November 14, 2007
To Dubai with astonishment
I am in Dubai this week to attend two conferences. This week is McKinsey’s annual strategy conference and next week is the FT/DIFC conference on world financial centres.
I have not been to Dubai before so I have the usual reactions of visitors to the place. It is an extraordinary accomplishment, but also a bizarre one. The rash of skyscrapers and beach hotels, including the sail-shaped Burj Al Arab, where I had dinner tonight, is an astonishing sight.
Before I came, people advised me that Dubai was a little like Las Vegas - an other-wordly place of resort hotels built in odd styles linked by one long freeway filled with cars. There is indeed something to that: Dubai has the same ersatz internationalism as Las Vegas, with pyramid-shaped hotels and themed restaurants offering everything from Italian to Tex Med food.
The cars drive on the right too but there are other things that could only be British. They sell British sweets in the shops and the electric outlets are in the UK design.
The posters on the way into the city from the airport not only advertise an outlet of Saks Fifth Avenue but cheap flights to Beirut. Something about that combination is mind-bending.
But my overall impression is that the place is both bigger and has greater potential than I thought from a distance. One estimate puts the amount of oil wealth flowing into the Gulf countries including the United Arab Emirates, Qatar and Saudi Arabia at $2,000bn in the 15 years from 2005 onwards than in the 15 years leading up to 2005.
There is also abundant evidence of Dubai companies such as Emirates, the airline, and DP World, the ports operator, becoming global forces. Dubai claims that it has diversified so effectively that only 5 per cent of its economy is directly attributable to oil.
Although I had read about it before, it is still a shock to see at first hand such a thriving and wealthy economy (helped by the fact that there are no personal income or capital gains taxes). Yet the Gulf states have not yet enjoyed a similar reappraisal in western eyes to China and India. It is overdue.
I am also visiting friends in Dubai for the first time this week. They’ve been here 10 years, when the 6 lane motorway was a single carriage. I’ve been forewarned by them of the property ‘bubble’ possibility. Building quality is lower on recent properties, and a huge quantity of flats coming to market in the next 2 years at high prices. A salesman was pushing an unbuilt 2-bed flat near the anticipated Dubailand for £250k-£300k. Not much of a 2nd hand property market here either I’m told - everyone wants new builds! Still .. if oil keeps rising, who knows what may happen here. Just can Dubai take off before its oil runs out in ~10-20 years (unlike nearby Abu Dhabi’s massive reserves - I recommend a day trip with Arabian Adventures!).
Posted by: Alex Edwards | November 15th, 2007 at 4:41 pm | Report this commentFirst time visitors to Dubai fall in love in the small emirate with no oil reserves of its own. However they fail to witness the grim realities of this sheikdom:
- overwhelming majority of the population of this city is comprised of expatriates from South Asia, other Arab states and Southeast Asia. However they do not have citizenship status. Neither do they have any permanent residence status. They are supposed to leave the country or find another job if their employer decides to fire them.
- large proportion of expatriate population is comprised of unskilled labor, such construction workers, port workers and taxi drivers. These people, who primarily belong to India, Pakistan and Bangladesh, in many instances have been working in the emirates for over 15 to 20 years. The sky rocketing inflation and rising cost of house rentals along with virtual absence of any worker rights, made these people work and live in sub human conditions. There have been several instance of workplace deaths. These people work in extreme climatic conditions like over 50 degrees centigrade temperature. They do not have any rights of association and are denied minimal worker benefits such as health insurance, pension and appeal against arbitrary dismissal.
- Skyrocketing inflation has made middle income earning expatriate professionals live off the personal loans and credit card debt. Look out for sub prime bubble in the making. There are over 40 banks with 22 issuers of credit cards and personal loan lenders for a population over 4 million and bankable population of less then 1 million.
- Price fixing and oligopoly of service providers has given a semblance of boom and robust growth. Telecommunication charges here are one of the highest in the world. Furthermore it is far more expensive to travel out and into this place, then to travel from other regions. Similarly hotel charges are far higher then they should have been. Despite the low hotel occupancy during the off peak seasons, hotels are not allowed to bring down the rates to achieve better hotel occupancy.
There it is estimated that once the tipping point comes, it will be difficult to stem the slide into recession. It happened after the Gulf War in 1990s and it might well again once the oil prices are readjusted.
Posted by: Ordinary Observer | November 16th, 2007 at 5:22 am | Report this commentHas anyone seen a proper set of accounts for Emirates Airline, or indeed for any large operation in Dubai such as The Dubai Aluminium Company?
I doubt it!
Posted by: Curious | November 16th, 2007 at 9:17 am | Report this commentAs most large entities in Dubai and the UAE, such as emirates airlines, Emaar, DP World, are government (or family) owned there is no requirement on them to produce financial information for public consumption. However, this may change soon as companies like Emirates and DP World are seeking IPO and listing on Dubai International financial market or as reported in the case of Emaar on the LSE.
Posted by: Carl Andrew | November 18th, 2007 at 12:20 pm | Report this commentDubai Boom Recipe
1. Take huge amounts of petro dollars looking for a home and pour liberally into a variety of headline grabbing projects.
Posted by: dubaidude | November 19th, 2007 at 3:58 pm | Report this comment2. Mix government, banks and real estate interests together thoroughly
3. Give free land to all concerned for building
4. Exploit south east asian workers with no rights at USD 250 a month
5. Provide an incentive such as ‘residency’ for a family for hungary investors.
6. Allow money for real estate that is looking for a laundry mat from CIS states.
7. Bake slowly with no clear property rights
8. Ensure a collaborative oligopoly structure to coordinate prices and property delays.
9. Charge London, New York rates for a studio apartment
10. Serve slowly to population suffering from rampant rent and price inflation.