Dubai must feel a little like Mark Twain, these days. Upon reading his own obituary in the newspaper, Twain wrote: “The report of my death was an exaggeration.”
Dubai has had its share of obituaries as it suffers from a property bust and contagion from the global credit crisis. Headlines from Cairo to London to New York, laced with schadenfreude, proclaim its demise. Newsweek said simply: “Goodbye, Dubai.”The emirate is certainly stumbling. Many of its state-owned entities drown in debt. Several high-profile property projects have wilted under tight credit, debt and corruption. Its stock market has been in free-fall. Many of its top officials, who once swaggered on the world stage, now skulk in denial.
Still, news of Dubai’s death has been greatly exaggerated. Its fundamentals as a regional hub of shipping, services, people, trade and capital have not changed. “Disneyland Dubai has crashed,” as one Dubai-based banker put it, referring to headline-grabbing property projects, “but the core business model of Dubai remains sound.”
That business model predates modern financial markets and the hyper-globalisation of today. It is not about lavish hotels, skyscrapers and man-made islands in the sea. It is a simple model, reflected in the statement of Sheikh Rashid bin Saeed al-Maktoum, the late ruler of Dubai: “What’s good for the merchants is good for Dubai.” Creating a hub for merchants has been an al-Maktoum family tradition for more than a century. And it is those merchants and migrants, dreamers and entrepreneurs, who built Dubai, who deserve equal credit for its rise and who will help it grow again.
This openness to foreign talent will support Dubai as it faces today’s crisis. Speculators will leave but plenty will ride out the storm, including Arab professionals who have chosen Dubai as the place to achieve their dreams and middle-class Indian mid-level managers who make the city work.
To understand why Dubai will survive, it is important to understand its commercial geography. It is not solely an Arab state – demographically or commercially. It is a commercial and tourist hub for a region that encompasses the growing markets of south Asia, emerging Africa, oil-rich Russia and the Gulf states, Iran, central Asia and the Caucasus, Europe and China. And it works largely because of the heavy infrastructure investment made by Dubai’s rulers and the expatriate traders, service professionals, construction workers, bankers and techies who make up 90 per cent of the population.
Dubai was never, as one newspaper called it, “The Middle East’s economic powerhouse.” Rather, it was and remains a highly successful entrepôt in one of the richest and fastest-growing parts of the world. Like most entrepôts, it feeds from and fuels growth. Dubai companies, for example, have substantively improved east Africa’s transport infrastructure and DP World manages ports in 49 countries.
Though Dubai is racked by debt – $70bn of it – much of that comes from massive infrastructure projects that have positioned it well for the future. Infrastructure spending is old hat in Dubai. When Sheikh Rashid built the Jebel Ali port in 1979, to much criticism, he made a big bet – and won. Today, Jebel Ali helps place Dubai among the 10 largest container terminal port cities in the world. When Sheikh Rashid chose to take on a big loan in the late 1950s to dredge the Dubai creek to allow for larger ships, he was panned. It worked. The ships came, and so did the merchants. The pre-oil emirate grew and flourished.
The same can be said of its airports, airlines, telecommunications and broadband networks, metro system and expanded highways. There is no city within striking distance of challenging Dubai as a hub in a region that extends beyond the Arab world to 1.5bn people. Its airport is among the 10 busiest for international passenger traffic. It is also among the world’s top 15 air cargo hubs.
Dubai’s property bubble popped. Its hubris also (thankfully) popped. Its core business model, however, did not. Property corrections and over-leveraged state entities can be fixed. Becoming a poor environment for trade would be far more dangerous. When the world growth engine restarts, city-states such as Dubai will flourish. In the meantime, Dubai will serve as a vital, if somewhat clogged, artery in world trade. The battered but still battling hub city will rise again.
The writer, a fellow at the New America Foundation, was a Dubai-based correspondent for Reuters and is working on a study of hub cities.
Copyright The Financial Times Limited 2009