Capital Flight

The financial life in Dubai is loose and fast and a lot of Pakistani money is invested the economy. Businesses in Dubai are tax-free and cash transactions are common. One can register business in Dubai, deposit thousands of dirhams in cash each day in their bank account, and then remit that as their profit through banking channels. It’s easy, and it’s clean. No bureaucracy, no bribery, no begging. Why would Pakistani’s not invest? It is true that the bubble economy of Dubai is flourishing on the black money of the world and unless Dubai is not blacklisted as a fraud friendly country by the world, nothing can prevent whitening of global corruption money. But then, at least in the Pakistani case, what alternative incentives is the state (and the myriad of terrorists) giving for money to be invested at home? Pakistan has a high rate of return on investment. If the bureaucracy was not corrupt, and regular bombs were not going off, we would have international investors breaking down doors to get in.
But as the situation stands, Pakistanis make up the second largest non-Arab nationality in the UAE, and Pakistani’s have purchased properties worth over $4.3 billion in 2013 and 2014 in Dubai. This is a lot of money, and just because it is in UAE does not mean it is secure. A lot of capital moved to the UAE during 2006 and 2007 when Pakistan had capital and property markets were booming in Pakistan. Credit was cheap and traders were manipulating the market to reap rich dividends. People made so much and so quick that they did not know what to do with it. The West was hostile and so a large percentage of new money arrived in Dubai. However, a lot of it evaporated into thin air when Dubai property and capital market subsequently crashed with massive Pakistani investment going down the drain. Money has to be generated first if it has to be invested, and so the money that is in Dubai right now might not be as black as we think it is. This is because in the last ten years the very survival of business has been at stake, and taking bags full of money seeking investment overseas does not happen in a global recession. If the moneybags are reaching Dubai, economic activity is happening here. The point is to keep the investment here too. The sliver lining is that if infrastructure and rule of law can be improved, we have a potential property markets boom in the making and could see growth rates going in double digits, in the short to medium term. But, this is a big “if”.

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