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Can Dubai become the Hong Kong of the Middle East?

HONG KONG has flourished as the gateway to South East Asia and Mainland China. With one of the world’s freest economies, a low tax structure, and a highly effective and transparent legal system, Hong Kong has become a remarkably good place in which to do business. The similarities and synergies between the two City States are frequently mooted and Hong Kong’s success is something Dubai is trying to emulate.

“There is considerable synergy between Dubai and Hong Kong,” said the chairman of Professional Property Services (PPS), Nicholas Brooke, summing up the view held by many about the similar roles and aspirations of the two City States. Chairman of Hong Kong General Chamber of Commerce and former chairman of HSBC, David Eldon, agreed. “Dubai is doing similar things,” he said. “Dubai looks towards the Hong Kong model, and sees Hong Kong as a place to become.” He also believes Hong Kong can learn lessons from Dubai, particularly its unique ability to build and foster a supply-driven rather than a demand-driven economy.

But how similar are the two cities and can Dubai ever achieve Hong Kong’s success? The most obvious similarity is that they are both City States and regional hubs — Hong Kong for China and South East Asia and Dubai for the Middle East, Africa and the Indian sub-continent. Both are seaports, with world class container terminals, and both have superior international airlines and airport facilities. Another similarity is the low tax status of both economies. Dubai, in particular, is putting considerable effort into creating free zones, of which there are now thirteen.

Hong Kong and the UAE are also high growth economies: Hong Kong’s growth from January to September 2005 was 7.3 per cent; the UAE’s estimated growth for 2005 is 12.7 per cent. Trade, re-exports in particular, is also an important driver of both economies.

Trade between the two countries is strong as well. The UAE is Hong Kong’s 19th largest export market and the largest in the Middle East. In the first seven months of 2005, Hong Kong’s exports to the UAE were two per cent up year-on-year; its re-exports to the UAE increased by one per cent and domestic exports by 22 per cent. Conversely, Hong Kong is the UAE’s 21st largest source of imports.

For both cities too the services sectors are key engines of growth, tourism in particular. Hong Kong is the world’s most services-oriented economy, accounting for 90 per cent of its GDP and the aim of the Dubai government is to encourage diversification away from oil and its downstream industries. Developing the emirate’s trading, tourism, media and shipping industries, as well as becoming a hub for financial and commercial services, is part of the master plan.

Already, tourism is a key driver of Dubai’s economy. From 1999 to 2004 the number of Dubai’s hotel guests doubled to 5.4 million, representing perhaps the highest per capita tourism ratio for a city of just over a million inhabitants. Travel and tourism in the UAE is expected to generate Dh76.2 billion ($20.74 billion) in total revenue in 2005, growing to Dh123.6 billion ($33.65 billion) by 2015, according to the World Travel and Tourism Council (WTTC). In real terms this translates to a growth rate of 2.4 per cent in 2005 and 2.9 per cent between 2006 and 2015.

Consequently, the infrastructure of both economies, especially airports and hotels, is designed to meet an anticipated high inflow of visitors. Helping to drive the tourism sector in both cities is the international convention and exhibition business. Over 300 are held in Hong Kong each year, and a similar number in Dubai.

Dubai, like Hong Kong, also aspires to be the regional headquarters for most multinationals managing their businesses in the region. There are about 4,000 foreign companies with offices registered in Dubai and as at June 2005, a total of 3,798 companies had regional operations in Hong Kong.

Dubai is also an aspiring international financial services centre. In its quest to become the Hong Kong of the Middle East it set up The Dubai International Financial Centre (DIFC) and has built on this by launching the Dubai International Financial Exchange (DIFX) on September 26 last year. Although only one company has listed on the exchange so far, it is claimed that 15 more will list throughout 2006.

Source: Extract taken from Khaleej Times Online

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