Human Challenges

We had a meeting in Dubai last week in one of our global top growth regions, the middle east. First impression was like coming to the US or even more precisely to Las Vegas. Huge roads, big cars, tall hotels that in terms of standard are amongst the best of the world as the Burj al Arab. Already before I heard that the city is a huge construction site with all crane capacities concentrated there – and it is. For an impression of the state the city is actually in watch this short video, a drive on Sheikh Zayed Road. The Burj al Dubai is supposed to become the world's tallest skyscraper. On February 5 it actually reached the height of 604.9m (1,985ft). Although the final height was to be kept secret it leaked out that the plan is to go up to 818m (2,684ft).

There are a lot of other development projects (click this link for an overview) currently in progress, planned or finished, like Ski Dubai a skiing hall in the desert, Dubai's Disney World “ Dubailand” and most interestingly all the artificial islands in the sea, the Palm Islands, The World, The Universe. Not to mention all the huge shopping malls that already exist like Souk Madinat Jumeirah or the Mall of the Emirates.

Although one will find Arabic elements in the architecture most buildings still feel pretty artificial. The most impressive building and an architectural success for me is the Burj al Arab built to resemble the sail of a dhow, a type of Arabian vessel. People living in Dubai for years complained that the city lost much of it's Arabic character.

On January 24 the Herald Tribune reported about the project of “Lyon Dubai City”, the idea of Buti Saeed al-Ghandi the head of Emivest to build a little Lyon after he was overwhelmed visiting the city. The project planner was cited having said that this would not be Disneyland or Las Vegas, they want to make people feel that they are in Lyon without copying the architecture of the city itself!

But it is not Dubai alone seeking to invest the oil billions to develop a self sustaining economy. The big neighbor of the United Arab Emirates on the Arabian peninsula, the Kingdom of Saudi Arabia the world's leading oil exporting country has even more incredible plans. King Abdullah, the 83-year-old Saudi monarch, himself is pushing a plan to establish six "economic cities" to be completed by the year 2020 in different regions of the country to promote development and diversification. The cities will be King Abdullah Economic City on the western coast, near the city of Rabigh; the Knowledge Economic City, near Medina; and the Prince Abdulaziz bin Mousaed Economic City, in the north.

Referring to another article of the Herald Tribune from January 20 the cities are supposed to create one million new jobs and be home to as many as five million people. They will together have three times the population of Dubai, and an economic output equal to Singapore's. Other plans include building four refineries, two petrochemical plants and a modern graduate-level university with an endowment of $10 billion. The focus will mainly be on four main sectors: petrochemicals, aluminum, steel and fertilizers. One big industry project is already in progress and ready to start production of plastics end of this year: the refining and petrochemical plant of Rabigh that will as one of the world's largest petrochemical plants begin to put Saudi Arabia within the top three chemical producers in the world within a few years. It is a joint venture of the state-run oil company Saudi Aramco and Sumitomo Chemical of Japan.

All this investment would not have been possible without the surge in energy prices which have quadrupled since 2002 and reached $100 a barrel in New York in January. But clearly the oil exporting nations do not invest all their increasing fortunes in their own countries. The McKinsey Quarterly in January analyzes “The new role of oil wealth in the world economy”. Added liquidity from these countries has significantly lowered interest rates and increased real-estate values in developed countries. McKinsey concludes that petrodollars are creating inflationary pressures in markets for illiquid investments, such as real estate, art, and companies and states that if the pressures move beyond those markets, the potential asset price bubbles could burst. The question is how the world economy long term would react to higher oil prices that it has so far accommodated without a notable rise in inflation or an economic slowdown?

Last but not least I have to mention that I really enjoyed the Arabian food, one of my favorites being Hummus!

Dubai, Saudi Arabia, Economy, Petrodollars

Posted at 05:03PM Feb 10, 2008 by Volker Seubert in Europe & Beyond  |  Bookmark to del.icio.us |  Comments[2]