Speech at Asia House, 7 April 2011
Last year, one of the analysts I sent to Oman to do research for Oxford Business Group there told an interesting story. Her very first meeting was with a government official in charge of issuing building permits for the capital of the Sultanate, and she asked where he thought were the best prospects for growth.
‘Requests for building permits have shot up in this area,’ he told her, outlining a gentle curve stretching westward from current downtown Muscat. ‘And they will continue to do so. Why? Because that is the direction of Dubai. And people, he explained, always want to get closer to Dubai.’
The official’s comments underscore that – despite the trials of the past few years – Dubai’s hold on the hearts and minds of the region has scarcely abated. In the face of quite a few naysayers, Dubai is still the most recognized brand in the Middle East, and there has been a distinct uptick in good news coming out about the city.
Of course, the global economic crisis dampened the shine of Dubai’s rising star. But just how far has that star fallen? In much of the western world, it has become fashionable to paint Dubai as a pariah – an outsider “running on empty” as it were. In the eyes of many, Dubai got what it had coming. Turning sand into gold is alchemy, not business, and it was only a matter of time before the financial house of cards underwriting those shimmering glass skyscrapers came crashing down.
This fairy tale has grown a bit trite. And also rather far from the truth. In October, the IMF joined the Economist Intelligence unit and NCB capital in predicting that the UAE will grow by over 3% this year, more than making up for the slowdown in 2010. These predictions and others point to the fact that Dubai, along with its brother emirates, is set to continue making gains, reinforcing the foundations that have been laid in the past twenty years.
Consider property prices. Good news, you say? Yes, property prices are falling, and by most accounts will continue to do so for a while. However, prices are still substantially higher than almost anywhere else in the region. Dubai is still one of the most desirable places to have an office, commanding higher rents than New York City, Singapore, Paris, and a host of other popular business centres. With the widest selection of hotel rooms, from two star offerings to the lush Armani Suites at the Burj Khalifa, it is also the most popular place for visitors to stay. Which they have been doing: both the number of visitors and the average number of nights each visitor stays has increased in 2010, leading to a 6% rise in hotel revenue to $1.87 billion. Even with a 7% increase in the number of hotel rooms, occupancy rates have been solid. With tourism accounting for just under one fifth of Dubai’s economy, this is good news indeed.
Real estate, another pillar of the emirate’s economy, presents a more mixed picture. For years the crowning money-maker was attention-grabbing property developments, from man-made islands to the tallest skyscraper on earth. Lavish properties were – are – central to Dubai’s image. It may be some time before we see the next plans for an underwater hotel. However, downward pressure on prices for existing real estate over the last two years isn’t necessarily a bad thing. Falling prices mean Dubai is again becoming affordable to great numbers of people that were forced to seek housing options further afield in the boom years. Businesses, too, are eager to secure a Dubai address. As the global economy recovers, Dubai’s growing affordability and name-recognition could make it a magnet for companies looking for new office space.
A slower real estate market has also had positive effects in other sectors. Infrastructure projects, for example, have had much-needed time to catch up with rapid pace of development. Take the Dubai Metro. After a lukewarm beginning, the system has become immensely popular, attracting 38 million riders in 2010. As the final steps are hammered out before the groundbreaking on the exciting new GCC rail project, Dubai (the Emirates as a whole) and Saudi Arabia are in the best position to set the standards for the system. Power and electricity are also on the up-and-up. Upon its planned completion later this year, the Substation M project is set to offer a well-needed boost to electricity and desalination capacity. It is these types of large-scale infrastructure investments are laying the groundwork that that can facilitate a speedy and sustainable recovery.
International connections are also expanding. Dubai boasts the largest port in the Middle East at Jebel Ali. Dubai’s airports and airlines are second to… few, if any. Al Maktoum International Airport, slightly delayed but not much, will be the largest airport in the world. Emirates has been aggressively expanding its travel networks. Regional trends seem to be only boosting Dubai’s prominence in air travel. The Official Airline Guide estimated that passenger capacity in the Asia-Pacific region increased 11% this year, about triple the rates in the US and Europe. With its strategic location at the gateway of Asia, Dubai will continue to be central to connecting increasing global air traffic. Now one of the world’s four busiest airports, Dubai International handled over 47 million passengers last year.
With expanded and increased avenues to international destinations, it seems only natural that tourism has continued to grow. This sector is crucial to economic diversification: like hydrocarbons, it brings in foreign cash; unlike hydrocarbons, it is labor-intensive and has tremendous knock-on effects for the construction, real estate, retail, and transport sectors. Recent trends are pointing toward bigger and better things. Visitor rates are on the rise, lifting occupancy rates in Dubai’s hotels. Maritime tourism is also buoyed by international carriers using Dubai as a port of call for Gulf cruises. This year upwards of 120 ships carrying 325,000 passengers visited the emirate, with predications as high as 135 ships carrying 370,000 next year.
Developments in real estate, infrastructure, and property – especially in a far from inviting economic climate – have been impressive. Still, there one more step on Dubai’s path toward continued growth: information. Lack of reliable data has for years meant that anecdotes, newspaper articles and sentiment have more sway over the business climate in Dubai than is healthy. Central recording and standards bodies like a credit rating bureau and the still young Real Estate Regulatory Authority provide the kind of trackable statistics that attract a wider spectrum of investors. Moreover, authorities are working to improve transparency of legal processes that govern transactions. The Strata law that came into force last year is beginning to address issues of property ownership and fee payments. The Dubai International Financial Center is also considering implementing mortgage reforms based on the Danish mortgage system. Of course all new laws and regulations will take time to fine tune and implement. The crucial factor, however, is that authorities are open to progress and relentlessly pushing ahead to create a transparent and efficient system of regulations. Lifting, even if only partly, the veil of secrecy that has governed many of Dubai’s financial transactions will go a long way to ensuring that the emirate enjoys sustained – and sustainable – recovery.
There are two fundamentals that will be crucial to that end. The first is location. Dubai bridges the gap between East and West, a commercial and trading centre for one of the world’s most important capital-exporting regions. Historically Dubai’s auspicious location made it a critical port for European and Ottoman traders passing through the Indian Ocean en route to the Orient. Today, the Dubai has leveraged that position to expand trade into the skies. No longer a mere conduit of goods, the emirate has become a cross-roads of people, businesses, and ideas.
Which leads into the second fundamental crucial to Dubai’s continued growth – innovation, the ability to shed crippling risk-aversity and push forward, outward, and upward. Pundits love to quip that Dubai is obsessed with everything being the “biggest” and “tallest”. Where else can you sit in the largest mall in the world, gazing at the tallest fountain in the world, framed by the tallest structure in the world? But this sort of commentary is misguided. Dubai is not striving for the “biggest” so much as the “boldest”. Dubai has built its brand on testing limits in order to achieve an evolving vision for the future. It is that boldness that has fuelled innovation in the past, and it will continue to be key for sustaining growth for years to come.