Dubai can build unprecedented infrastructure, but will they come?

By Marcus Cake • October 22, 2006

Dubai is spending £140bn to transform itself into a capitalist powerhouse equal to New York and London. The development of Dubai intrigues me as an economist, corporate adviser and internet entrepreneur. The initiatives of particular interest include Dubai Internet City, Dubai Media City and the Dubai Internation Financial Centre. The strategy being pursued in Dubai is unparalleled in history - an integrated and focused strategy across multiple sectors with the resources to make it happen. Dubai is well advanced on the development of tourism and property infrastructure. Singapore transformed its economy in a generation. Dubai aims to do the same.

Dubai also aims to become a leading financial centre on an equal footing with London and New York. I recommend that you read the DIFC FAQ. Given a significant proportion of the worlds financial assets are owned by Dubai interests, they have a significant advantage in establishing a financial market. It is surprising that it has not yet developed a leading financial centre and has always relied upon international financial centres. London and New York have invested the capital in their own economies, developed positive returns and, generally, charged fees which amounted to one-third of the investment returns. In a low inflation environment, these fees are no longer sustainable. Peak oil and geopolitical issues are also likely to provide other reasons for the significant investments being undertaken in Dubai.

The British Virgin Islands, Isle of Man and many other offshore jurisdictions offer corporations reduced compliance costs and taxation incentives. These other centres have carved out niches in insurance, funds management and offshore listing. Dubai may also pursue similar industries, with the added advantage of a far broader and comprehensive approach incorporating air travel, tourism, property development, shopping, entertainment and infrastructure on a scale that dwarfs other international financial centres.

Dubai has been very successfully at attracting large mutlinational companies to establish a presence in Dubai. Dubai may also wish to attract companies wishing to “list” and raise capital in Dubai. The development of businesses, people and networks necessary to operate a financial market appear to be at a formative stage of development. This would include a network of investors, advisers, underwriters, corporate advisors, accountants, lawyers and equity analysts. Dubai can build the hard infrastructure, but will the will the people, industries and businesses come? The comprehensive approach may deliver. Perhaps, an online social network could improve the probability of success and accelerate delivery. Please read Could an online social network deliver a virtual silicon valley?

I have extracted some paragraphs from the article Dubai’s building frenzy lays foundation for global power, The Sunday Times, 21st May 2006 to provide a summary of the Dubai initiatives being pursed:

Extract:

The Gulf emirate is spending£140bn to transform itself into a capitalist powerhouse that will be a model for its neighbours

In recent months Dubai’s movers and sheikhers have announced plans for 40 tax and duty-free micro-cities, a Wall Street-style financial centre, 1m new homes and the world’s biggest airport. Emirates, the national airline, is doubling the size of its fleet, and Dubai-based firms are snapping up ports, land, hotels, and billions of pounds of commercial property. The bill for this spending spree is £140 billion more than every single foreign dollar invested in America and China last year combined.

It begs one simple question: Why? What makes a city state where gambling is illegal take the biggest punt in history: that it can use its entire current and projected oil revenue to become a modern global power. No state, no dictator, no megalomaniac Bond villain has ever tried to pull off anything so epically extravagant.

Dubai is racing to become the Middle East’s business and leisure hub - a Switzerland of the Gulf to secure its future when its oil reserves run out in about 10 years, but Sheikh Mohammed wants to pull off a far bigger trick. He wants to establish a unique East-meets-West economic, social and religious model that will act as a catalyst for change in other Arab countries.

Dubai doesn’t seem real to the 6m visitors a year who have made it the fastest-growing holiday destination in the history of the travel business but that’s just the way they like it. The temperature is 35C but Liz Deakin, a 27-year-old IT consultant from Enfield, north London, stands shivering in the snow. Dubai’s latest attraction is a giant Alpine snow dome in the desert. Watching locals pull ankle-length anoraks over their dishdashas and head off to spend a morning on the piste, she said:“You can’t take this place seriously. It’s got mosques, dunes, skiing, an underwater hotel and Versace. It’s Blingland. Racing across the mint-green waters of the Gulf in a speed boat from the real world to “The World, as the islands in the shape of a map of the world are modestly known, Dubai does look like Disneyland for grown-ups.

As recently as 50 years ago, it was still a one-camel town with no medical care, few roads and little clean drinking water. The only decent living to be made was selling pearls, harvested from the sea bed by free divers. Most of Dubai’s native inhabitants were illiterate nomads.

That changed when oil was discovered a few years before independence from Britain in 1971. Sheikh Rashid bin Saeed al-Maktoum, Dubai’s ruler at the time, was determined he would not follow his neighbours and squander the pennies from heaven. He set about making Dubai the first Arab nation to use oil to create a fast-growing, diversified economy that would endure after the black gold ran out.

The world’s first tax-free, business park devoted to the fastest-growing new global business sector, outsourcing, is rising from the dust.

Dubailand, an enclave of theme parks, villages, and shopping malls four-and-a-half times the size of Manhattan, is the Middle East’s answer to Disneyworld. It will feature larger versions of the seven wonders of the world, including the Pyramids, the Taj Mahal and the Hanging Gardens of Babylon. There will even be an authentic Dubai “Old Town” but that isn’t finished yet.

Emirates airline is spending Ã‚Â£20 billion doubling its fleet of Boeing and Airbus jets, setting it on a flight path to overtake British Airways as the world’s biggest long-haul carrier by 2012. Dubai’s airport is doubling in size in a Ã‚Â£3 billion extension and another new £5 billion, six-runway airport the biggest in the world is being constructed. The hub, already dubbed “World Central, will be able to handle 150m passengers a year - three times the number of foreign tourists who visit America each year.

It is all helped along by light regulation in the free-trade zones a company can be set up in only two hours coupled with the blissful absence of income tax, corporation tax and sales tax.