A lot has been written about Dubai, particularly, about her mode of development. Did it follow the right part or the wrong one? What is your opinion?
Regards
Teddy
Dubai is one of the most modern cities ever built. It is a spectacle and a beauty to behold. Before the modernization of Dubai, it was a humble sprawling eastern settlement/establishment with the typical conservative characteristics that still permuted most of the cities in the region.
At present, it is home to the world’s tallest building (the BURJ), it hosts some of worlds dream structures and estates. Some of the world’s most ambitious projects are sited here.
It was such a dream that some of the land that are to house these infrastructures were directly recovered from the sea. To accomplish this fit, undoubtedly, huge amounts of resources in the form of human and economic were deployed . The financing for these projects came in the form of public and private sector investments. Most of the investors (justly) expected to recuperate their capitals and to make gains. Putting into consideration the economic capabilities of Dubai (existent and perceived), is Dubai real, is it a feasible and realizable project (economically)?
The development of any society comprises of the social/cultural, political, economic etc aspects. All these aspects of societal developments are so interwoven that it becomes often times impossible to define a demarcating line between them. An ideal development of a society is one in which all the aspects develop in par-per sue with the others. This could be said to be a “sustainable development”. But if any of the aspects develops faster than the others or if the various aspects develop in the different directions, a gulf will develop in between them. This could create lots of problems in the system. The problems that relate to the aspect that is not economic may not be apparently visible, and the society could forge ahead, dragging these problems along with it, but when it comes to the aspect that is economic , the strain in the society is usually very visible as this aspect has all to do with the very survival of the people as such could threaten all the facets of the society.
Coming back to Dubai, this is a city in the United Arab Emirate. (By the way, the United Arab Emirate is one of the six countries that make up the GCC countries. Apart from the United Arab Emirate, other countries include:-Saudi Arabia, Qatar, Oman etc.) Dubai was conceived and developed with the idea that it is to serve as the commercial/financial centre for that entire region. It was modeled after such centers as Hong Kong, Singapore and Taiwan that made fortunes while serving similar purposes for different regions at different times. These countries enjoyed great economic booms in the hay days of the global economic successes that lasted from some time after the end of the second world war-thus during the cold war, that started to die down in the late 80s, then faded out at the end of the cold war. They profited from the cold war in that, the two economic blocks, each of them had one thing or the other, which the other bloc lacked but needed. In that era, they could not go directly to the other ( for obvious reasons) to transact these businesses as we know them today . As a consequence, the need for the middle man arose. This was where these centers (Hong Kong, Singapore and Taiwan) fitted in. They were fortunate to be located at the geographic positions in which they are at the heat of the cold war that they played the role of the middleman well.
The system worked this way:-
Business men from the capitalist block who would want to buy relatively cheap products provinient from the communist bloc like China would not go out openly and do that but would go to either Taiwan, Singapore or Hong Kong and buy from them, The business men from these countries, (who do not actually have the capacity to source these goods locally), usually cross over the divide to buy from the neighboring communist country. These goods, for one reason or the other, are usually repackaged and rebranded before they are sold to their clients. In the reversed trip, they buy and or smuggled western products such as scientific/technical equipments (sourced from the capitalist countries) to the communist countries-thus making gains in all occasions. These countries automatically became sorts of automatic export processing zones. But with the end of the cold war and the disappearance of the economic blocks, they lost their relevance as such got into trouble as they could not afford their usual mode of living off the divide.
And where does Dubai fit-in into this my story?. Dubai came into the story (like I said before) in that it was modeled after these countries that took advantage of their positions at their times to earn their fortunes but which they lost as the global events changed position. The difference is that Dubai lacked the strategic advantages that they enjoyed whilst that party lasted. Why? :-
· Because Dubai came on the scene after the end of the cold war (the wrong time).
· Is located in the gulf region, which is a region that has about a uniform political, socio-cultural and economic background (as such does not have any particular strategic advantage over the other).
· It is located in a region reach in oil wealth which is the main (or the only?) source of its income (monocultural economy). Though oil wealth could have offered it some advantages or leverages but for the fact that unfortunately, the oil transactions are neither done in the streets nor at the commercial/financial centers coupled with the fact that the major operations in oil exploitation are being carried out by the multinational (or multi-exploitation) companies that are mainly foreign, as such have their economic bases outside that region.
· Being traditionally a conservative society, the cultural development resisted foreign influence up to the fact that the educational curriculum is said not to be in synchrony with time. This lead to low educational/skill capacity as such doubt if the indigenous human resources are in the right capacity to manage such huge complex economic concern.
