September 08, 2006
DUBAI - THE CHALLENGE OF DIVERSIFICATION 
Valence Williams
Vice President - MAXIM Group, New York
Ever since the Dubai Port issue, (when the United States was on the brink of allowing Dubai to manage some of their ports) the world has been focusing on this wealthy city. Dubai is a city in the United Arab Emirates. The Ruler is Sheik Mohammed Bin Rashid Al Maktoum, who is also the Vice-President of the United Arab Emirates (UAE). It is worth taking note of the similarities between Dubai and Trinidad and Tobago, particularly with reference to oil wealth and the challenge of diversification of the economy.
About two (2) decades ago, Dubai started its diversification, recognizing that the country’s oil resource would be depleted at some point. The two sectors of the economy exploding are Real Estate and International Finance through the development of an International Financial Centre. The Government Investment Fund has US$272billion dollars to invest locally, regionally and globally. In this regard, some form of interaction between Trinidad and Tobago/Caricom and Dubai/United Arab Emirates may be worth considering.
For all its oil-fuelled successes, the UAE is a tiny country and a very young one. Some achievements look superficial on inspection. It lacks strength in depth and more nationals hold work titles than they do real jobs. The rapid expansion has come at a price, but UAE matters to the United Kingdom and the United States, both economically and for the rapidly expanding law enforcement agenda. Additional political attention will pay dividends for these two larger countries.
DUBAI
Even in the fast growing city of Dubai the shine has come off the project a bit. The International Financial Centre has taken longer to get moving than planned. Traffic problems incurred demonstrate the risks of piecemeal planning. There have been the odd power failures, and tourists and residents are getting used to life on a building site. There will be a re-adjustment in property prices but inflation is the bigger long term threat to Dubai's viability. At this point, there is still no board of directors as everything depends on the visionary CEO. This is great for rapid decisions, but there are inherent risks.
ABU DHABI
The new Abu Dhabi dates from Sheik Zayed's death in late 2004. The new emphasis on the private sector and education is quite admirable but the tendency to declare immediate victory is not. There is some muted criticism of the Crown Prince's management style now: too much shooting from the hip and too little empowerment of subordinates. The former Crown Prince was known to be slow in making up his mind, however, he seldom changed it. The nationals around his successors are well educated but over stretched and lack experience. The Crown Prince’s expatriate advisers have no relevant qualifications either. Some of these lessons are being learned, albeit slowly, and management by whim remains a real hazard for the time being.
THE FEDERATION
The Gulf Corporation Council (GCC – an organization which seeks to strengthen cooperation among its six-member states ie. Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the UAE) looks stronger, with all seven emirates chasing the same economic diversification, tourism and real estate. Federal Ministers want results and Sheik Mohamed bin Rashid, Ruler of Dubai, is an active Vice President. Currently, Dubai is more dependent on Sheik Mohamed as he is yet to appoint a Crown Prince. This plays into Abu Dhabi’s politics since a strong link between Abu Dhabi and Dubai rulers was not to the taste of Sheik Mohamed bin Zayed, the former Crown Prince. Abu Dhabi and Dubai are now much more integrated.
POLITICAL STABILITY
Democratic reform is on the slowest of slow burns. All the emirates, except perhaps Ajman, look well managed. Dubai is the most risk-taking (and therefore potentially prone to mistakes - though few so far). Abu Dhabi is the most consensual, that’s to say, worst at making decisions. Sheik Khalifa is not at all inclined to hand over the full levers of economic power to his half brother the Crown Prince. He signs the cheques and manages the oil. He is not personally identified with today's ambitious time scales and projects, though he supports modernization.
THE ECONOMY
Oil prices have escalated, almost touching $US80 a barrel. With oil prices this high, the UAE can do little wrong, but ironically energy is the emerging issue in this oil and gas rich state. Much of the industrialisation is premised on cheap and plentiful gas. However, the Saudis are now throwing spanners in the Dolphin project's works (the largest single energy initiative in the Middle East): a gas pipeline from Qatar lies on the sea bed of Saudi Arabia. But even the planned Qatari supplies of gas are inadequate for projected needs. Abu Dhabi however, is already burning diesel in some of its power stations, a real indication of the future.
UK/UAE
The UK claims it has overcome differences over organised crime and money-laundering, though there is much joint work now to do to tackle the substance in this area. Three treaties are ready for signature and both countries have an active programme for operational work. The high level visits planned over the next six months should go a long way to countering President of UAE and Ruler of Abu Dhabi, Sheik Khalifa bin Dayed Al Nahayan’s perceptions of political neglect. Business is booming and the UAE is a target market for the UK Trade and Investment (UKTI). The EU/GCC is a new area in which the two can work together for real effect. They agree on almost all the key regional and international issues, still history and personal factors in Abu Dhabi, make the bilateral relationship delicate. Dubai is more positive in its outlook.
A BRIEF GLANCE AHEAD
1. Some issues worth watching:
- The proposed new agency law: Will it offer the flexibility and incentives for foreign direct investment (FDI) promised, or be watered down, or emerge in a form so complex that it is unworkable;
- The inflation statistics: Getting this wrong will be worse than a property crash for Dubai's regional business offer;
- The turnover of senior expatriates, Especially in Abu Dhabi: Is it possible to recruit, retain and motivate the right calibre of people for jobs it cannot staff with nationals
- Education: Will it create reform and new money flow; more glitzy graduation ceremonies and higher education and employment standards
- The gas market. Cheap energy, cheap labour, no taxes will be an excellent offer for foreign direct investment.
BUT
All this assumes the Gulf’s regional outlook remains manageable (just enough instability to make the UAE compare favourably, but not so unstable as to drive business away). The wild card however, will be trade sanctions, or worse, against Iran: a nightmare for the UAE’s national and regional security. So they pray that international pressure will work.
For further information on the Maxim Group, you may contact: Tel# (212) 895-3578 or visit the website www.maximgrp.com.
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