Bitterlemons International Middle East Roundtable: The Dubai Phenomenon

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Middle East Roundtable


Edition 47 Volume 5 - December 27, 2007

The Dubai phenomenon

• The hidden costs of Dubai's post-oil diversification strategies - Christopher Davidson
Dubai's recent reforms upset the cultural and religious resources of the "ruling bargain".

• Model unmatched in a volatile region - Riad Kahwaji
It would be logical to assume that harming Dubai would not be in anybody's interest, including the bad guys.

• Talent, critical mass drive Dubai forward - Afshin Molavi
Talk of a Dubai "model" enters shaky ground. Saudi Arabia cannot import thousands of bankers when so many Saudis need jobs.

The hidden costs of Dubai's post-oil diversification strategies
Christopher Davidson

By the close of 2007, contributions from non-oil related sectors of the economy will account for an estimated 95 percent of Dubai's GDP. Therefore, the emirate is now very much a "post- oil economy" and, on paper at least, would seem to be succeeding with its diversification strategies.

However, the Dubai development model is now drawing heavy criticism for its replacement of dependency on oil with an equally dangerous dependency on foreign direct investment. Should international confidence in Dubai be shaken by a nearby conflict in Iran, by domestic terrorist attacks, or by a regional economic downswing, then it is likely that tourism would slow and foreign investments in real estate and free zones would be relocated to a safer environment.

Also problematic may be the political costs of the reforms necessitated by the diversification. As a number of studies have demonstrated, many of the world's surviving traditional monarchies rely upon a delicate balance of legitimacy resources that together make up something of a "ruling bargain" with the national population. Dubai is no exception and the al-Maktoum family's survival has rested on a combination of legitimacy resources, backed up with distributions of oil-rent-derived wealth to its citizens. Dubai's diversification does not upset the wealth component of the bargain given that it is still the nationals who own the plots of land that the new residential properties, hotels, and foreign business parks are all built upon. Indeed, although there are a few hidden taxes creeping up on Dubai's nationals, and although they may no longer be receiving blatant handouts from the government, it is important to appreciate that the majority of Dubai nationals are still elevated above the wealth creation process and can still enjoy a rent-based income, albeit a different form of rent.

What Dubai's recent reforms do upset are the cultural and religious resources of the ruling bargain. With accelerating foreign ownership, and with foreigners beginning to make profits out of activities that were formerly the preserve of the indigenous population, many of the nationals feel that Dubai's development is not really to their benefit any longer. Moreover, not only are formerly exclusive privileges being eroded for nationals, but so too is their way of life, as the government continues to bend rules to accommodate the increasing number of non-Arab and non-Muslim expatriates and visitors.

Most obviously, the volume of loudspeakers on mosques has been reduced in many residential areas and previous restrictions normally observed during the month of Ramadan are now rarely monitored in an effort to boost non-Muslim tourism. Similarly shocking to the local population has been the explosion in prostitution. Dubai is now firmly established as a center for sex tourism and the authorities allow thousands of sex workers to flood into the emirate. Also noteworthy is the tolerance of homosexuality (which is officially illegal in the UAE), and the existence of Dubai- based gay bars and nightclubs is widely acknowledged. Perhaps most controversial of all has been Dubai's increasing communication with Israel. With its rising profile in the international banking system, Dubai has hosted meetings that have included Israeli delegations. This is remarkable given that the UAE is supposed to uphold a total boycott on all Israeli relations and trade.

Should a threat develop, it is most likely to come from disaffected and radicalized young Dubai or other UAE nationals that view these reforms and relaxations with distaste. Already, a number of UAE nationals have participated in al-Qaeda operations (including two members of the 9/11 hijack team), and there is a concern that attention may soon be turned to their own country. At present, it is unlikely that expatriates would be involved, as the majority are strictly monitored through the employment and residency visa system and most are simply working in Dubai in order to send remittances back to their families.- Published 27/12/2007 © bitterlemons- international.org

Dr. Christopher Davidson is lecturer at the Institute for Middle Eastern and Islamic Studies at Durham University.

Model unmatched in a volatile region
Riad Kahwaji

If there is a place in the world today that deserves the title "universal capital of globalization" it would be Dubai. The rapid growth of this city-state emirate has exceeded all expectations and continues to challenge those economists and business strategists who talk about a "financial bubble" bursting any minute. Not only has the economy proven to be on solid ground, the political and security situation in Dubai has also remained intact in a highly volatile and unstable region.

A lot has been said about the reasons behind the success of Dubai. Some attribute it to the vision of its leadership from the time of Sheikh Rashid al-Maktoum until the present reign of his son Sheikh Mohammed. It was Sheikh Rashid who initiated the idea of building the Jebel Ali Port that has expanded with time to become a major regional seaport. The free zone business model was utilized by the leadership to the extreme, resulting in the birth of several thematic free zone cities like Dubai Media City, Dubai Internet City, Dubai Healthcare City and many others. Extravagant shopping malls and luxurious hotels have made Dubai a favorite site for millions of tourists. Top professionals from all business fields and domains are either based in Dubai or deal with companies there. Walking anywhere in Dubai is like taking a stroll in a United Nations facility where many foreign languages are heard simultaneously.

