The pace of construction in Dubai is ambitious, with supply the catalyst rather than demand. Hugo Miller reports on the buzz of infrastructural expansion across the emirate.

Stroll down the quayside on the Dubai Creek at dusk, and reminders of Dubai’s historic role as an entrepôt economy are all around. Pallets loaded with wood from Chile are off-loaded from oversized dhows as car tyres bound for Iran await loading. Re-export remains an important part of the economy here. But from a trading post on the Persian Gulf, Dubai is busy transforming itself into a regional headquarters for banking, technology, media, shipping and aviation.

Any visitor to Dubai is struck by the sheer ambitions of the Dubai government and the pace of hotel, office and infrastructural construction across the emirate. The sense of buzz is all the more impressive compared with the pervasive economic gloom in most other parts of the world – where cost-cutting or consolidation, not construction, is the motto.

“Dubai has always been supply-side led – and demand from foreigners has followed,” says an expatriate observer. “If they had only built in reaction to demand, progress in Dubai would have been much slower. It’s a classic case of ‘if you build it they will come’.”

Funds for expansion

Income from land and property – much of it built up by Dubai’s former ruler Sheikh Rashid Bin Said Al-Maktoum – and the sale of oil and gas provide much of the fuel for this government-led expansion – an estimated $5bn in annual revenues. The ruling Al-Maktoum family, led by Crown Prince Sheikh Mohammed Bin Rashid, are spending now with the aim of reaping the benefits of a much diversified economy in the future. Though oil production has slowed in the past 20 years, anecdotal evidence from the buoyant economy suggests that this diversification strategy is paying off.

Dubai’s can-do attitude to business is also notable, especially compared with the more genteel federal capital Abu Dhabi, two hours drive down the coast. In fact, one of Dubai’s most difficult challenges is to put pressure on Abu Dhabi to speed up its approval of new legislation in Dubai (the creation of the Dubai International Financial Centre being a classic case in point) without alienating the federal authorities.

Western approach

Beyond the glitzy hotels and shopping malls that have sprung up in the past two decades, Dubai remains a Muslim city and most of its 1.03 million residents, more than 90% of whom are foreign, are drawn from India, Pakistan and other parts of the Gulf Co-operation Council/Middle East region. There are mosques scattered throughout the city, and the muezzin’s call can clearly be heard at dusk each evening – but that has not stopped the emirate from taking a pragmatic Western approach to daily life and doing business. From the shiny skyscrapers to the carefully manicured free zones, Western tastes and business environment are the norm. “It’s a real Dubai plc thing, very light on bureaucracy,” says a British businessman based there. “But also very centralised.”

There is growing concern that, as it becomes more complex, Dubai plc will become too much for one ruling family to manage centrally – and it will need a chief executive or at least a popular government to manage it effectively. Defenders of the status quo point to Dubai’s sustained boom as proof that the current system works and point to the creation of executive committees as a possible forerunner to a more democratic style of government.

According to UAE official statistics, Dubai’s GDP grew by 15% between 1999 and 2001 to 64.5bn Dirham ($17.4bn). As evidence of economic diversification, the Dubai Chamber of Commerce and Industry (DCCI) likes to point out that Dubai’s non-oil foreign trade grew by 30% to 111.6bn Dirham in those two years. The emirate’s ability to weather the economic storms of the past three years is notable and is something many ascribe to the government’s own approach.

“If we’ve managed to insulate ourselves from the recession, it’s because of careful planning and accumulation of knowledge and know-how in the business community,” says Obaid Al-Tayer, president of the DCCI. “I think Dubai is blessed with a leadership that understands what is needed to succeed.”

Stable magnet

Those may sound like platitudes but there is a genuine sense of respect among locals for the vision that the Al-Maktoum family has developed for Dubai. Like Singapore and its ‘founding father’ Lee Kuan Yew, Dubai’s leaders have taken advantage of a tradition of strong government to develop the infrastructure and business-friendly policies that they see as critical to making the emirate a stable magnet for business in an unstable region.

Now that peace – of sorts – is holding in Iraq, locals are wondering what kind of peace dividend this might bring. “If there is anywhere that will benefit because of its port and infrastructure, it is Dubai,” says Al-Tayer.

The US Agency for International Development (USAID), the main agency responsible for awarding contracts for reconstruction in Iraq, has announced that Dubai will be one of three logistical hubs in the region. While locals have reportedly begun packing warehouses with goods that they anticipate will be in demand, the smart money is on Dubai as a source of logistics services – climate-controlled storage, movable containers, and lifting equipment – to move the massive volume of goods expected to arrive in the region. Pessimists point to the recent $680m contract for Bechtel, a US firm, as evidence that the most lucrative contracts will be going to US firms. Nonetheless, Dubai is well-poised to compete.

Foreign ownership

Despite the rosy business picture, there are a few thorns for the government to contend with. Outside of the emirate’s three – soon to be four – free zones, a 49% restriction on foreign ownership of any business continues to grate. For any foreign investor, that means a majority share of the business will always be held in UAE hands and ambiguity about what would happen to that minority share in the event of commercial dispute.

“Foreigners that come here and invest put huge faith in Dubai by getting a local to put their name on the ownership deed,” says the British businessman. “When people invest here, they are making a judgment about their faith in the system.”

While for the moment, foreign investors have faith in Dubai’s economic prospects, they want greater security and transparency for their investments.

There are signs that the government has been listening. The recently opened Dubai Centre for International Arbitration is designed to address the charge that the commercial courts system is both slow and opaque. It is also addressing the issue of residency. Unless they come from a Gulf Co-operation Council member country, foreigners cannot become UAE citizens – regardless of how long they live in Dubai. The twin Palm projects are offering the opportunity for many resident foreigners to buy waterfront property and gain permanent residency in the process – something that has proved elusive to date.

It may not be tantamount to citizenship, but it is a start. “Before, [foreigners] did not think about Dubai in the long-term,” says Dr Omar Bin Sulaiman, CEO of the Dubai Internet City free zone. “It’s a step in the right direction.”