Dubai and Abu Dhabi: Pearls of the Gulf

November 15-21, 2008

Could Dubai — a small emirate in the Gulf — hold one of the keys to the 21st century and our global financial system? Is Dubai the new Singapore? Is Dubai, alongside its sister emirate Abu Dhabi, the real "new Middle East"?

In all the commotion over sovereign wealth funds, only a few of them have been at the forefront of the recent jumbo deals, including Abu Dhabi and Dubai. Their appetite for buying into prime U.S. assets has just been whetted. What is this new force rising out of the desert?

Originally a fishing village, noted for its pearls, Dubai has become one of the most dynamic places on earth, thanks to its lack of an income tax, relative cultural freedoms, staggering investment in expensive infrastructure, the wider Middle East's petrodollar boom, and globalization. Dubai's rows of spanking new office and hotel towers are decked out in marble and gold leaf. Dubai's miles of sandy beaches have been reclaimed from coastal salt-flats. Dubai stands out as perhaps the flashiest of the seven United Arab Emirates (UAE), which formed in 1971 after the British Empire withdrew from the Gulf.

Not to be outdone, Abu Dhabi, the federal capital of the UAE, is building a $3 billion hotel boasting 1,002 Swarovski crystal chandeliers and a giant gold-leaf dome. Abu Dhabi is also positioning itself to become the cultural hub of the Middle East, with monumental branches of the Guggenheim and the Louvre.

Together, Dubai and Abu Dhabi are as global as global comes. Of the UAE's roughly 3.5 million residents, Dubai and Abu Dhabi account for about 1 million each. At least 70 percent of Dubai's and Abu Dhabi's populations are non-citizens — that is, they are expatriates from India, Pakistan, Iran, Philippines, Malaysia, as well as Europe.

Abu Dhabi, which borders Saudi Arabia, has vast oil reserves. Only 5 per cent of Dubai's gross domestic product comes directly from oil, but the entire surrounding region is oil-soaked, and Dubai serves as a trade and shipping center for the Gulf and the Indian Ocean. Dubai's new airport hub will supposedly be bigger than Heathrow and LAX — combined.

Can it last? Dubai and Abu Dhabi offer insight into the continuing power of fossil fuels, the new patterns of global trade and people flows, the expanded role of sovereign wealth, and the erection of first-class infrastructure.