· Despite this low man power utilization capacity, unemployment is low in some of the gulf states like in Qatar (0.09%) but is also high in others like Saudi Arabia (10.5%). It has been estimated that up to 88,000 people and about 100,000 people would be job seekers in 10 next ten years in Oman and the Emirate respectively; but in general, the region is lacking in skilled labor.
· Consequent to these shortages, the gulf states had no options than to employ more than 6million expatriates who work mainly in the private sectors of the economy- thus confirming the fear earlier expressed, that the local resources are do not have the right capacity to manage such huge complex economic concern.
· Due to social and cultural orientations, most of the nationals of these gulf countries prefer the public sector employment to the private sector.
The next question is :-
What is the land area within which these structures and infrastructures are crammed up? How many people live in Dubai?
What is the level of non oil related economic activities in the region?
What is the volume of trade generated in that region and what percentage of that trade passes through Dubai?
What is the level of economic transactions between the countries that make up the GCC to warrant a commercial/financial center-thus the relevance of Dubai?
If the these gulf states could not afford the manpower and the skills required to run the private sector of the economy (as exposed by the demographic figures), then for whom are these fixed assets that are only adoptable for the private sector activities being procured for?
The basic economic principle of demand and supply does not err. When there is more supply than there is demand, stagnation will set in, supply as such manufacturing will have to suffer, but if there is more of demand than supply, inflation is bound to occur. In my opinion, Dubai is a victim of the first case in which the supply greatly outpaced demand-thus the stagnation. The weakness in that project (the Dubai concept, like I would like to refer to it as) was exposed for the first time during the present economic crises. Nothing will be done to redeem that unless a miracle happens and a new economic/social order comes into being that will favor its location. Unfortunately, economics is not built on wishful thoughts as such we should not be surprise to see this trend repeat itself in the future. Economics is such a complex and intricate entity that apart from the fact that you have to harness it, you must at the same time be able to manage it (strictly). It is such a cruel thing that it does not respect persons, countries, blocs, regions or whatever have you, for if not, the mighty soviet union and the rest of the communist bloc despite their abundant natural and human resources etc could not have crumbled like a pack of cards (despite all the efforts made to safeguard it against that collapse). Ones you got it wrong, you must have to pay for your mistakes no matter how long it may take. The hole in that system (the Dubai concept) came to the fore at the time that it came i.e. during the current economic crises because the time was ripe for it. I am not trying to sound alarmist but from the available facts, it must have any way occurred at any other time, and must repeat in the near future. This is not definitely the end of it but an indication of the greater (or worse things to come) unless if something is done to engage those idol facilities. We have to note that crises is one of the natural methods that the system adopts to cleanse itself or to shade stresses/strains in its fabrics. There is nothing to be done to stop that happening. It is as sure as the natural law of birth and death.
The bail outs and other engineered remedies being meted to it will only shift the trouble points to another time in the future.
Regards
Teddy
Few weeks ago, Dubai world in a bid to get herself ride of the debt that sent a shock wave around the world, proposed to her creditors the sum of 62 cents for every dollar. This meant that the creditors had to, apart from losing their capital to the tune of 100-62 = 38 cents for every dollar invested, had also to contend with the lost of the interest accruable to their investment. This proposal was later dropped for reasons that the creditors did not accept this option and for the fact that the interested parties, in their bid to push forward the Dubai idea, had to intervene. The debt was carried forward. This created an air of uncertainty but the appearance of Abu Dhabi on the scene soothed frayed nerves when she pumped some money into the cash strapped system. People were thinking the Abu Dhabi will dish out a blank check without any precondition, but much to pundit’s surprise, she gave out reluctantly a fixed sum and made it clear that the era of uncontrolled spending is gone as such, it will not be able to redeem all of Dubai’s debts. It also placed an inferred clause that it will only come into Dubai’s case based on the progress made towards control/management of the debt. To control spending, many projects were shelved, on-going ones halted and the authorities tried to put its house in order. For this, some heads rolled as people were arrested for corruption and mismanagement of funds. With the improvement of the global economic environment, a calmer environment was created. Things seem to have at last started to change. To keep a date with investors’ expectations, Dubai and Abu Dhabi yesterday (25/03/10) announced the input of about 18.0 billions of dollars into the system ( a far cry from the sum of about 100.0 billion dollars that it is owing) and at same time shifted the dates for the redemption of their debts to next 8years. This is a better option to the investors as compared to what was proposed before now. Every one heaved a sigh of relieved at least temporarily. But will this sigh of relieved last or is it a temporary measure aimed at cooling peoples temper?
Regards
Teddy
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