Tiny Dubai, an emirate trade hub, beset by area rivalry

Back in 1971, seven emirates along the southwestern shore of the oil-rich Gulf joined to form the United Arab Emirates. Despite that unity, a strong element of rivalry remains.

It was shown in the comment of a government official: ''No matter what happens we shall still beat the others.''

Dubai has seen a leveling off of trade in recent years. But this official was confident Dubai will eventually outpace the other emirates, and in particular Abu Dhabi.

He noted that Dubai merchant families have a long history of experience as sea traders throughout the Gulf. He adds the city was established and built on the basis of trade - as opposed to oil-rich Abu Dhabi, which only 15 years ago was for the most part a Bedouin's sand dune.

In the past 10 years this historic rivalry among the seven emirates has taken the form of which ruling sheikh could build the biggest and best airport, or cement factory, or port. As a result, the three largest emirates, Abu Dhabi, Dubai, and Sharjah, all have large ports, cement plants, and airports. In Dubai and neighboring Sharjah, it is only a 10-minute car ride from the Sharjah International Airport to the Dubai International Airport.

Though there is some competition in trade, it is understood in both Abu Dhabi and Dubai that with its dhow trade, creek area, and new ports, Dubai will remain the leading entrepot, or warehouse and distribution area, in the U.A.E.

Nonetheless, all is not well in Dubai.

Dubai merchants are concerned at present over the steady decline to a trickle of the Iranian market for reexports. In addition there is concern over a new federal regulation (coming out of Abu Dhabi) that requires that all trading agencies for foreign companies in the Emirates be 100 percent owned by U.A.E. nationals.

Dubai, an entrepot clustered around a winding creek leading into the Gulf, has been built over the years by merchant families of Arabs, Persians, Baluchis, and Indians.

Indian merchants established themselves in Dubai before the turn of the century. They were subsequently joined by an influx of merchants from Iran, who fled that country to seek freer Gulf ports after Reza Shah began rigidly enforcing customs duties in Iranian ports around 1900.

Now the businesses of such longtime residents may be threatened, because they are not nationals.

Dubai locals say the new agencies law will mean that most of the companies doing business in the city will have to scramble before the February deadline to change the organization of their businesses to satisfy the law. Some still hope the situation is salvageable. One longtime resident says: ''The loopholes have not been explored yet.''

In fact, Dubai has a history of a sort of laissez faire trade, and the city and its merchants have gained an international reputation for being a free market, with very few, if any, regulations. It is one of the reasons Dubai has excelled as an entrepot while other ports have declined.

Many of the local merchants are simply waiting to see if the federal government will seriously enforce the agency law. Some are hoping the law just goes away.

''After a while the decisions here aren't reversed, they disappear,'' a resident said. He added, ''There's a great big yawn somewhere and on Tuesday you suddenly find, 'Oh, oh, that's good - no longer necessary.'

''That's the history of the city.''

If the law is enforced it could mean that many of the lucrative agencies will be bought out by U.A.E. nationals, leaving the foreign resident merchants, whose expertise and acumen made the city, without work. The more likely outcome if the law is enforced will be local ownership, with possible loophole ''management contracts'' granted to the original foreign agency operator and paying perhaps 95 percent of profits. The 5 percent of profits would go to the U.A.E. national for his signing the necessary ownership papers.

Dubai has grown and prospered over the years primarily as a result of its reexport business (shipping goods into the country and then shipping them out again). In 1981, reexports from Dubai totaled $871 million. Of this, $203 million went to Saudi Arabia and $191 million to Iran. They were the top two recipients of Dubai reexports that year.

Exports to the large Iranian market through nearby Bandar Abbas had contributed greatly to the prosperity of Dubai, particularly after the taking of the American hostages and application of US trade sanctions against Iran in 1979 . During that period Iranians were buying goods ranging from food and machinery to television sets, video recorders, and jewelry. Reexport records are said to represent ''only a very small proportion'' of actual reexports because of the high volume of unmonitored dhow trade. But the records show Dubai sent $236 million in reexports to Iran in 1979 and $346 million in 1980.

The boom in Iranian trade, however, began to slow when the Gulf war started. It dropped off even further as the Iranian government's reserves of foreign currency dwindled.

For the past 18 months this drop-off has seriously affected Dubai, leaving many merchants with full warehouses and bank loans coming due. Reexports to Iran for the past four months are 75 percent lower than the same period last year, according to the Dubai Chamber of Commerce.

Besides a lack of currency in Iran, this is because of an Iranian government decision to deal directly with exporting countries, often bartering crude for equipment and food.

One recent boost to Dubai trade was a decision in November by the Iranian government to permit Iranians living in the Emirates to take home goods worth up to $27,000.

In addition, a provision was adopted by the Indian government in November which allows Indians to buy television sets in Dubai and send them as ''gifts'' to friends or family in India at a reduced import duty. The measure led to sales of 400 televisons a day, and traders expect to sell 200,000 sets by early this month, when the provision expires.

Dubai merchants, as in the past, are still working to broaden their trade contacts and markets. Some are now looking toward East Africa, while others are competing with the other major Gulf entrepots, Kuwait and Bahrain.

In addition, the merchants and traders are waiting for the Gulf war to end. ''If the war does stop, whatever is the outcome, we will benefit considerably from it,'' an official said.

But Dubai is no stranger to hard times. The city saw the decline and collapse of the pearling industry in the 1930s because of competition from Japan, but Dubai continued to trade in other items and became a trade center for Saudi Arabia, Oman, Iran, and India.

In the 1950s, Dubai merchants expanded into gold trading, capturing more and more of the market from Kuwait.

The gold trade grew over the years, until in 1970 Dubai became the third largest buyer of gold on the open market, with purchases of 259 tons. The gold was purchased in London or Geneva and imported duty free to Dubai. In Dubai it was sold to traders who smuggled it into India and Pakistan in dhows.

With the discovery of oil in 1966, the city was expanded and the creek was dredged and improved. In addition, the oil revenues were used to help ensure Dubai's future as a trading city with the construction of two large, modern ports, Port Rashid and Jebel Ali, which both handle ships. Meanwhile, the creek continues its dhow trade, the wooden boats being loaded in the city center with refrigerators, cars, televisions, lumber, and other goods destined for Gulf ports.

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