Dubai built it and the world came

von John Gapper, Financial Times Duetschland 4 Feb 08;

A third flaw is that it is very stratified. The temporary immigrants who build its skyscrapers enjoy few rights and have just gone on strike for higher pay amid a falling dollar and rising inflation. Many businesses are run by expats and pad payrolls with locals to meet job quotas. One British expat jibe has it that Emirates stands for "English managed, Indian run, Arabs taking enormous salaries".

Dubai has not only taken hefty risks to diversify its economy away from oil, but has also adopted a stance of openness that is often unmatched in, for example, the US.
My epiphany about the Gulf state of Dubai came one night in the Souk Madinat Jumeirah. I was standing in the local franchise of Trader Vic's, the Californian Hawaiian-themed bar, with a Mai Tai cocktail in hand, watching people dance to a salsa band.

I was with a bunch of visitors and locals, some of them consultants at McKinsey & Co, which has a large office in Dubai, as have many European and US banks and legal firms. One of the group was from Spain, another from Venezuela and a third from South Africa. Rounding it out were Americans whose parents were variously born in Jordan, Pakistan and Taiwan. It felt as if I had died and gone to expatriate heaven.

There are many jaw-dropping things about the flashiest city-state of the United Arab Emirates (UAE): the rows of office and hotel towers decorated in marble and gold leaf, the miles of coastal salt-flats reclaimed into sandy beaches; the vast desert area where the Universal City Dubailand theme park will go; the new airport that will supposedly be bigger than Heathrow and LAX combined.

But the true astonishment is that the Dubai ruling family's "build it and they will come" philosophy has, since the opening of the Jebel Ali free port in 1979, worked so well. What do you get when you combine expensive infrastructure, the petrodollar boom, no income tax and freedom to behave as you wish? A land where expats outnumber locals 10 to one.

Dubai has its flaws but I do not think any is sufficient to discredit what Sheikh Mohammed bin Rashid Al Maktoum and his father, Sheikh Rashid, before him have done.

They have not only been willing to take hefty risks to diversify Dubai's economy away from oil but have also adopted a stance of openness that is often unmatched in, for example, the US. It soon becomes obvious on a visit to Dubai that the US security alarm in 2006 about DP World reflected a shameful ignorance about the UAE.

Dubai's glaring weakness is that its fortunes are tied to the price of oil. At $100 a barrel, there is a property boom and a party every night in the nightclubs of the Souk Madinat. On paper, the economy is well diversified - only 5 per cent of gross domestic product comes directly from oil. But its role as a trade and shipping centre for the Gulf and wider region makes it dependent on energy in myriad ways.

A second flaw is that it is culturally absurd. It is hard to stop laughing at Dubai's oddness on a first visit. Walk through the Kempinksi hotel by the Mall of the Emirates and you pass a man in a dishdash (a long, one-piece tunic) pouring coffee from a shining pot. A few yards past him is the famous indoor ski slope. Behind that lies every imaginable western store, from Harvey Nichols to Carrefour.

People from nearby Abu Dhabi, which disdains ski slopes and is building outposts of the Louvre and Guggenheim museums on Saadiyat Island, are not alone in regarding Dubai as shallow and amoral. It lacks gambling but is otherwise a monument to western pleasure-seeking.

A third flaw is that it is very stratified. The temporary immigrants who build its skyscrapers enjoy few rights and have just gone on strike for higher pay amid a falling dollar and rising inflation. Many businesses are run by expats and pad payrolls with locals to meet job quotas. One British expat jibe has it that Emirates stands for "English managed, Indian run, Arabs taking enormous salaries".

Natives in many countries complain of being swamped by immigrants but it happens to be true in Dubai. As long as the economy rattles along and the expats keep demonstrating that Dubai needs them, tensions are manageable. But it is easy to imagine tensions getting out of control in an economic downturn.

In spite of all of this - even because of some of it - I admire Dubai. Few, if any, other states have such open borders. Hong Kong and Singapore have built on their colonial pasts to become international trading and financial centres. The City of London benefits from being cosmopolitan. But none of them has taken the plunge so utterly.

In a sense it is an obvious strategy. My companions in Trader Vic's were members of an international elite that grew up after the collapse of the Berlin wall and the triumph of capitalism. They attended universities and business schools where nationality was irrelevant and they have more in common with each other than with many of their own country's people.

If you have the money - as Dubai assuredly does - such people are guns for hire. It is as easy to recruit consultants and bankers to construct a regulatory and legal system fit for an international financial centre as it is to attract the engineers to build highways and skyscrapers.

Apart from money, all it takes is will. Most countries lack it. Politicians have no incentive to award preferential treatment to a bunch of privileged outsiders. The idea that the natives will benefit from opening their borders to others who know more than they do is a tough sell.

There are probably many Washington politicians who realise that the "war on terror" paranoia that has closed US borders to many skilled immigrants is misguided, but it plays in Peoria. Sheikhs have an advantage in this regard: they are not constrained by democracy.

Even so, it was not a natural step for an Arab emirate to open itself to the world. It has produced some odd and some unsettling results but, in the round, it is a brave and clever economic strategy. Mix a cocktail and they will come.