Built on the back of an oil and real-estate boom, Dubai is now recognized as the globalized financial capital of the United Arab Emirates (UAE), a hub for trade, tourism, and banking. Reaching for the sky, the city-state is teeming with glittering infrastructure. It has become synonymous with colossal projects, including human-made islands and the world’s largest natural flower garden, tallest Ferris wheel, and luxurious hotels.
In this era of hyper-localization and ultra-globalization, some of Dubai’s long-standing businesses beat global recessionary trends by diversifying their revenue streams – geographically, sector-wise, and product-wise. Dubai’s government and its entities are successfully performing a skillful balancing act. At the same time as oil production is being prudently increased, continued investment in infrastructure and industry is facilitating the growth of non-oil and gas GDP, and at a faster rate. Accordingly, the share of oil and gas in total GDP continues to fall, in line with Vision 2030 targets.
Now the main question arises that why should businesses look into diversification? Well, the answer is very simple; ‘Don’t put all your eggs in one basket.‘ This is something that any financial investor will tell a person looking to put their money to use. That thumb-rule is true for corporates too, and the current business environment makes it more relevant now than it has ever been in the past. This means ensuring that you spread your capital amongst different investments so that you’re not reliant on a single investment.
Key Benefits of Diversification
Three key advantages of diversification include:
- Minimizing the risk of loss – if one investment performs poorly over a certain period, other investments may perform better over that same period, reducing your investment portfolio’s potential losses from concentrating all your capital under one type of investment.
- Not all investors are in the accumulation phase of life; some who are close to retirement have goals oriented towards the preservation of capital, and diversification can help protect your savings.
- Generating returns – sometimes investments don’t always perform as expected; by diversifying, you’re not merely relying upon one source for income.
A diversified portfolio reduces the time spent in monitoring the portfolio, helps better achieve long-term investment, and in turn, brings more peace of mind. A diversified portfolio is more stable because not all investments will move in sync, making it less susceptible to huge market movements. Besides, a more predictable return with less volatility can help investors not to lose focus and/or get emotional, resulting in a bad investment decision.
How is Dubai Diversifying Its Economy to Attract Investment?
Evolving with the Times
Dubai continues to evolve with the times. Dubai and the UAE over all have been undergoing somewhat of a macroeconomic revolution in recent years, fuelled by a necessary desire to transition from the one commodity economy it was once so well known for. The introduction of a 5% VAT in 2018, heavy, initiative-driven investments into infrastructure, education, healthcare, and renewables among other sectors has contributed to Dubai’s increased diversity. This has, in turn, enabled the UAE to stand the test of sharp fluctuations in oil and gas prices.
Its path to diversification is not over, though; oil is still its biggest income generator by far. And to reduce this reliance further, it is continuing its push to re-define itself as a city of the future by building a vibrant, sustainable, and secure business environment.
Implementation of Strategies and Initiatives
Ideally situated within an eight-hour flight of over two-thirds of the world’s population, Dubai aims to utilize its strategic location between the east and west to become the ‘Capital of the Islamic Economy’ and a vital trade gateway into Africa, Asia, and Europe. Dubai’s ‘Silk Road’ strategy hopes to catalyze this ambition, boosting Dubai’s capabilities in trade and logistics by orchestrating collaboration between emirates, free zones, and transport authorities.
To exercise this planned diversification, state-sponsored initiatives such as the ‘UAE Vision 2021’ and the ‘National Innovation Strategy‘ have been introduced. These strategies are underpinned by a desire to transition to a knowledge-based economy, with the ‘Vision 2021’ attaining excellence in these six national priority areas:
- World-class healthcare
- First-rate education system
- Sustainable environment and infrastructure
- Cohesive society and preserved identity
- Safe public and fair judiciary
- Competitive knowledge-based economy
Paving Path to a Better Future
Exploring new revenue streams is the only way to stay afloat in the years ahead. For many companies, the recipe for success lies in the implementation process of how a company can optimize its resources, especially fixed assets, to generate other revenue streams. The most favorable move in 2021 is in the direction of e-commerce, particularly in the logistics side. Business owners are confident they will weather the challenges as they have strong diversification plans in place.
Dubai boasts twenty-four free zones, each catering to specific sectors and industries. Dubai Airport Free zone (DAFZ) is one of the fastest-growing Free zones not just in Dubai but all over the world. Close to 1600 companies operating in construction, electronics, logistics, and aviation operations on the DAFZ. Dubai International Airport provides a fertile business area by offering state of the art infrastructure and modern amenities. With no restriction on capital conversion and profit repatriation, Dubai International Financial Centre is a Free zone dedicated to connecting with economies of America, Europe, and Asia. Various banks, insurance companies, and consultants have set base in Dubai. International regulatory and legal standards govern them.
Dubai’s diversification efforts continue to make it a global example of how an economy can overcome any challenge it faces. A recent report shows that Dubai’s “stable macroeconomic environment, its diversification and sustainability policies, growth strategies and infrastructure initiatives continue to fuel outstanding economic performance” even when the global economy faces headwinds.
It is important to understand that growth can be a disruptive force. It can affect every aspect of your business and put pressure on your staff, resources, and finances. This is why you need to plan carefully and ask yourself the critical question – is my business ready to grow? If you feel you’re ready, you should prepare a business plan for growth and seek expert advice before setting foot into a completely new market.