This issue of the Economic Bulletin was written as Dubai is overcoming the global health and economic crisis caused by COVID-19. Disruptions of Dubai’s core services, such as air transport, travel and related services, have occurred. But on a positive note, the overall resilience of its economy can support a rapid recovery as soon as travel restrictions and shut down of borders start to ease. The insights presented in this issue regarding Dubai’s ability to pursue profitable trade opportunities in digital age services are particularly relevant now. Tapping the potential of these services can steer the Emirate’s economy to a successful track of sustainable growth and prosperity.
The first part of the Economic Bulletin analyses data compiled to understand the key role that Dubai's exports of commercial services play in the Emirate's economy. Then, the issue addresses Dubai’s opportunities as a trade hub for commercial services in the digital era as the world is experiencing accelerating use of new technologies, including blockchain. This rapidly evolving environment makes it important to assess where Dubai can achieve a leading trade role in commercial services that leverage its current and emerging comparative advantage in key global value chain activities. These areas will serve as a core source of growth for Dubai and a broadly focused economic driver for the UAE in the future.
The service sector in Dubai’s economy is the largest contributor to the Emirate’s GDP, accounting for almost 80 per cent of the total, in 2018[ref]. Trade in services can help Dubai’s economy diversify and achieve more rapid growth; it also enhances Dubai-based companies’ competitiveness.
Exports of commercial services encompass activities in which Dubai has a comparative advantage such as transport (shipments, air transport and other transportation services), travel (including tourism), and other private services, such as brokerage, communication and financial services, technical and professional services.
Data on cross-border trade in commercial services are provided in a country’s balance of payments statistics and these are compiled only for the UAE as a whole not for Dubai. Furthermore, the UAE balance of payments statistics embody only the country’s total cross-border services traded at the economy level and further disaggregation is limited. Data on the geographic destinations/sources of services exports and imports is also not available.
At the present time, there is limited data to capture foreign trade in services, both exports and imports, so it is not possible to quantify cross-border services in which Dubai has a comparative advantage over similar economies (open and small), such as Hong Kong and Singapore. In contrast, customs data provides a more precise reckoning of merchandise trade.
Recording and estimating existing external trade in services for Dubai, and increasing the policy focus on expanding the services sector that could enhance further economic diversification to support higher and sustained growth, is an important statistical priority.
The world is experiencing an accelerating trend towards digitisation, in emerging markets as well as the developed world. The WTO reports that a major driver of the growth of world trade in services are digitisation[ref], the growth in the internet and low cost telecommunications. This means that many services that could only be delivered face to face can now be transacted at a distance.
In the following, a brief discussion of other areas for the provision of digital age services, which will enable Dubai to strategically grow trade in commercial services and serve as a core source of growth in the future.
Dubai has been at the forefront of adopting digital technologies that have the potential to propel future economic growth. New technologies can reduce trade costs by optimising the tracking of cargo and shipment and increasing the efficiency of shipping and transport. A striking example is how DP World leverages digital technologies to optimise operations and reduce costs. DP World’s facilities in the Jebel Ali free zone are an integrated multi-modal hub, capable of offering sea, air and land transport to the rest of the world.
DP World also launched DP World Cargospeed in 2018, a new global company created through a partnership between global trade enabler DP World and Virgin Hyperloop One, to provide hyperloop-enabled cargo systems to support the fast, sustainable and efficient delivery of palletised cargo. This technology, traveling at top speeds of 1,000 km/hour, will be able to transport on-demand high priority, time-sensitive goods such as medical supplies, fresh goods and electronics, contributing to reduced costs of servicing supply chains.
DP World Cargospeed’s hyperloop-enabled cargo systems operate at speeds up to 1,000 km/hour for fast, sustainable and efficient delivery of palletised high priority cargo and reduced costs of servicing supply chains.
Learn MoreDigital technologies have decreased traditional trade costs and serve to provide on-going cost reductions. Online platforms help reduce the search costs of matching buyers and sellers, of obtaining market information and providing information to potential consumers.
