Dubai crisis is the Arab economy’s opportunity
Dubai. The land of wonders, mystery, and 30% of the entire worlds crane supply. As some of you may know, Dubai had been on an economic boom over the course of 10 years, quickly becoming the “hot spot” when it came to almost anything in the world. Development grew at a staggering rate and international investors jumped on any opportunity they could to get a piece of the action. As a frequent visitor to Dubai and someone who owns property in the area, I have been closely following the recent events surrounding Dubai’s economic crisis and the huge effect it has on the rest of the world. Massive amounts of international investments lost, property on a decline, but who will come to the rescue? Heres an interesting article from todays MarketWatch:
Dubai, which until last week loomed tall – literally – as an enterprising, cosmopolitan, glitzy and happy antithesis to the Middle East’s economic stagnation, has now emerged as a sad monument to all that is ill about the pan-Arab economy, which includes more than a quarter-billion people but is smaller than Spain’s.
Once the dust settles over Dubai World’s debt-default announcement last week, its many Western victims would do well to probe not only the way the emirate’s authorities treated their money but also the relationship between the entire petrodollar elite and the pan-Arab economy.
The Dubai crisis originated in a brave dream: that the Gulf’s oil riches would buy rather than produce a great financial center.
Had this transpired, it would have defied historical precedent, whereby the great modern financial centers — from London, Frankfurt and New York to Tokyo, Hong Kong and Singapore — both followed and fed monumental industrial revolutions.
Those financial centers rose after millions had moved from the countryside to factories, where the process of their economic empowerment began, eventually giving rise to the broad, educated, affluent and socially mobile middle classes that are the backbone of healthy economies.
Metropolis in the Dunes
In the Gulf, despite the complete absence of middle classes and an industrial base, a financial metropolis was emerging from the Arabian dunes.
Dominated by Burj Dubai, the $1 billion turret that at 2,500 feet is the world’s tallest structure and by its trademark palm-shaped system of artificial islands, Dubai invested $200 billion in tourism infrastructure. On top of that, it put $20 billion into a property venture that included 30,000 houses, luxurious hotels and an artificial lake, and an additional $4 billion for 300 artificial islands.
Dubai’s emir, Sheikh Mohammed bin Rashid al-Makhtoum, openly spoke of the need to prepare for the morning after oil, which some suspect will arrive within several generations, whether because the resource will be exhausted or alternative energies will take precedence.
But the construction frenzy transcended Dubai. To the north, the Bahrain Financial Port was planned to employ 8,000 bankers and insurance agents, while at the other end of the Arabian Peninsula the Saudis laid the cornerstone for the $27 billion King Abdullah Economic City.
And real estate was but the most visible aspect of a spendthrift Zeitgeist that swept the entire Gulf area during this decade’s seven fat years of record oil prices.
It was the time when Emirates Airlines bought a $37 billion fleet including 45 state-of-the-art double-decker Airbus A380s; when Abu-Dhabi-based Mubadala Development bought a stake in Ferrari, and Dubai International shopped for U.S. seaports while other Gulf sheikhs bought skyscrapers in Manhattan and a chunk of London’s Madame Tussaud’s Wax Museum.
No one abroad, let alone locally, seemed to ask who makes all those decisions and how, why and at what social cost, just as western governments never questioned their steady supply of Saudi Arabia’s estimated $20 billion annual military spending — about the size of Russia’s defense budget — and its social costs.
Westerners preferred to look at the happy side of all this financial momentum, which besides welcoming rich foreigners included a genuinely progressive quest, like Qatar allowing U.S. universities to open local campuses for Arab students, a large number of them women, and like Saudi Arabia earlier this decade launching a $50 billion plan to build new roads, hospitals and schools.
