Breakingviews – Dubai demonstrates the distance ahead of Saudi

The bustling metropolis of Dubai should not, by rights, exist. The most populous of the seven absolute monarchies that constitute the United Arab Emirates has only modest oil reserves. To generate electricity it relies on importing natural gas – especially from Qatar, with which it severed diplomatic ties in June. And it has virtually no natural fresh water. Yet Dubai and its population of 2.7 million people now boast GDP of around $40,000 a head, according to the government of Dubai’s Statistics Center.

Economic success has come with its costs, though. There are still strict rules against both homosexuality and sex outside marriage; a British man was recently jailed for brushing against a German man in a bar, for example, before Sheikh Mohammed pardoned him last week. The lack of bankruptcy laws gives an incentive for the indebted to leave the country rather than restructure what they owe. Labor and business laws are either non-existent or ill-defined enough to make investors worry they are insufficiently protected, too – although the legal framework is stronger for companies incorporated in the Dubai International Financial Centre.

The environment has paid a price, too. Per capita, Dubai belches out just shy of 20 tonnes of carbon emissions a year, making it a top-five polluter by that metric and worse than the United States, Australia, Russia and China. A third of the emirate’s tally stems from using fossil fuels to provide energy and water, 90 percent of which has to be desalinated before use.

The government has been increasing efforts to address that in recent years, committing to reducing water and energy use by a third and generating a quarter of its electricity from renewable supplies by 2030, by which time its population may have doubled. It further intends to reduce emissions by 75 percent by 2050. At the fourth annual World Green Economy Summit in Dubai last week, Saeed Mohammed Al Tayer, chief executive of Dubai Electricity and Water Authority, said it was launching a 2.5 billion dirham ($680 million) green fund as part of a previously announced 100 billion dirham fund.

That’s peanuts compared to the $500 billion Saudi’s crown prince pledged last week to build NEOM, a 26,500 square-km futuristic city on the Red Sea ripe for developing solar and wind power.

Dubai, though, despite its drawbacks, offers an atmosphere far more conducive to success. It needs that to continue: a service-based economy requires more than just its almost 3 million people to thrive; it needs to export its skills.

Saudi Arabia’s latest push to expand its economy should provide yet more customers – early morning flights from the emirate to the kingdom and the return flights in the evening are already packed.

Relations between the UAE and Saudi Arabian governments are closer than they have been for years. That’s evident not just in matters of state like joint participation in both the war in Yemen and the boycott of Qatar. It also shows up in everyday life: last month, for example, mobile phones across the UAE suddenly displayed “UAE KSA TOGETHER” where the carrier’s logo usually resides, in the run-up to the 85th anniversary of Saudi Arabia’s founding.

Of course, if Saudi Arabia significantly ups its game, Dubai would have a serious challenger to its status as a regional financial hub. That, though, would be a long way off.