I'm not easily impressed. And it's not really my style to indulge in hyperbole, so I'm a bit taken aback by what I'm going to tell you. But what's happening in the United Arab Emirates (UAE) simply beggars the imagination. I've written a lot about the boom in China, especially Shanghai, where the new national bird is the Construction Crane; Dubai exceeds it, and takes the meaning of a boom to a whole new level. Words like "unbelievable" and "breathtaking" are warranted. The place is like Las Vegas, but multiplied by 10.
I've been to about 170 countries. But, until last month, never to the UAE. That's not exactly true. A few times in the '80s, I went through the airports in Dubai and Abu Dhabi for refueling, on my way from Europe to the Orient, but never took a walkabout. Based on the shabby facilities and the few shops peddling knick-knacks, there seemed no reason to bother getting a visa to take a closer look. Big mistake.
The fact Dubai isn't a recurring feature in most magazines is testimony to how provincial the world still is. What's happening in this part of the Persian Gulf, abutting Saudi Arabia, just about 60 miles across the water from Iran, and about 800 miles from Iraq, is far different – and ultimately far more significant – than anything going on in those places.
Let me first give you a bit of background. Then tell you what is happening. Then why. Then what I think it means. And why it's important to you.
The UAE was formed from British protectorates known as the Trucial States. After the Empire went home in 1971, seven of them joined together in a federation that became the UAE. Abu Dhabi, with gigantic oil revenues, was and is the biggest. Dubai is next in size. Then comes Sharjah. Then four others that are still very much off the beaten track (for the benefit of trivia buffs: Ajman, Umm al Qaiwain, and Fujairah). Two other emirates, Qatar and Bahrain, were invited to join but stayed independent.
Dubai started pumping oil in 1969, but while the reserves were gigantic for a country of 100,000 citizens, they were small by Gulf standards, and it was clear they would decline towards zero over the next 40 years. Better than oil, which is usually a curse to those who have it in any event, Dubai was blessed with a particularly prescient leader. And a long history of making its living as a trading port.
It's funny how provincial and hysteric Americans are. When I mentioned I was going to spend a few weeks in the Mid-East I was confronted by looks of awe, fear, shock, and disgust. It reminded me that most Americans still think they're tempting fate by ordering something other than chop suey in a Chinese restaurant. Dubai, I can assure you, is far safer and more interesting than 99% of the places in the United States.
And much more prosperous and developed. Perhaps even more amazing than the development itself is its trajectory. It's not that 100 years ago there were only a couple thousand locals living on the creek that acts as the centerpiece for the old city, or that, as late as the '30s, pearl diving was the major industry. It's that the place opened its first hotel only in 1959, and its first airport in 1960.
It's impossible to describe a place like this adequately in a short article. So I'll touch on a few highlights and give you some Web references. Let's start with property.
The current signature building in Dubai is Burj Al Arab, a fantastic, sail-shaped building and the world's only seven-star hotel. I tried to get a room but, even at US$1100+ per night for the least expensive, they were completely booked. But, then, every one of the city's roughly 250 hotels seemed to be booked. I was lucky, mainly because I patronize the chain a lot, that the Grand Hyatt deigned to make a room available for $500+. Not that Dubai gets many rubbernecking tourists yet, but the Burj ("building" in Arabic) charges a $20 entrance fee to those who aren't guests, or haven't reserved at a restaurant. Good idea, actually. At those prices, I wouldn't want a bunch of riff-raff wandering around either. I'll plan ahead and spend at least a night there next time.
In addition to the most spectacular hotel in the world, Dubai will shortly have the Burj Dubai, now starting construction, which will be, at over 500 meters, the world's tallest building and abut the world's largest shopping center. The entire project is billed as "the most prestigious square kilometer on the planet." I believe it. Whatever happened to 5th Avenue, Rodeo Drive, and the Champs Elysee? They're part of the Old World. Nice, but relatively quaint. When is the last time something of that stature was erected in the United States, or Europe, for that matter? 30 years ago, with the World Trade Center, or the Sears Tower. And the Burj Dubai isn't topping something in the United States; it's running with the big dogs, Kuala Lumpur's Petronas Towers and Shanghai's World Financial Center.
