City of Gold: Dubai and the Dream of Capitalism (50 page)

There are areas where nations emulate Dubai to their detriment. Mostly this means real estate. Across the Middle East, from Morocco to Iran, developers are bulldozing the countryside to erect American-style gated communities. Dubai developers, especially Emaar, are behind many of these. Beirut, Cairo, Amman, Tunis, Damascus, and Marrakech
are seeing districts rebuilt or sprawling deeper into their hinterlands. Bahrain and Qatar have dredged up Dubai-style islands. Saudi Arabia has launched a handful of entirely new cities, taking Dubai’s cluster zone model to new heights. Most tragically, pristine Oman has taken bits of its breathtaking coast away from sea turtles and handed it to resort builders.

Economists tend to downplay real estate as a development tool. What the seller wins, the buyer loses. There’s no gain for the wider economy or society. In Dubai’s case this isn’t strictly true. The city built artificial islands and peopled them, creating assets from nothing. And since Dubai’s real estate is developed locally but sold internationally, its winnings come as other economies’ losses, via capital flight. But no economy can rely on real estate for very long. It’s an unproductive investment, as Dubai was learning in 2009.

“We have to be careful and honest about what Dubai has done that is pioneering and what has been reckless,” Rami Khouri says. “These speculative developments have been the main export. They’re not sustainable.”

Dubai’s emergence is a manifestation of a shift in the Middle East’s center of gravity. This is happening in broader fashion globally, as America and Europe see their powers drifting to China and India. The old capitals on the Mediterranean, Cairo and Beirut—even Tel Aviv, to an extent—are seeing themselves eclipsed by the wealthy Gulf. Banking decamped from Alexandria to Beirut in the 1950s, then fled to Bahrain in the 1970s. Now Dubai is the banking center.

The Gulf is also the Middle East capital of cash. Abu Dhabi is home to the world’s biggest sovereign wealth fund, and there are similar funds in Saudi Arabia and Kuwait. The UAE government has bought chunks of Citibank, the Nasdaq, and the Carlyle Group and real estate on New York’s Central Park. No Arab state has done that before, perhaps because no region on earth ever reeled in so much wealth in such a short period.

The Gulf states are also taking the lead in Arab politics. The old lands of Egypt, Syria, and Lebanon seem to have surrendered their role to Saudi Arabia and Qatar.
¹¹

Cairo, Beirut, and Damascus still produce far more books, art, and
music. They’re still the cities of the Arab soul. But cultural leadership is starting to migrate to the Gulf. By 2012, Abu Dhabi will hold opening ceremonies for Frank Gehry’s massive Guggenheim Museum and the first-ever outpost of the Louvre. Film festivals in Dubai, Abu Dhabi, and Doha are getting massive support. Dubai’s golf, tennis, and horse racing tournaments have captured international attention.

“There was a tendency five or ten years ago to laugh. ‘Dubai’s building the world’s biggest this or longest that.’ People would laugh and say, ‘That’s Dubai!’ Well, nobody’s laughing now,” says Harris. “Dubai’s a worldwide brand. Whether it’s horseracing, architecture, wealth creation, or development, this city has an influence far beyond its size. That’s an astonishing feat in such a short time.”

These accomplishments are just a foreshadowing of what Sheikh Mohammed has in mind.

In the tenth century, Córdoba in Arab-ruled Spain was Europe’s largest and most enlightened city, with dozens of libraries stocked with hundreds of thousands of books. It published more titles then than Spain produces now. Córdoba’s universities cradled deep research traditions, where Muslims, Jews, and Christians delved into philosophy, mathematics, and astronomy. The city’s Arab rulers commissioned some of the world’s most sublime architecture, some of which survives today. Its merchants traded with cities as far away as China. Córdoba remains the pinnacle of Arab achievement. When it fell apart after 1031, the Arab world sank into a long and debilitating decline. It has never regained its greatness.

Córdoba is Sheikh Mohammed’s archetype for Dubai. He wants to recreate this ancient spirit of learning and tolerance. But his ambitions go beyond that. He views Dubai as the engine that will drag the Arab world into a renaissance. Not an economic engine, per se, but a model of effective governance and self-reliance. He sees the Arabs’ salvation not in the traditional way, as something that can only be achieved when Washington and the great powers change their policies. He’s calling for internal rejuvenation, by spreading management skills, knowledge, and entrepreneurship. And he’s backing those calls with cash, by investing in key sectors.

It’s a stirring goal, requiring a revamped society and a city that can accommodate the world’s dreamers and inspired people. He’s partway there. The economic portion of the new Córdoba is done. Dubai is a global trade hub and business center.

Sheikh Mohammed’s next step is to support learning and the arts, as the Medici family in Florence did during the Renaissance. He’s started by inviting universities and by funding culture through a foundation that seeks to incubate books, film, and painting. One of its tranches funds the translation of books into Arabic, a perennial deficiency. Another backs budding authors with Ivy League scholarships. Another bankrolls the biennial Arab Strategy Forum, a platform for serious debate that has long been missing in the Arab world. The 2006 forum brought together Google CEO Eric Schmidt, Iran’s nuclear boss Ali Larijani, and U.S. general Wesley Clark, among others.

