Is the World's Tallest Building a Monument or a Tombstone for Dubai?
For Dubai, economic troubles are nothing new: Since the middle of 2008, the news media has been writing and rewriting the emirate's obituary. Citing its massive debt, an overextended real estate market, rising unemployment and a host of other miseries, they've portrayed Dubai as a distillation of the sins of the West, a sort of worst-case scenario of boom, bust and recession.
With this in mind, it's tempting to view the Burj Khalifa as an instant tombstone, a prefab artifact, ready-made for future archaeologists to pick over while muttering about hubris and failure. Ripe for metaphor, the Burj begs to be compared to the Hanging Gardens of Babylon, the Colossus of Rhodes, the Pyramids at Giza, or any number of other massive monuments to civilizations long dead.
There's only one problem with this perspective: While poetic, it's also premature. Simply put, Dubai isn't dead yet, and it doesn't seem inclined to expire any time soon.
Slowdown Has Allowed Emirate to Catch Up With Itself
While much has been made of the emirate's debt, it's worth noting that Dubai's direct, nonbank liabilities total only about $18.7 billion, or roughly half of its GDP. While much higher than Saudi Arabia's debt-to-GDP ratio of 24%, Dubai's ratio still pales beside the U.S.'s 60% or France's 64%. What's more, taken as a whole, the UAE has a debt-to-GDP ratio of just over 21%.
This is significant because, while Dubai's detractors have described the Abu Dhabi bailout as a foreign country swooping in to save Dubai, the truth is far more complex. To begin with, the two emirates are closely linked economically and politically: In addition to being emir of Dubai, Sheikh Mohammed is also prime minister and vice president of the United Arab Emirates. The UAE's president -- and Mohammed's cousin -- is Sheikh Khalifa, the same guy who "saved" Dubai. In other words, Abu Dhabi's bailout was comparable in many ways to a loan from New York to California -- if the governors of the two states also happened to be the president and vice president of the country, and were cousins.
Still, it seems likely that Dubai's role in the region will change. A trading crossroads for over 100 years, the emirate came into its own in the 1980s when the Jebel Ali Free Zone cut restrictions on labor and export capital, quickly attracting international investment and trade. In the years since, Dubai has emerged as both a playground of the rich and a major commercial center for the region. It has the world's sixth-busiest airport, from which travelers can reach most major cities in Europe, Africa and Asia within a few hours. And, according to Steven Miller, Dubai managing director for the architecture firm FXFOWLE, the city currently has 100,000 more occupants than it had at the beginning of 2008.
Miller is bullish on Dubai. He likens it to Singapore, noting that it remains a "retail, financial and corporate hub for the Middle East." In fact, he argues that the recession has actually had some positive effects for Dubai: As commercial construction has slowed, the city has had time to build its infrastructure to meet the needs of its population. He points out that much of Dubai's subway service has come online since the recession began, and the entire system is scheduled to become active in May 2010. The emirate is also expanding its transportation infrastructure with railroads, trams, highways, airport terminals and bus lines, all of which, Miller emphasizes, are funded by the emirate, without taxes.
Dubai's Future: Less New York, More Las Vegas
Tarek Khouri, a consulting engineer who works in the area, is less optimistic. While noting that Dubai's restaurants and clubs still have lines out the door, he has found that the crowds now tend to be filled with vacationers, not businessmen. This, he argues, is indicative of a shift in Dubai's identity. While the country has traditionally been both a major travel destination and an international business hub, Khouri sees these roles splitting. "Dubai will remain the 'Las Vegas of the Middle East,'" he notes, "but it will no longer be the commercial center of the region."
But who will be the new business hub? Noting the massive growth in construction projects throughout the Middle East, it would appear that there is no dearth of competitors. Even famously repressive Saudi Arabia has gotten into the act: According to Khouri, the country's decision to relax some of its social restrictions and ease the release of tourist visas can be seen as an attempt to draw the tourists and Western businessmen that have been key to Dubai's growth. However, the biggest builder -- and most likely competitor for Dubai's financial throne -- is Abu Dhabi.
Abu Dhabi, which is the capital of the UAE, has been beefing up its infrastructure with new and expanded museums, universities and office buildings. Also, the nearby emirate may also feel the need to flex its muscles. "Abu Dhabi controls the money in the UAE, and was offended by Dubai when it was on top," Khouri notes, "But Abu Dhabi hasn't felt the recession." Building, which has massively slowed in Dubai, is still proceeding at a frantic pace in Abu Dhabi, and he cites the emirate's decision to open outposts of New York University, the Sorbonne, and the University of Strathclyde as indicative of its outreach to the Western world.
A Blessing in Disguise?
Khouri and Miller agree that the conservative Abu Dhabi has learned a lesson from the breakneck pace that Dubai has set. As Miller puts it, "Dubai planned, built and waited for the people to come. But Abu Dhabi planned, built a little, waited for people to come and built a little more." This progress -- which is slow by Dubai standards -- may go a long way toward illustrating why Abu Dhabi will remain attractive to thoughtful, conservative investors and businessmen.
For Dubai, Abu Dhabi's ascendance could be a blessing in disguise. Even if it surrenders its position as the commercial center of the Middle East, Dubai may continue to benefit from the increased attention to the region. Located only 79 miles outside of Abu Dhabi, Dubai is already functioning as a sort of bedroom community for the more expensive city. Khouri notes that many Abu Dhabi workers in live on the outskirts of Dubai, where rents are a third to a quarter as expensive.
With Abu Dhabi emerging as a financial power, its neighbor will be able to focus on its position as the entertainment center of the Arab world, a place where -- as Miller puts it -- "Sunni Arabs can interact with the world without losing their cultural heritage."