The vision was not fully based on "build it and they will come". It was also based on providing incentives to attract foreign direct investments and major multinational companies. These incentives came in various forms and shapes, but the most important were:
* Corruption-free efficient bureaucracy in the public sector, a rare or non-existent phenomenon in the Middle East in general.
* No taxes and low tariffs that proved extremely attractive to western companies and expatriates.
* A hyper-free market economy with low restrictions on movement of funds and transactions. Old fashioned wire-transfer systems, hawala, still exist next to modern banking systems.
* Establishing high-tech state-of-the-art infrastructure to sustain a prosperous electronic-based economic system and e-government.
* Government support, direct or indirect, to all major economic projects to ensure their success at reasonable costs.
* Sharing the wealth with the local Emirati people in order to ensure political stability and wide public support for the government.
* Maintaining a good security record of zero major incidents by investing heavily in the Emirate's security apparatus.
* Easy and quick processes to issue visas to businessmen and visitors.
* Allowing foreigners to own property in free zone areas.

The "Dubai Model" has become a big attraction to neighboring Arab countries, especially in the Gulf region. It offers a way of life that appeals to many people, except power-crazy regimes and rulers who only like to do business in Dubai but without imitating it. Leaders in some neighboring countries are still resisting reforms to their political and economic systems and are waiting to see the long-term results of the Dubai experience before they make their judgment. Still, a few Arab leaders are trying to imitate Dubai, but with little success largely due to lack of incentives, socio-political instability and the continued growth of Dubai itself.

Challenges for Dubai are growing along with its size. The booming real estate business has brought in more Asian workers, and a free press has created more transparency and fame that have placed the city-state in the international spotlight. Hence, Dubai now has an image to preserve that includes high moral values and responsibilities to the international community. Under the new conditions, old tribal traditions of favoritism and special privileges have conceded to the rule of law, especially when having to deal openly with labor issues and sensitive cases like sex crimes. Nevertheless, firmness against troublemakers has remained central and the practice of deporting convicted offenders and criminals has "kept rotten apples out", leaving the city free of misfits.

Dubai has managed to keep a fairly good balance in its relations with the outside world. Major Chinese, Russian and Indian companies share the same ground with their western counterparts. Iran continues to find in Dubai breathing space for its economy despite persistent pressure from Washington to curb the finances of Iranian officials. The ongoing dispute between Tehran and Abu Dhabi has not undermined the strong economic relations between the two countries, especially Dubai.

Al-Qaeda and its affiliated terrorist groups occasionally mention Dubai on their website with concealed threats. Some official sources have spoken of attempts by extremist groups against western targets that were foiled by vigilant security forces, but with no independent confirmation. Yet the threat exists, as does the possibility of war between Iran and the United States.

Dubai leaders watch anxiously as their city-state grows in size and strength unhampered by the troubles of the region. Nobody seems to know how much Dubai would be affected or harmed by a terrorist attack or a regional war. However, most experts seem to agree that an incident in the world's capital of globalization would most likely impact both the world's economy and the city's way of life. Hence it would only be logical to assume that harming Dubai would not be in anybody's interest, including the bad guys.- Published 27/12/2007 © bitterlemons-international.org


Riad Kahwaji is director general of the Institute for Near East and Gulf Military Analysis (INEGMA) in Dubai, and the Middle East Bureau chief for Defense News.

Talent, critical mass drive Dubai forward
Afshin Molavi

The ruler of Dubai, Sheikh Mohammed bin Rashid al-Maktoum, likes to spy on his own people. In that, he is upholding a modern Arab autocratic tradition. Dubai's ruler, however, is not looking for conspirators, fifth columnists or political opponents. He's looking for talent.

Sheikh Mohammed's "spies", known as "mystery shoppers", fan out across government offices to observe and grade the efficiency, competence and attentiveness of local officials. Those who receive poor marks are quietly rebuked, while those who impress move into an informal Dubai fast-track, receiving increasingly more challenging tasks, greater responsibility and more scrutiny. If they survive those tests they gradually enter the rarefied air of the Dubai high-flyer executives, the dozen or so movers and shakers who are transforming the Persian Gulf city-state into a major regional and global trade, tourism, transport, technology and financial services hub.

This survival of the fittest produces a top-notch government elite, not one stocked with cronies and family members of the ruler--and might just be the key to Dubai's remarkable rise. While western capitals search for an Arab "democratic model", Dubai is providing an Arab "meritocratic model" that underpins its successful growth and development.

Growing at 15 percent a year, the largely meritocratic Dubai elite will be severely tested as the emirate's ambitions seem to have no limits: by the year 2015 it aims to treble its GDP, create nearly a million new jobs and continue its torrid pace of development and growth. It is currently building what aims to be the busiest and largest airport in the world, it already attracts more tourists than India, it remains the third largest global re-export hub, its real estate developments--from islands in the sea to towering skyscrapers--have grown legendary and its partially state-owned companies are plowing money into investments from Jakarta to Japan, from New York to New Delhi, matched and even outpaced at times by private Dubai-based developers and investors.