Sheikh Mohammed’s experiment is working. Arab states are sending officials to the Dubai School of Government to learn public policy. Entrepreneurs are pouring in. Dubai is working on an art policy that will give artists residency and stipends to produce important works.
¹²

“I think he can get there. This is already a center for discourse, a marketplace,” says Georges Makhoul of Morgan Stanley. “He’s almost there.”

But his own people show signs of tiring of his lofty ambitions. He wants to groom Dubai’s citizens as the leaders of the leaders; “lions,” as he calls them. But many prefer to sit back and be pampered. Others oppose Sheikh Mohammed’s great project because it is forcing their numbers into insignificance.

The sheikh’s ultimate success could reduce his family’s governing role. The human spirit he seeks to liberate will fly into politics. The new Córdoba cannot bloom without more freedoms of speech and press, so that thinkers can challenge their leader’s decisions. It doesn’t mean Dubai must adopt democracy, but it calls for institutions where people can debate and criticize.

And Dubai can’t emulate Córdoba without a more permanent and respectable role for expatriates. It’ll never become a global capital with locals alone exercising power and identity. Noncitizens have legitimate interests that go beyond serving a ruling class. (This might resemble Córdoba in one sense, however: Its Muslims had more privileges than non-Muslims.) For now, rights of noncitizens is a radioactive topic. No one will address it publicly.

“The Córdoba model is definitely something we should aspire to,” says Rami Khouri. “It’s noble to aim that high. But does he have the courage to go all the way? Córdoba needed creative and scientific talent. People were allowed to discuss ideas, do research, engage in debates. It’s not yet clear whether the leadership in Dubai is prepared to open the system to full use of intellectual and cultural talent.”

For now, most folks are content to leave decisions to the Maktoums and their deputies. Even fewer raise their voices against the city’s environmental depredations or the mistreatment of its poorest workers. Few protest the censorship of newspapers and banning of books and politics. The old ruling bargain has allowed many to grow rich without much risk or effort.

Despite the unanswered questions, Sheikh Mohammed’s investments into education are bound to alter society. When the pressures for openness come, so will the day of reckoning, when the Córdoba aspirations will be put to the test.

Arab thinkers like Khouri are urging Sheikh Mohammed to stick to his goal, saying the city can climb far higher. The boss would say something similar. He says just 10 percent of his plans have been realized. “What you see now is nothing compared to our vision. It’s just a tiny part of what lies ahead,” he writes.

Dubai’s come a long way since 1961, when Sheikh Rashid started it all by dredging the creek. The city entered the modern age and then blew right past it. It’s now somewhere out in the future, with Sheikh Mohammed at the controls. He knows that building roads and skyscrapers was the easy part. Incubating an enlightened society will be harder.

“We must be prepared to face the most delicate, toughest and complicated challenges that lie ahead,” he writes. “If moving to this stage necessitates crossing yet another bridge, we must be ready to cross it at the right time and as quickly as possible. If later stages require more, we must be ready to cross several bridges at the same time. We must prepare to overcome the impossible.”
¹³

Not long ago, the story was one of poverty and isolation. Dubai had managed a tenuous toehold on the edge of the world. The village had better odds of melting back into the sands than rising as a city. It took an incredible run to place this metropolis before us.

Those of us watching it sprout and stretch have undergone challenges to our sense of what we thought achievable. Dubai forces us to
think beyond the rational, to ponder the outer borders of the possible, right where they brush up against the limits of physics. The city’s accomplishments are difficult to believe, even as you watch them materialize. It’s a place that mercilessly taunts the pessimist. As Georges Makhoul says, “You have to stretch your imagination to absorb the reality.”

How far will Dubai go? Hard to say. But it’ll be fun to watch.

EPILOGUE
DUBAI, FEBRUARY 2009

 

AS THIS BOOK
went to press, Dubai was lapsing into recession. The end of the six-year boom made a handy place to finish our story, but for Dubaians, the dream of capitalism had become a calamity.

Dubai’s fundamentals looked bleak in 2009. With the oil price below $50 at the time of writing, the surplus in neighboring states that funded Dubai’s investment-driven economy was gone. That left the city-state exposed to the ravages of the global recession. Its tourism and luxury retail sectors were starting to suffer, since vacations and pricey trinkets are dropped—like pearls—in hard times. Air travel was slumping, as were the ports. The West wasn’t buying and China wasn’t producing, so DP World had little to ship. The bleeding was even more copious in real estate and financial services.

