ALONGSIDE the Dubai Mall, one of the world’s largest shopping centers, sits an ersatz version of what would be an authentic retail experience in most Persian Gulf cities: an Arab souk.
If, in the evening, you stroll through this air-conditioned, hassle- and haggle-free caricature of a market, staffed mostly by smiling South Asians, you can amble out onto the shores of man-made Burj Khalifa Lake, named after the world’s tallest building, which looms over it.
Here—bumping elbows with a veritable United Nations General Assembly of residents and tourists decked out in everything from dishdashas to Dior—you can gawk at the Dubai Fountain, Bloomberg Markets magazine will report in its December issue.
Every half-hour, an array of computer-choreographed nozzles sends jets of water erupting from the lake’s surface 500 feet into the air, gyrating to Middle Eastern pop one minute and Andrea Bocelli singing “Con Te Partiro” the next.
Awash in fantasia, this metropolis of glass and steel sprouting from the barren sands of the Arabian Peninsula often seems nothing more than an illusion born of desert heat.
Never was Dubai more miragelike than five years ago, after the global financial crisis crushed what had been a bastion of wealth and growth. House prices plunged as much as 60 percent. Half of the city’s $582 billion in construction projects were either placed on hold or abandoned, their incomplete steel skeletons left poking from the sand, a 21st-century Ozymandias.
Mechanical ballet
Now, Dubai is booming again.
To understand why, journey 32 kilometers from the Dubai Mall to a part of the city few tourists ever see.
Here, if you pass through the security gates at Jebel Ali port, you’re treated to another mesmerizing mechanical ballet—one less ephemeral and arguably more important to the city-state’s fate than the Dubai Fountain’s dancing waters.
Towering gantry cranes sidle up to 365-meter-long container ships bound for Mumbai or Singapore or Rotterdam. They delicately pluck containers from the tarmac, hoist them into the air in a single, fluid motion and stack them like children’s blocks onto ship decks.
The port is a crucial pillar in the efforts of Dubai’s ruler, Sheikh Mohammed bin Rashid Al Maktoum, to ensure that this time around, growth rests on a more stable footing: moving away from real estate and leaning instead on trade and shipping as well as finance and tourism.
Frontier gateway
Dubai, one of seven principalities that make up the United Arab Emirates, has only minimal oil reserves. Instead, the city-state has positioned itself as the hinge connecting Asia to the rest of the world, the gateway city for the fast-growing frontier markets of Africa and a safe haven for investors shunning an arc of conflict that stretches from Libya to Afghanistan.
Still, with real-estate prices reaching new highs amid plans for more office towers, more luxury resorts and more gargantuan shopping malls, the question remains: Can Dubai escape the excesses that nearly sank it before?
Mohammed Al Shaibani thinks it can. Sheikh Mohammed enlisted Al Shaibani to help restructure as much as €110 billion ($177 billion) in debt Dubai was left holding in 2009. Al Shaibani, 50, is CEO of Investment Corp. of Dubai, which oversees the government’s commercial assets; he’s also director general of the Ruler’s Court, which functions as the emir’s advisory council.
No duplicity
His first task was to persuade creditors to give Dubai enough time to figure out exactly how much it owed. Lenders were suspicious that Dubai was trying to cover up the extent of its financial woes. There was no duplicity on Dubai’s part, Al Shaibani says; the city simply couldn’t keep up with its own growth.
“Some banks were concerned we weren’t sharing information,” he says. “In reality, we didn’t have the information to share.”
After a $10-billion cash injection from its Emirati next-door neighbor, oil-rich Abu Dhabi, and a year of tense negotiations with creditors, Dubai World Corp., the holding company that manages much of the Dubai government’s investment portfolio, agreed to restructure $23.5 billion in liabilities in November 2010.
Dubai’s rebound since then has been dramatic. As of late October, the benchmark Dubai Financial Market General Index (DFMGI) was three times higher than its 2009 low, making it among the 10-best-performing stock markets in the world during that time period, according to data compiled by Bloomberg.
Sustainable growth
Gross domestic product (GDP) expanded 4.6 percent in 2013, and the government expects it to top 5 percent this year. Although this rate is half what it was before the financial crisis, Marios Maratheftis, global head of macro research at Standard Chartered Plc. in Dubai, says the current pace is sustainable.
“We would much prefer 4 [percent] to 5 percent than to see 8 percent,” he says.
Before the financial crisis, credit-fueled real-estate speculation was the major driver of Dubai’s economic growth. Today Maratheftis says, it’s hospitality, retail and logistics.
Dubai has profited from its neighbors’ misfortunes.
“The Libyans, the Syrians, the Egyptians, the Iranians: They’re all here,” says Patrick Lord, Dubai-based Middle East managing director at Control Risks Group Holdings Ltd., a political- and business-risk consulting firm. “It’s become the place to come—if not physically, then for their money to come.”
‘Frontline state’
Even so, the UAE’s participation in US-led air attacks on Islamic State strongholds in Syria and Iraq may jeopardize Dubai’s haven status.
Christopher Davidson, a researcher at Durham University in the UK who specializes in the Gulf states, says of the UAE: “They are no longer influential neutrals and are instead becoming a frontline state in a war that could engulf the whole region.”
He says, however, that Dubai’s economic model is not in immediate danger.
Setting its sights to the west, Dubai is now looking to profit from Africa’s successes. Once-moribund economies from Ghana to Angola to Kenya have grown at 5 percent or more a year since 2009, and a rising number of European, US and Asian businesses are putting their African headquarters in Dubai.
“You can’t run Africa out of London or French Africa out of Paris anymore, like it used to be in the old days,” says Fadi Ghandour, the co-founder and vice chairman of Aramex PJSC, a Dubai-based transportation and logistics company with close to $1 billion in annual revenue that has recently begun expanding into Africa. “Today, there’s a competitor, and it is here in Dubai.”
‘Plug and play’
The Jebel Ali port is one reason. Dubai’s air connections are another. State-owned airline Emirates, which started out with two Boeing 727s in 1985, now flies to 140 destinations around the globe, including 24 African cities.
In the first three months of 2014, Dubai International Airport surpassed London’s Heathrow, handling more than 18 million travelers, compared with Heathrow’s 16 million.
An airport currently under construction, the $80-billion Dubai World Central-Al Maktoum International Airport, will have five runways and capacity for 160 million passengers annually when it’s completed sometime between 2020 and 2030.
Ghandour says Dubai is the Middle East’s only “plug-and-play” city. Born in Beirut, Ghandour grew up in Jordan and now splits his time between Amman and Dubai, which he began visiting regularly in the early 1980s.
(Jeremy Kahn | Bloomberg)
(First of two parts)
Image credits: Wikimedia Commons