A key player in charting the rise of Dubai--some call him the chief operating officer of Dubai, Inc (with Sheikh Mohammed as the CEO)--is Mohammad al-Gergawi, the dynamic and influential minister of state for cabinet affairs, chairman of the state-owned conglomerate Dubai Holding and exhibit A of Dubai's meritocracy. Al-Gergawi was first discovered by a "mystery shopper" in the mid-1990s. He consistently outperformed in his government assignments. When tasked with creating a high-tech zone in the late 1990s he had a small office, a shoe-string staff and limited resources. Today, Dubai Internet City houses leading technology giants and al-Gergawi heads a conglomerate of some 30 companies with 30,000 staff.

In another Arab state, al-Gergawi might have become a frustrated bureaucrat or would have turned away from government to the private sector as do many of the elites in the Gulf Cooperation Council. Had he grown up away from the GCC, he might have become an Arab immigrant in Europe or the United States, joining the millions of Arabs who have left their homeland in search of greener economic pastures.

Yasar Jarrar, a Jordanian management expert who works as an advisor in the Dubai government's main strategy office headed by al-Gergawi, was one such immigrant in the year 2002 before he was scooped up by the Dubai recruiting machine and enticed away from his post as a newly minted professor in Cranfield, England. "Five years later, I'm still here," Jarrar says, recalling how his first visit to Dubai shattered the stereotypical view he had of Gulf Arabs as "unproductive and inefficient".

But it's not only business, management and investment high flyers who seek a piece of the Dubai dream. Indian middle class managers, Iranian techies, European architects, Chinese traders, Central Asian students, American engineers and, increasingly, global members of the media and creative class--film-makers, journalists, artists, production hands--have made their way to Dubai, contributing to what seems to be emerging as a critical mass of talent driving the city-state forward.

The "build it and they will come" model has served Dubai well in the past. From the dredging of the Creek in the late 1950s to allow larger ships to the creation of massive man-made ports and the more modern clustered "city" free trade zones, Dubai officials seem to have taken the motto of their late ruler, Sheikh Rashid, to heart: "What's good for the merchants is good for Dubai."

Of course, with a "local" population (UAE passport holders) that makes up only 10 percent of all Dubai residents, the Persian Gulf city-state is truly sui generic; thus talk of a Dubai "model" enters shaky ground. Egypt cannot suddenly import half a million South Asian workers to construct buildings, Saudi Arabia cannot import thousands of bankers when so many Saudis need jobs, and countries like Syria and Jordan do not have the luxury of being away from the frontlines of Middle East conflict as does Dubai.

While much of the Middle East remains burdened by a steady brain drain, Dubai has managed to cut against the prevailing grain by both nurturing local talent and drawing in leading regional money managers, traders, bankers and consultants in what is amounting to a brain regain. An ambitious young man in Karachi, Cairo, Tehran, Jeddah or Delhi no longer instinctively sets his sights on Europe or the US. The Dubai School of Government, for example, has managed to attract three leading Saudi women PhD professors away from Europe and the US along with an array of top thinkers from the Arab world and a smattering of World Bank executives. Whether or not Dubai might offer a model matters less in this instance than what it is actually doing: keeping Arab talent in the Arab world.

The DSG executive president, Nabil al-Yousuf, is an Emirati national who rose to prominence not through flattery or political intrigue but through his ability to chart government performance indicators. On the back of that success, he recently led the study for the 2015 Dubai Strategic Plan, pulling together a disparate array of advisors and consulting with some 3,000 individuals to produce a substantive document that resembles something that a major multinational company would generate.

Filled with graphs, charts and projections, the strategic plan lays out areas of projected growth and notes how the government intends to maximize those sectors. In the way it was presented--Sheikh Mohammed standing before an audience of some 2,000 people using power point and taking questions--and the detailed projections it offers, the strategic plan offers a level of transparency and expectation rarely seen in autocratic states.

And why not? The last time Sheikh Mohammed unveiled a ten-year strategic plan was in 2000, and Dubai had surpassed most of the targets by 2005. While other GCC states may have more wealth than Dubai, whose oil revenue accounts for less than five percent of GDP, its secret weapon is not so secret or mysterious at all: talent. To achieve its 2015 targets it will need to continue grooming local talent and attracting international and regional talent.

As a critical mass of the world's professional elite increasingly sees Dubai as an attractive destination to live and work, the city-state will benefit from this transient, mobile and knowledgeable pool of workers. "The hardest part about taking a job in Dubai," one former World Bank executive joked, "is the dozens of CVs I get from colleagues asking me to help them find one too."- Published 27/12/2007 © bitterlemons-international.org

Afshin Molavi, a journalist and fellow at the Washington DC-based New America Foundation, was a Dubai-based correspondent with Reuters.



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