Dubai has built up a solid wholesale and retail trade sector, which is the largest contributor to its GDP. The sector not only caters to local residents but also attracts a large number of visitors from other countries (tourists) to shop in Dubai. Distribution services, which used to take place mainly through the commercial presence mode, moved to mail-order services and electronic commerce[ref]. This new mode of business has reduced the cost of entry in individual markets. This development impacts the contestability of markets for the wholesale and retail trade services.
Dubai has the potential to become a major e-commerce fulfilment centre for the MENA region and beyond, given its transport connections and strength in the regional logistics market. The lockdown measures to reduce the COVID 19 spread has proven that online retail has now become a vital lifeline for business to survive and for customers forced to work and stay home to accelerate the use of e-commerce and related delivery platform. In a post COVID 19 such trend will accelerate, driven by digital technology and the incorporation of data and automation.
Dubai has been boosting its financial service activities through the Dubai International Financial Centre (DIFC), which has increased its scale and attracted fintech companies, both start-ups and companies in their growth stages. The number of licensed fintech companies operating in the DIFC increased from 35 to more than 80 in the first half of 2019. The DIFC received 425 applications from start-ups operating in the Regtech, Islamic fintech, Insurtech and broader fintech sectors, for the third session of its DIFC Fintech Hive accelerator programme, a 42 per cent increase from the 2018 programme and a three-fold increase from its inaugural cycle in 2017. Approximately half of the applications received for the 2019 programme originated from the Middle East, Africa and South Asia.
Dubai is also well positioned to enhance its opportunities in the financial and technology sectors in the context of regional cooperation. In particular, fintech has the potential to disrupt, simplify and grow the trade finance market by the use of blockchain and securitisation. According to the Asian Development Bank, there is an unfulfilled US$1.6 trillion global trade finance credit gap which fintech can help reduce by lowering risk.[ref]
Services are not only traded cross-border, but also through the movement of people and capital. Examples of Intellectual Property (IP) related services include fees for the reproduction and distribution of copyrights on computer software, audio-visuals and books, broadcasting and recording of live performances. At the UAE level, the balance of payments statistics show IP-related services receipts (exports) accounting for AED 13.6 billion in 2018.[ref]
The film industry provides a good example of how innovative audio-visuals can deliver a variety of different services: the movement of people through film production or specialisation in specific activities such as dubbing or visual effects, as well as destination marketing by becoming a filming location. In addition, the industry generates a new value of appropriation such as copyrights, brands, exclusivity agreements and overall the creation of jobs and increased economic activity.
Dubai Studio City & Abu Dhabi-based Twofour 54 provide illustrative examples of such a service network. Dubai Studio City in particular, aims to cater to the production needs of the MENA region by building Hollywood-like movie studios with sound stages and back lots for various production needs. It also plans to house film and television academies, entertainment and retail spaces, hotels and residential facilities to accommodate crews and casts.
Dubai has been at the forefront of adopting digital technologies that have the potential to propel future economic growth. In the post-COVID-19 global health crisis, Dubai will face a new evolving environment. But Dubai is well positioned for the challenge of transforming its economy for the digital era, supported by a long and successful track record of capturing opportunities that give rise to new markets and increase productivity.
Dubai has been proactive in already adopting digital technologies such as artificial intelligence, the Internet of Things, additive manufacturing (3D printing) and blockchain. This digital foundation will play a catalysing role in enabling the Emirate to strategically grow trade in goods, services, finance, people and data in the future.
The share of services reached 23% of the value of world total exports (goods + services), in 2018, and has grown from just 9% in 1970, 3 times that rate. For Dubai, the share of services accounted for 53% of total (goods and services) exports, highlighting the strong reliance of the Emirate’s economy on the service sector.
Transport services is a key export sector for Dubai representing 53% share of total exports of commercial services in 2018, a higher share than the world exports; Travel services (covering travellers’ expenditure on goods and services during their stay abroad) accounted for 28% share of total exports of services in 2018, is in line with the travel services share (25%) in world services exports; Other commercial services, including financial services, business services and charges for the use of intellectual property, continued to be dominated by developed countries (USA, Switzerland, Singapore); Dubai’s share of other commercial services (18%) is even lower than the share (58%) of other commercial services in world services exports.
Source: WTO, "World Trade Statistical Review 2019"; for Dubai data, DED staff estimate based on DSC's Input-Output table of 2015 and UAE balance of Payments Statistics.