Predictions of the recession’s effects on Dubai ranged widely. A few pointed to the possibility of a total crash—the biggest white elephant in world history. But most observers swung the other way. Dubai looked set to languish in recession for 2009, and perhaps some of 2010. The UAE as a whole could eke out a bit of growth on the back of Abu Dhabi’s oil earnings but there, too, recession was possible. Dubai looked set to languish in recession for 2009 and some of 2010. The UAE as a whole could eke out a bit of growth on the back of Abu Dhabi’s oil earnings, but there, too, recession looked likely. The $80 billion in oil revenues Abu Dhabi
earned in 2008 would drop sharply, probably to less than $30 billion in 2009. The national economy was predicted to shrink by as much as 2 percent.
¹
By 2010, Dubai was expected to be in recovery and the UAE’s economic growth was to return to a reasonable rate, around 4 percent.
²

City fathers said they would spend their way through the recession. In 2009 Dubai announced a huge expansion on public infrastructure. Sheikh Rashid would have been proud. As for the private sector, the opposite was happening. One tally found that nearly half the city’s major construction projects had halted. Foreign workers were being furloughed and sent home, including some of my neighbors. Population was expected to drop by as much as 10 percent. Banks were said to have a nine-fold increase in “skips,” where debtors have fled personal loans. The city was rife with rumors of laid-off expatriates abandoning cars at the airport and fleeing without settling their debts. Credit agencies downgraded most of Dubai’s big companies.

Aspects of the slowdown showed promise. Dubai finally had the opportunity to assess the stunning hodgepodge of assets it built, and plan a coherent city around them. There were many blanks to fill: cultural life, bike paths, street addresses, sewage treatment, recycling, and a Persian Gulf less fogged by silt.

With the right policy moves, Dubai would emerge virile and ready to sprint in a year or two. “I’m still convinced by the Dubai business model,” Simon Williams, HSBC’s chief economist for the Middle East, said in January. “When we return to more normal times this place will fly.”

Slamming on the brakes after a decade of hurtling economic growth was always going to be painful. Especially since so many thought they’d bypass the recession. Exacerbating the embarrassment are conservative neighbors who could finally gloat at seeing ritzy Dubai eating humble pie.

“A lot of people are pointing at Dubai right now and saying ‘I knew it was going to happen. They were flying too close to the sun.’ That’s wrong,” Williams says. “There is a real economy here that may see some of its expression through the construction of the world’s tallest building, but it’s actually about a lot more. It’s about being a service hub for a region, the outlook for which is extremely positive. Dubai does that better than anyone else in the region.”

By New Year 2009, thousands had been laid off, including five hundred at Nakheel, which mothballed most of its projects, including the
kilometer-high skyscraper and the zanier of its offshore islands. The emptying and demolition of Satwa—sadly, already under way—looked set to pause. Other developers and real estate stalwarts cut staff, as did banks. Morgan Stanley cut 15 percent of its workforce. Goldman Sachs and Credit Suisse scaled back their Dubai operations, and three smaller investment firms closed their offices entirely.
³

The overbuilt retail sector, dependent on free-spending tourists and expatriates, was suffering. The specter of failure hung over entire shopping malls. Few in Dubai even noticed the November 2008 opening of Emaar’s humongous Dubai Mall, one of the world’s largest. The mall sat nearly empty at the time of writing. By year’s end, city retailers were reporting a 20 percent drop in sales.
⁴

Sheikh Mohammed and his government said little in public, leaving Dubaians guessing about his policy prescriptions. He shuffled his phalanx of top advisers, with Mohammed al-Shaibani, director of the
diwan
, taking a more prominent role, while demoting his admired finance director Nasser al-Shaikh, whose department had been moved out of the municipal government and integrated directly into the
diwan
. Nabil al-Yousuf left The Executive Office to start a consulting firm, and the institution that devised Dubai’s rise was emptying out. The official silence led investors and the public to give credence to worst-case scenarios and rumors, which pushed share prices to nearly worthless levels.

Dubai’s treasured autonomy might also slip, as it cozies up to Abu Dhabi to make good on some $20 billion in debt that will come due by 2010. Abu Dhabi’s leaders pledged to help Dubai, and the Central Bank did just that by buying up $10 billion in bonds that Dubai issued. The price for such assistance was unclear. The most feared scenario was for the capital’s upstart airline Etihad to demand control of Emirates, the Maktoums’ crown jewel, although UAE President Sheikh Khalifa declared that Abu Dhabi had no such designs on Dubai’s assets.

In a global context, Dubai’s troubles didn’t look so bad. If you were in America or Europe, the go-go Gulf was thought to be one of the better locales to ride out a global recession. Many Dubai expats, given the choice of going home to an even more dismal economy, tried to stick it out. If not in Dubai, there were jobs in Abu Dhabi, Muscat, and Doha.

Meanwhile, the economic damage was paying dividends in quality of life. Suddenly the airport was manageable. Traffic thinned. Free tables materialized in restaurants. Flagging a taxi at rush hour was again possible.
Inflation was trending down, as were rents and home prices, giving the middle and lower classes a break. Groceries got cheaper. As foreigners began leaving, the demographic imbalance was showing signs of slowing.

And finally, even the driving habits seemed to improve. Maybe it was the sobering times, or the new high-tech speed traps, but the road warriors bore signs of weariness with their wayward ways. It could be a temporary phenomenon. After all, they don’t call it the world’s fastest city for nothing.