The Dubai story has taken some hard knocks in recent months.
Its massive construction program has tended to rely on debt rather than oil. Debt markets however have collapsed as a result of the financial crisis. There is also talk of oil-rich Abu Dhabi having to bailout its neighbor. Dubai’s critics claim that the emirate simply rode a global tide of cheap credit. And, as the Chinese say, when the tide is out, the rocks appear.
I disagree. I’m still a big of Dubai. A recent article in Al Quds Al Arabi underscores why. The author reports how many Iranians, who had bought property in Dubai during the boom years, are now suffering losses. Painful stuff no doubt. But the more important message is why Iranians, and the rest of the world, had flocked to Dubai in the first place and, I believe, will continue to do so in the coming years.
The article quotes a young Iranian, Mustafa, as saying, ‘I’ve invested all my family’s savings in 
Dubai property. I thought that it is close to Iran, politically safe, and encourages business.’ ‘But how can I tell my family that I was mistaken and I’ve lost the money?’
I sympathize with Mustafa. Yet he shouldn’t lose hope. Dubai’s geography, stability, and openness remain compelling reasons to invest in the emirate even if property prices are tumbling.
How so? Geography is something that not even petro-dollars can buy. And it’s important not to forget that Dubai is located at the Silk Road’s axis. Want to fly from Beijing to Riyadh? Why not fly Dubai’s Emirates Airlines. Want to ship a case of Thai mangos to a Lebanese hotel? Why not ship them via Dubai’s Jebel Ali port. It’s no wonder that the emirate’s re-exports have surged in the past decade from $6 to $33 billion. Dubai has flourished as a transit hub in the same way the port cities of Hormuz and Muscat did centuries ago.
A country’s stability and openness is also difficult to put a value on. It’s like trying to put a value on Nike’s swoosh symbol. But the two are a key part of Dubai’s economic success. Why? Dubai acts as a gateway to the Middle East’s two economic giants, Iran and Saudi Arabia – it is more stable than Iran and more open than Saudi Arabia. Iranians buy property and establish businesses in the city. Foreign executives live in Dubai and fly to Riyadh to meet clients. It’s big business for the small emirate.
Dubai’s challenges today remind me of Hong Kong’s experience of the past decade. Hong Kong also suffered from a property bubble. Home prices fell nearly 70% between 1998 and 2003. There was even talk that the territory would lose out to Shanghai as a regional financial center. Yet, the territory has subsequently boomed. It’s still an easier place to do business. Its schools and hospitals are also popular among expatriates. And, most importantly, property prices have recovered.
There’s no doubt that Dubai overreached itself in the past few years. I was reminded of this while recently driving along Al Qudra Road. Huge tracts of desert had been set aside for the building of a new ‘Las Vegas-style’ city. Large hoardings advertised a new suburb every few kilometers. Each suburb was designed like a giant theme park divided into Asia, Africa, Europe and Latin America. It was Dubai at its best. It perpetuated the myth, but also distracted attention from the things that make Dubai a real success story.
The myth inflated Dubai’s size. I’ve heard talk of comparing the emirate to China, which comes as no surprise. Dubai is still one of the few stories able to steal the headlines from China.
Yet, Dubai just isn’t that big. Although considered the financial hub of the Arab world, it accounts for less than 1% of the Silk Road’s total output. Its entire population of 1.2 million is barely enough to fill Beijing’s northwest district of Haidian.
This however is an advantage as Dubai only has to capture a small share of the Silk Road’s trade and investment flows in order to boom. The small emirate isn’t so much leveraged on credit, as on the Silk Road itself. As long as this region booms so will Dubai.
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