Dubai: Shanghai on Steroids
DUBAI, U.A.E. -- "Shanghai on steroids." That's how one of my traveling companions described Dubai as we bussed Sunday morning to Abu Dhabi, the capital of the United Arab Emirates, arguably the new economic center of the Arabian Peninsula, and quite possibly a future financial center for the world.
I can't adequately describe the frenetic pace of development in Dubai and, for that matter, in Abu Dhabi. You simply have to see it to believe it. In any major growth center in the U.S., one measure of tracking commercial development is counting cranes across a city. In Dubai, you are lucky if you have enough fingers and toes to count the cranes working in each city block.
Headlines touting the tallest commercial office building and the tallest hotel in the world now in Dubai are far too modest and conservative to derscribe what is happening in this country of about 4.4 million residents, nearly 80% of whom are ex-pats simply looking to enable this fledgling country's addiction to growth.
As I gaze off the balcony of my hotel room at the Raffles Dubai (one of more than a score of new five-star-or-better hotels scheduled to open in the U.A.E. in the coming year), I count over two dozen cranes, most of which are within a stone's throw of my window. The fact is over $200 billion a year is likely to be spent on development in both Dubai and Abu Dhabi between now and 2010.
Moreover, these "modest" development plans are based on $50 oil. Imagine what might happen if oil trades at $70. Or imagine the impact of $90-plus oil on the development appetite.
The magnitude of what is happening in the two largest Emirates -- Abu Dhabi and Dubai -- may be the most revolutionary planned development project in the history of the modern world. Effectively, the U.A.E., which was founded in 1971 after the British released control of the Trucial States, has risen from desert sand into advanced development in a phoenix-like fashion. In fact, developments in Dubai and Abu Dhabi have risen out of the ocean, the product of man-made islands.
And this is just the beginning. In Abu Dhabi, for example, the Emirates government is building world-class museums and health care facilities in cooperation with partners such as the Guggenheim and Louvre museums and Johns Hopkins and the Cleveland Clinic as it strives to become the commercial and social hub of the region and attract world-class residents. If early signs are predictive, this dream will become a certain reality.
The implications for both the region and the world are significant. What is happening in the Emirates may well be the beginning of the creation of a new world financial hub, if not the new world financial hub. From where we sit on a daily basis, the world will always pivot around North America. However, it may well be time for a reality check.
Consider this: The Arabian states are a short seven hours from most major global trading hubs, including China, India, most of Europe, Africa and Asia and parts of North and South America. Moreover, a plurality of global energy reserves are found in this key region.
If successful, the U.A.E. may be doing to the global financial base what Fred Smith did with Federal Express (FDX - commentary - Cramer's Take) in Memphis. Nobody expected Memphis to become the center of the delivery and logistics universe. However, with the best location and the best assets, it did. So, too, might the U.A.E. and the Arabian peninsula become an important focal point for global finance and commerce.
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While energy, both crude oil and natural gas, continues to dominate the current-day economic outlook, the Emirates and the Arab Peninsula are looking far beyond just energy to build the economy. In fact, by 2017, growth in U.A.E. gross domestic product is forecast to come as much from non-energy inputs as from the oil and gas trade.
Moreover, within the next decade the largest employer in Dubai is expected to be the transportation and logistics sector. If you consider the Emirates location combined with world-class shipping and airports, the logistics growth is likely to keep pace -- if not outpace -- energy growth over the next 10 years.
In addition, heavy industry is coming to the U.A.E. The petrochemical business is likely to experience rapid growth as international companies in search of cheap feedstocks look to the Arabian Peninsula for access to inexpensive energy. And growth in the petrochemical business is also likely for the same reasons.
We'll discuss these issues in more depth in coming days.
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For at least one company, the struggles in Iraq are simply a part of doing business.
DNO Iraq, a subsidiary of Norwegian oil and gas company DNO, is rapidly developing a field in the Kurdish portion of Northern Iraq with meaningful success. The company has deployed Chinese drilling rigs and drilled two wells in the Tawke field near the Iraq-Turkey border with production potential of 8,000 to 9,000 barrels of oil per day.
While security is a challenge, the company is working to hook into the Iraq-Turkey pipeline to carry the oil out of the country. Currently, the oil is being trucked to local topping plants, where it is used to create diesel fuel for local consumption. While challenges remain, the company is optimistic about its ability to consistently produce in the troubled country. It notes that the pipeline connection is being engineered in a joint project between Iraqi and Kurdish engineers.
This is another example of how important perspective is. Grave challenges for some create incredible opportunities for others.
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