infrastructure, warehousing and distribution facilities have proved essential to diversifying its economy.
Dubai's success story is one envied by other countries. Over 90 per cent of Dubai's GDP comes from non-oil sectors, jumping from DH62 billion (£9.4 bn) to DH110 billion (£16.7 bn) between 2000 and 2004, with trade being the leading sector in this growth.
Re-exports have grown more than five times in the last five years, and over 70 per cent of imports are now re-exported to 165 countries around the world, according to Sultan Lootah, manager of business promotion for Dubai Chamber of Commerce and Industry.
"You'll never find anywhere else with that rate of growth," he says, proudly.
Geographical location plays a strong part in this. Dubai is capitalising on its natural advantage of being located midway between the Far East and Europe with access to two billion consumers – including those in the ex-Soviet states, east and southern Africa and the emerging markets of China and India – as well as strong ties with its wealthy Gulf neighbours.
Dubai has added to this some strong incentives to lure foreign investors: as well as an absence of quotas or trade barriers, there is very low import duty and competitive energy and labour costs. Other efforts have focused on cutting down the bureaucracy involved in setting up business, says Lootah. "We have made it as easy as possible. If you have done your homework you can do it in a couple of days."
The government has also set up a number of "free zones" in which foreign companies can retain full control of their business and their profits, and can enjoy tax-free corporate and personal income.
The most successful of these has been Jebel Ali Free Zone, set up in 1985, which has attracted a rapidly growing number of companies dealing in trade and distribution, and some in manufacturing. The number of investors has soared from fewer than 300 companies in 1990 to 2,700 companies from over 100 countries in 2004, and the UK is one of the principal source of investors.
UK-based tea trading company James Finlay has recently opened a branch in the Jebel Ali Free Zone to supply the huge regional market for tea consumption. Director Richard Smyth says Dubai is by far the best place to set up a base in the Middle East.
"Dubai is developing fast in several areas. The air routes are well served by all the major carriers, time-wise we're in a good position to do business with the UK, flying distances are good, and by and large things work." He adds: "Dubai has created an environment which is stable, safe, they give you freedom of movement and it's easy to recruit staff."
It wasn't always this way. Dubai's national carrier Emirates has been crucial in its development; 15 years ago the city state was ignored as airlines became able to fly the distance from Europe to Asia without a stopover to refuel. Emirates is one of the principal drivers of its return to eminence.
James Finlay is supported by the Dubai Tea Trading Centre, part of the Dubai Metals and Commodities Centre, which has lured tea traders with incentives such as preferential rates on clearing goods through port, and by offering 60 days' free storage of produce. The DTTC facilitates tea trading by helping regional merchants do business with tea suppliers from all over the world. Since opening in March, over a million kilos of teas from nine countries has passed through.
Another company attracted by the free zones is Aggreko International, a global trader in generators and air systems. Aggreko already had an office in Sharjah but set up base in Jebel Ali in 1998 to support its international operations. "Jebel Ali offered excellent shipping and logistics connections for Africa, Asia and the Middle East," says marketing director Julian Ford. "The free zone is easy to do business from, with low levels of bureaucracy and administration."
Dubai's popularity is bringing some problems, however. Recruitment is becoming more difficult as spiralling costs of living have a knock-on effect on labour costs. Meanwhile a growing traffic problem and soaring rent mean the emirate has become a victim of its own success – attracting too much business, too fast to build the necessary infrastructure.
Such domestic hiccups seem unlikely to dent the emirate's potential to affect the way products are traded and distributed globally. Another example is the soon-to-open Dubai Flower Centre, which hopes to change the dynamics of the floriculture industry.
"Dubai is already a hub; it's not new what we're trying to create here," says Ian Strachan, managing director of the centre, where bulk volumes of flowers from producers – everywhere from India to Sri Lanka, Malaysia and East Africa – will be broken down, repackaged and flown all over the world.
Flowers from countries such as India will no longer need to be transported to auction houses in Holland before being distributed globally. Says Strachan: "In Holland, products are sent to the auction floors and sold from there. So for example, flowers would go from Nairobi to Holland and be redistributed to Japan. We are looking at a system in which Africa will send product here and then to Japan so we can cut out the expensive leg."
It means new opportunities to both producers and buyers. "For African producers, somewhere like Japan is limited; all trade from Africa goes to Europe. We are opening trade routes."
Strachan insists the centre will not take business away from Holland's auction houses. "We're not trying to cut Holland out or compete with them. It's more about creating a logistics channel than trying to compete." He adds: "The big Dutch players could have a facility here." The centre will also have an impact on the regional market. "With 60 new hotels alone going up in the Palm Island developments, that's a lot of flowers."
The centre has developed a refrigerated "dolly" that allows flowers to be handled without jeopardising freshness – Dubai's climate is not ideal for preserving fresh cut flowers – which means they can be transported quickly from supplier to consumer with no loss of quality. "If you cut out 24-48 hours of delivery time, you get that as shelf life further down the line, so it's what the consumer wants," Strachan points out.
If Dubai can keep finding useful short cuts to link buyers and producers across the world, there is no reason why it should miss the loss of oil in the near future.
For further information on Dubai, contact Dubai Department of Tourism and Commerce Marketing, tel +44 (0)20 7839 0580, or visit dubaitourism.ae.
Getting there
Dubai is served by Emirates from Heathrow and Gatwick, also from Heathrow by BA and Royal Brunei.
Return fares with Emirates: first class from £2,388, business class from £1,318, economy class from £355. Return fares with BA: first class from £3,176, business class from £1,778, World Traveller Plus from £778, economy from £358.
Return fares with Royal Brunei: business class from £2,083, economy class from £382 (no first class).