You might think that a country that's 100% desert wouldn't need more land. But you can always use more beachfront. Dubai has already constructed The Palm, a development that has been built out into the Gulf and adds 120 km of shoreline, plus thousands of homes, and about 40 new luxury hotels, etc., etc. It's one of the world's greatest engineering projects. But the second Palm is under construction, and the third – which will be about the size of Paris – is planned. The scale of all this is mind-boggling.
Most spectacular of all is The World, a complex of 300 artificial islands to be built 5 km out in the Gulf, resembling a map of the world. The islands range from about 2 to 10 acres apiece, and they're all pre-sold, the cheapest at US$23mm. You buy your island, and you can do whatever you wish on it or with it.
The dozens of hotels that can compete with those in Bangkok are starting to draw not just businessmen, but tourists. They like the beaches, and the shopping in a tax and regulation-free environment is incredible. Especially for unique items like oriental rugs, the selection and prices are probably the best in the world. And while Dubai can't compete with Bangkok or Las Vegas in their particular areas of strength, it's as close as you get for this whole part of the world. And it's going to be on par with Disneyworld in the theme park department in a few years.
Peoplefrom around the world like American university degrees and American medical care. But they don’t like American prices nor, any longer, going to America. So Dubai has set up the Dubai Knowledge Center that, through a combination of e-learning and physical facilities, offers degrees in conjunction with a number of globally recognized academic institutions. There is also a Medical Center, a Media Hub, a technological hub and even an outsourcing zone to compete with India, all of which use the nation's streamlined regulation and pro-business bias as a very sharp competitive edge.
Almost all the labor is from India, Pakistan, Sri Lanka, or Bangladesh. They typically get a few hundred tax-free dollars a month plus room and board in exchange for 12-hour days, but with no possibility of immigrating, marrying, or overstaying their contract. They may resent being treated like serfs, but it's a better deal than they get at home. And when they go home, they spread tales of how the streets of a free-market economy are paved with gold.
Although the Emirates share a long border with Saudi's Empty Quarter, and Islam is obviously the favored religion, Islam comes in nearly as many flavors as Christianity. A Muslim is considered observant as long as he adheres to the Five Pillars. This allows for substantial freedom (not that fundamentalists, like Saudi's Wahabis, acknowledge it). Dubai's women, for instance, are Westernized, but in a quirky way. In one large shopping center (which, like the village wells they supplanted, fulfills the same function as a place to see and be seen), I recall seeing a striking young Bedouin woman in a sheer, see-through chador, a cross between the Arabian Nights and Victoria's Secret.
The national airline, Emirates, is probably the best in the world as far as I'm concerned. I don't know any others that, as a complimentary service, pick you up for your ride to the airport in a 7-series BMW. Unlike U.S. carriers, all its stewardesses are like those on U.S. carriers circa 1960. Whenever I fly United, I'm reminded of the fact that, when my mother was a stew, they all had to be young, pretty, single, and RN's. Regrettably, nowadays they're all roughly my mother's generation and members of the Teamsters Union. They stupidly thought it was a career, when it was just a good way to see the world for a few years while meeting up-market guys. But that's another story. Emirates has been highly profitable since its second year, and made about $300 million last year, even though it was only started with $10 million in capital in 1985. And they did it with no subsidies.
Naturally, I stopped by the stock exchange. For the last couple of years, all the markets in the Mid-East have been howling; Dubai was up 5% on the day I stopped by. Will I open an account? No. It's simply too hard to watch companies on the other side of the world. And I hate to get into anything that's been so strong for so long. But I now watch it out of the corner of my eye. And the day will come, when this (or any of the world's 75 or so other stock markets – I don't care which) can be purchased for dividend yield. In the meantime, my capital has been fully deployed in junior mining and oil stocks. As you know, they've been great performers. And they're just warming up.
April 5, 2005
