Dubai, the younger brother

Madnat Jumeriah

Dubai, the younger brother

 

Right now I’m at the Crowne Plaza Kuwait, it’s continued to rain for the third straight day and the local population along with the increasing number of immigrants are celebrating Eid. I’m with Imran, one of our team members in the Middle East, situated in Kuwait for a month now, preparing the meeting agenda for the coming week.

I tune in to BBC, they are criticizing Dubai. So I decide to support it.

It was in the beginning of 2008, when I was in Palm Jumeirah in Dubai, in the house of my friend and associate Kamran, when I brought up the idea of creating BLACK CAPITAL. He looked at me with surprise and smiled.

He was the vice-president of a banking investment office in the financial district of Dubai specialized in operations between Australia and the Middle East.

I was directing a real estate division of a family office in Spain, and due to changes in the sector; I was looking for new business opportunities.

And I found Dubai.

The economic situation at that time was confusing. In Spain, the crisis had affected primarily the real estate sector, it hadn’t yet filtered to the rest of the economy, meanwhile in the Middle East, specifically Dubai, it was in its most culminating period, with increases in the prices of real estate assets of up to 25% each month, the petroleum was up to 120$ with rumours that it was soon to reach 200$, and  the sovereign funds were in newspapers all over the world for its billionaire investments in assets of all sorts (entrance of AIDA in the CITIGROUP capital: 10% for 7,5 billion $).

It was madness, even crazier than the one in Spain 6 months previously.

And in the midst of this bubble and managerial madness, everybody started talking about the demise of Dubai.

An end that nobody wanted to believe, specialists said: “It is not a free market (60% of the real estate assets belonged to Dubai World) and the government will regulate it or Abu Dhabi will buy it.” I even remember perusing an article from The Economist defending this criteria; I promise I’ll look for it.

It is true that Dubai was and still is in a critical situation, but only from a short term point of view and as a cause of the government’s entrance in the real estate sector along with its companies. Looking to the future (even taking into account the news published today, 26/11/2009), it was only in, and still is, in the first step of what it will be, not only Dubai, but all the countries of the Gulf area.

Let me explain.

Dubai is not only about sky scrapers. It is in an incomparable geo-strategic position and it has become a commercial and service HUB for Europe, Africa, Asia and the Gulf area, transforming into one of the most dynamic and open economies of the zone. It is the great bazaar of business.

But Dubai cannot be analyzed alone, its neighbours need to be considered, above all the ones that urge to invest in transforming their economies till they reach a point where they don’t depend on their much loved black gold (petrol). Dubai has already reached that point, but now it’s suffering its consequences.

Personally, I am of the opinion that Dubai has done a sterling job (strictly on economic growth matters, without taking into account the social aspects). They didn’t have another option to reach where they’re at right now. It is true though, that they should have stopped earlier, but it was impossible to back down, to stop dreaming. It has been a sort of “suicide” of which the rest of the gulf countries have taken

Advantage of, whether they buy into the  “Dubai Concept” or not.

What did Dubai have to lose if… it didn’t have anything?

Dubai is a vision of his highness Sheikh Mohammed bin Rashid Al Maktoum in which everybody has believed in, from Qatar to Saudi Arabia. Its true that their government is in bankruptcy, but nobody will take away from them Palm Jumeirah, Burj Al Arab, Burj Dubai, the Dubai Mall, the Dubai Metro, the Dubai Multi Commodities Centre and the list goes on. The Dubai emirate is just the broken tip of the iceberg of economic transformation of the Gulf area of which Abu Dhabi has taken the lead since a year ago now.

This change means not only being an exporter of petrol, but to convert into one of the most important global and productive economies.

I can further illustrate this by using Abu Dhabi as an example.

Up until 5 years ago, the company with the most prestige was the sovereign fund ADIA (Abu Dhabi Investment Authority), the biggest in the world today. Its strategy was clear: no transparency and long term strategic financial investments, that have resulted in a portfolio of unknown assets valued in $620 billion (source: SWF Institute, Oct 09).

Recently Abu Dhabi, in the hands of His Highness Sheikh Khalifa Bin Zayed Al Nahyan, in the search for greater transparency has created different vehicles to direct their investments, MUBADALA being the most important of all.

Established in 2002, MUBADALA, which means interchange in Arabic, uses the same resources as ADIA, the “petrodollars”, even though they have a completely different mandate, looking to position themselves like a strategic partner in different companies with the objective of attracting foreign investment from leading companies (primarily technology based companies) to the emirate: Virgin Galactic, EADS, Cleveland Clinics, The Carlye Group, GE, Rolls-Royce, Indra. The most recent example, the F-1 Abu Dhabi Grand Prix, the culmination of a strategy born with the acquisition of 5% of Ferrari in 2005 and the posterior construction of the Ferrari Theme Park (Ferrari World).

In turn, MUBADALA has already started the second phase, MASDAR, their future, which could be defined as a project to create a city fit for about 50,000 people completely free of CO2.

Now let’s forget about the city.

Let us think about the vision of MASDAR: to turn into “creators” of technology and knowledge and be capable of exporting it to the rest of the world. To be more explicit, be something like the Silicon Valley of Clean Tech. Exactly the opposite of what they are now, and Abu Dhabi, unlike Dubai, has sufficient petrol to accomplish it.

And this was our vision, and BLACK CAPITAL is the vehicle that we are using to form part of that titanic transformation of the Gulf area that’s has just begun and that will signify the total change of their economies, we are talking about UAE, KSA, Bahrain, Qatar and Kuwait. A change focused on improving their life style by investing in infrastructure, healthcare, education and clean tech that will allow them to create a future that will not depend on petroleum.

But weren’t we talking about Dubai?

Like a high ranked government official told us last week: “Dubai has done everything it wanted without keeping in mind their limitations. In Abu Dhabi we consider them our mischievous younger brother. Now we are punishing them for not listening to our advice, but we will hug them once again, and they will become what they always should have aimed for, a HUB for commerce, services and tourism. Nothing else to offer apart from luxury.”

Xavier Reig

Europe Director

BLACK CAPITAL