The Global Guru: My Visit to Dubai: The Gem of the Middle East
If you’re like most Americans, the Middle East is not a place you normally think of as a red-hot investment opportunity.
In fact, there are just two exchange-traded funds (ETFs) that offer U.S. investors direct exposure to this region of the world: the WisdomTree Middle East Dividend Fund (GULF) and the Market Vectors Gulf States Index ETF (MES). Together, their assets under management add up to less than $25 million.
I travelled to Dubai last week for the CFA Society’s Annual Investment Middle Eastern Investment conference. I didn’t really know what to expect. But I came away very impressed.
One of seven members of the United Arab Emirates, Dubai has positioned itself as the gem of the Middle East — a peaceful pioneer of economic and social success that serves as a model for the rest of the Arab world. Thanks to this, combined with a government that keeps close tabs on its inhabitants, there was no “Arab Spring” in Dubai. The only “angry young men” I saw in Dubai were the ones who had trouble finding parking spots for their Ferraris.
As an American, arriving at Dubai’s shiny, spacious airport is both overwhelming and embarrassing. It is overwhelming because of its architecture and impressive organization; and embarrassing when you compare it to the threadbare airports with which the United States greets its foreign visitors.
Dubai is tiny. It has a population of 1.8 million people — 90% of whom are foreigners — a combination of guest workers from Asia and professional expatriates. And Dubai only obtained its independence from the British 42 years ago.
But what a 42 years it has been…
If you want to see an example of “build it and they will come,” Dubai is your place. Chock full of high-profile signature building projects, Dubai has been a playground for some of the world’s leading architects over the past decade. Today, Dubai boasts the Burj Khalifa — the world’s tallest building; the Dubai Mall — the world’s largest shopping mall; the Dubai Marina — when completed, the world’s largest marina. Perhaps most impressive is the Jumeirah Palm islands — a set of man-made islands large enough to be viewed from space, complete with its own version of the lost City of Atlantis.
Palm Jumeirah, Burj Khalifa and city of Dubai at night. Astronaut photo, 2012
Dubai is a product of relentlessly rational urban planning. The city is broken up into different sections — “Knowledge City” for universities, “Internet City” for technology and “Media City” for the country’s 100+ TV channels. The Dubai Metro is a sky train that bisects the city to make transport easy and convenient.
Across from my hotel stood the Dubai International Financial Center (DIFC), which is housed partially in a modern version of Paris’ Arc de Triomphe. Dubai aims to become the financial center of the Middle East — a safe, business-friendly legal and tax jurisdiction (0% taxes) attractive enough to get professionals to move to a former fishing village on the edge of desert in the Persian Gulf.
With stores boasting more U.S. brands than London, and billboards in both Arabic and English, there is an eerie familiarity and convenience to Dubai. Moving from Miami to Dubai is less of a culture shock than moving to London.
The Heavy Hand of the Government
Dubai’s outward success stems from an economic model very different from freewheeling market capitalism. The heavy hand of the government is everywhere.
Alcohol is not served in run-of-the-mill restaurants — though it is available in resorts and hotels. An alarm goes off if your taxi exceeds the speed limit. No wonder that there is next to no serious crime in Dubai.
Yet, there is some hypocrisy here. Women are admonished to dress decently. Yet Arab women in burkas jostle alongside Byelorussian babes in bikinis, who — as far as I could tell — weren’t in Dubai for the CFA conference.
One Turkish businessman I had dinner with said he didn’t believe that the Middle East is ready for U.S.-style democracy. In his view, the undisciplined Arab culture demands a strong hand.
That view doesn’t sit comfortably with my libertarian sensibility. It’s a rationale that’s invoked by despots, enlightened or not, across the planet, and is often a thinly veiled excuse for corruption.
That said, the practical benefits of being in Dubai, compared to other Arabic countries I’ve been to, were immediate and palpable. I enjoyed not having to worry about getting ripped off everywhere I turned.
Can the Party Last?
Critics will point out that Dubai has it easy — that it is a “trust fund” country that just pumps money out of the ground.
I’m not sure I buy it.
The $70 billion President Hosni Mubarak of Egypt siphoned off from U.S. aid over three decades was enough to build 47 Burj Khalifas. But if you’ve ever been to Cairo, you’ll see that soaring skyscrapers is not where the money went. And Dubai became Dubai because it knew the free money won’t last. That’s why today only 7% of its economy relies on its vanishing reserves of oil and natural gas.
Others dismiss Dubai as “artificial.” The hotels and the souks (markets) are Disney World — fake and too clean to be true.
Certainly, parts of Dubai are flashy in that Miami, South Beach kinda way. That said, if you want the authentic Arab experience, there are plenty of other Arab cities you can go to.
You certainly won’t be bothered by too many tourists.
Finally, Dubai’s Achilles heel is real estate. Hit hard in 2008, Dubai had to scurry to get a $25 billion bailout from its neighboring emirate Abu Dhabi. Property prices in Dubai dropped 58% from their peak in the fourth quarter of 2008, before turning upward recently. Lots of unfinished buildings dot the cityscape. But the ones being worked on are being built day and night. By way of comparison, it’s taking the London authorities about five years to renovate a single tube (metro) station on London’s iconic Oxford Street.
The Kind of Ambition America Once Had…
Dubai’s sheer audacity can’t fail to impress.
Dubai has made enormous progress over the past 42 years. Sure, many of Dubai’s most audacious projects have been put on hold. But you still find them on tourist maps of Dubai.
The message is that “if we can imagine it, we can build it.”
Fifty years ago, when the world saw that that kind of can do spirit, it would say: “only in America.”
Today, more and more are saying: “only in Dubai.”
To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.
Nicholas Vardy, CFA
Editor, The Global Guru