Towards a 'LIFE STYLE' City-Economy

19 Jan, 2003

It is indeed a fascinating journey down memory lane; if one were to course through the history of Dubai's evolution over the last hundred-odd years. What was in the early part of the last Century, a harsh (climatically) and inhospitable part of the Arabian desert landscape, has, by virtue of its geo-political and strategic location, attracted those that fled Iran or the tribes that drifted down to settle at the mouth of the creek. Its peoples' sea-faring tradition, enabled it to develop its economy from its dependency on pearl fishing alone to one that pioneered into trade with countries far and wide. Reaching out to India and parts of East Africa, in terms of commercial and cultural contacts, it was able to weather the downturn and the unfortunate consequences following the invention of the artificial pearl. The discovery of oil and the domestic / political consolidation, triggered by the exit of the British from the Trucial states, focused Dubai on its thriving counter-trade; which profited from exploiting the chinks in the armour of some large closed economies such as India, Pakistan and Iran. They were pierced through by the nimble traders, who dhow-loaded vast quantities of gold, textiles and electronics on to the country crafts that plied in droves; much of it into the grey markets. There was a palpable gap between what was permissible imports and what Dubai called 're-exports'. The recipient countries frowned on these as 'dubious' and debilitating. Perhaps the 'seamier' side of some of these activities will now be viewed in retrospect, as embarrassing to the original veterans; if they were to reflect on the origins of their wealth. Nevertheless, this foray left a deep mark that is rooted in the psyche of the city-state, the remnants of which are still writ large on the façade of the older parts of the city / or lurking in the background.

The early eighties signified a new growth trajectory, particularly, as Dubai invested extensively in industrial, physical and communications infrastructure, be they in the two large sea ports, the airports, Dubai Aluminium Company, Dugas, Ducab and the Jebel Ali Free Zone - all outstanding and path-breaking initiatives that, to this date, underpin Dubai's economy.

Massive investments were made that were then queried by some doubting Thomases. Obviously, these did not activate the cash tills immediately in the manner that traders are used to. Industry required gestation periods and patience which are anathema to the average trader. However, they strengthened and sustained the on-going diversification of Dubai's economy. Many new initiatives followed; the launch of the Emirates Airlines, the Quality movement, the Shopping Festival, the Internet, Media and Healthcare Cities, all bear the marks of bold economic leadership; not daunted by having to leap frog from the traditional trader mentality to a more liberal social framework and that which took a long term investment outlook.

It is in this context, that what appears to be now rolling out, is an even more significant shift in economic terms. This movement towards a "life style" led city-economy with its delightfully diversified cosmopolitan character is decidedly different. It will attract diverse global skills, talent and businesses to Dubai and they will want to combine business with an imitable international lifestyle. The multiplicity of the green golf courses now literally dotting the desert, and the mushrooming of physical and virtual clusters / islands by way of new property developments, are clearly astounding; as is the emphasis on creating one of the world's most focused "high-end' knowledge economy. Many UAE nationals in high governmental positions have launched forth, rather ambitiously, into creating property / real estate developments intended to woo the rich and the famous, the wealthy and the 'knowledgeable'.

Certainly, this new breed of global capitalists (for want of a better word; as they have high monetary or intellectual capital) wish to pursue a greater part of their time by living in and relishing Dubai's superb ambience. This real estate explosion will therefore draw in wealth and global capital into lifestyle industries (?!), if done sensibly in terms of scale and mix; the 'ifs' being cautionary! Good quality 'realty' (the American axiom) supplemented by an increasing number of hotels, resorts, tourism initiatives, airline connectivities, airport expansion, air shows, year-long shopping festivals and a plethora of events would all hang together in a bouquet of lifestyle-induced economic expansion milieu. This underlying strategic theme does make sound economic sense. It will doubtless increase, what the sales managers would call 'a share of the wallet'; of the global glitterati of high net worth individuals and institutions.

In particular, they would also welcome Dubai's deeply comforting sense of physical security and well being for self and family and its tax free status. There are fees and customs duties, now creeping in. However, those that earned their money the hard way, are loathe to giving up a share to governmental bureaucracies that do not reciprocate in furthering their well being.

There are those that deride that all of Dubai's recent initiatives do end up as massive real estate propositions. There is some validity in that remark; in as much as DIMC or the Health Care, will ultimately translate into tangible real estate support structures. For want of a better expression, real estate is the 'hardware' (platform) on the top of which, the planners can mount the 'software' (knowledge economy of technology, media or health businesses). There is nothing wrong with this. Indeed, property is the preferred destination for most nationals in this region, as something that they can readily understand and can do good business with. There are those that may cynically portray them as little more than a run away construction mania. Yes, such a passion has contributed to a destructive boom and bust cycle elsewhere in the world. For instance, the real estate crisis in the 1970s in the U.K. or the savings and loans or mortgage sector crises in the U.S. in the 1980s as well as the 1990s' crashes in the Far East (Malaysia, Indonesia, Thailand). In all these instances, the real estate sector was leveraged heavily and that brought down their economies with it. If there is no sense of balance or strict oversight, the situations can get out of hand. At the risk of repetition, the need is for the 'golden mean' and the exercising of sound judgement. The authorities will need to move quickly with corrective actions; after close surveillance of the underlying market trends. Pressures will surface and a strategic imperative is reasonable market stability; without resulting in perverse price movements or shocks to the systems. In the Far East, there was a runaway boom, followed by the inevitable steep fall, not dissimilar to the 1998 stock market syndrome, in the UAE. These are the types of economic upheavals that require the authorities to be alert and mindful of the socio-economic impact; whenever any economy is in full throttle.

It may even be healthy, in a sense, that as prices rise or drop, the 'land' supply side is calibrated carefully to correct the trend. As rents rise, the demand will spur new and better quality developments. It is inevitable that the older parts of a city or its townships with their wear and tear will be 'cannibalised' to an extent, by the newer, more vibrant or interesting, innovative property opportunities. It is remarkable that a city state with considerable political and economic autonomy within a federal structure and with a small population of just a million or so, is able to fashion a different and high economic growth trajectory. In contrast, a large country such as India, with upto a billion people, needs to "develop" its economy across many fronts such as agriculture, industry, trade and other employment-generating economic pursuits. Dubai's model orientated towards lifestyle, resorts, tourism, represent in a sense, the trendier and the more modern ends of the neo-classical economy. This model will prove to be fascinating and instructive to the strategic planners and to those academia in the citadels of Cambridge or Harvard. Without imputing the Chinese interpretation, these are "interesting times" in Dubai and some tremendously insightful lifestyle and financial trends can be identified, if one were engaged in scholarly and intellectual pursuits; even in the mundane world of money and economics.

(The author (sureshk@emiratesbank.ae) is a General Manager in Emirates Bank Group. The views expressed in this article are not necessarily shared by the Bank.)

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