It’s early morning. You’ve just stepped off the redeye from London. You emerge blinking into the searing Gulf sunshine. You’re jet-lagged but, no, your eyes aren’t playing tricks on you. That sign you’ve just driven past on the way to your first business meeting, the one just off Sheikh Zayed Road, really does say what you think it says: “Bin Ladin Construction”.

The advertisement for the Saudi Arabian contractor is a local tourist attraction. It’s funny, all right, but it also reveals an important truth about Dubai.

This is the city state that capitalism built. It’s a giant corporation, Dubai Inc. Everyone is welcome – no matter how troublesome their relatives – provided they do one thing: make money.

Dubai makes life easy for entrepreneurs. Setting up a company takes as little as two hours and foreigners can trade almost any goods or services in the dozens of duty-free micro-cities, each devoted to a business sector: Media City, Aviation City, Healthcare City and so on. Finance houses in the Dubai International Finance Centre trade in western and sharia-compliant shares and bonds.

Regulation is light-touch and there is no income tax, corporation tax or sales tax. Thanks to the fast-growing national airline, Emirates, the city is well connected to markets in Europe, Asia and Africa. Dubai’s location – two hours’ flight from the Asian subcontinent – means an endless supply of labourers to work in construction and the service sector.

Culturally, the living is easy. Dubai’s Muslim rulers have a remarkably tolerant attitude towards westerners. Christians can build their own churches and worship freely, alcohol is available to nonMuslims, women can dress how they wish and do any job, foreigners can own freehold property and while homosexuality is not tolerated, Brokeback Mountain is available in Video Ezy, the DVD rental shop. Politically, the city state is neutral, having avoided getting sucked into regional conflicts.

Small wonder that the foreigners are pouring in at a rate of 25,000 a month, stoking an economy that is already expanding at 11% a year, generating a $30 billion trade surplus. Under its Strategic Plan, Dubai plans to maintain double-digit growth and achieve a GDP of $108 billion by 2015.

From the air, Dubai looks like a huge circuit board into which eastern and western firms are plugging high-tech clusters, entertainment zones and Truman Show suburbs. “This is the most optimistic, creative place on the planet,” says Donal Kilalea, 51, an Irish businessman who runs a sports marketing company.

However, some of the things that have made Dubai so attractive are beginning to clog its gold-plated arteries. Record economic growth is fuelling inflation. The situation is made worse because the currency, the dirham, is pegged to the dollar. As the greenback has weakened, so has the dirham, making imports more expensive.

Officially, inflation is 11% but locals say the real figure is almost double that. When it comes to rent and property prices, they say, the rate exceeds 30% (if you can find anywhere to live at all), although a recent report by ratings agency Fitch, predicts “an orderly moderation in rents and property prices” as supply catches up with demand in the real estate sector in 2009.

The roads cannot cope with the traffic, and congestion and jams are adding to pollution. Beyond the day-to-day hassles, there are bigger issues. The economy may be growing fast but, with Dubai’s oil supplies due to run out in the next 20 years, it is heavily dependent on two sectors: property and tourism, which together account for more than half of all inward investment. A downturn in either could see Dubai’s economy crumble like a sandcastle into the Persian Gulf.

Foreigners – rich or poor – are all classified as “guest workers” and, as such, enjoy few freedoms and little protection. There is no parliament where they can make their voice heard, no political parties, no elections, no free trade unions, no charter of human rights, no right to trial by jury, little consumer protection and no free press to tell them what is going on. Local newspapers have not reported allegations of corruption at Dubai Islamic Bank, the city state’s largest Islamic bank, which is 30% owned by the government.

However, Dubai has a trump card: cash. By giving westerners the chance to make fat tax-free money, it knows that however much they might whinge in private, they will not rock the boat. One of Dubai’s leading business executives, Scots-born Peter Riddoch, who heads Damac, the emirate’s largest private sector developer, says: “Dubai has delivered. Dubai works.”

The question many are asking is: can the success story continue? Dubai is the undisputed business hub of the region because it has first-mover advantage. Its neighbours are catching up at just the time Dubai is beginning to suffer growing pains. Abu Dhabi, 90 minutes’ drive away, is emerging as a better-planned and far better-resourced business centre. With almost 10% of the world’s oil reserves, it could soon become the real, not just the nominal, capital of the United Arab Emirates. And Qatar is trying to use its vast gas wealth to out-Dubai Dubai, by creating a business environment even more attractive to overseas investors.

The race is on to become the capital of the Gulf. Dubai will have to run even faster than it is now if it is to realise its dream of establishing a unique, east-meets-west model of what modern Arabia can be.

But it’s a contest Sheikh Mohammed bin Rashid al-Maktoum, ruler of Dubai and vice-president of the United Arab Emirates, a trained fighter pilot and endurance horse racer, relishes. “I have only one speed,” he says. “Full speed.”

AT A GLANCE

Population of Dubai: 1.6m inhabitants, expected to increase to 2.2m by 2010 and 4m by 2020

Population breakdown by place of origin: Asian expatriates 65%, UAE nationals 18%, Arab expatriates 13%, others 4%

GDP in 2007 registered at $54.3 billion

Population of Abu Dhabi: 1.4m in 2006 (predicted 3.1m by 2030)

Population of the United Arab Emirates: 4.49m

Official rate of inflation in Dubai: 11.2%

Official rate of inflation in UAE: 11%

Economic growth rate for Dubai: 11% per annum

Economic growth rate for Abu Dhabi: 8.2% per annum