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Dismiss thriving desert hub Dubai at your peril

by December 25, 2016 General

I have spent most of the past six weeks in one of the world’s less probable global hub economies – an upstart about which we in Hong Kong and Singapore are dismissive and disdainful, in so far as we know anything about it at all.

We are talking Dubai, the most precocious of seven tiny sheikhdoms that make up the United Arab Emirates. While it remained a small and insignificant dusty desert kingdom, it would have attracted and deserved no attention. But today, with the world’s busiest international passenger airport, one of the world’s larger ports, tourist numbers soaring past 15 million a year, and some of the world’s glitziest pieces of real estate, it is dismissed at our peril.

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But when I flew in there for just the second time late last month, I was surprised how far off the radar screen it was for Hong Kong, and how little economic exchange exists between us.

I still dislike it with avengeance, and could never live there. It is too much an ambassador for vacuous consumerism for me to feel comfortable. It is too environmentally unsustainable for me to feel comfortable. But I can see many cynics querying how anyone who has lived in Hong Kong for three decades could dismiss another place for vacuous consumerism or environmental sustainability. And I concede that Dubai has built a powerful and – for now – successful business model which teaches some important lessons, and from which we in Hong Kong might valuably learn.

As China has extended its international reach, in particular towards the long-neglected African economies, Dubai has become an increasingly important westward hub for China, with a potentially significant role in China’s long term “One Belt, One Road” strategy. It may not yet quite match Hong Kong as a mainland China entrepot, but it is getting there.

China’s trade with Dubai amounted to US$48 billion last year – and 60 per cent of Dubai’s imports from China are re-exported, mostly to Africa. From a trickle of trade between China and Africa in 2000, it had surged to US$160 billion last year, with Dubai a significant conduit.

Dubai’s steroidal Dragon Mart, a 1.2 kilometre retail mall with more than 5,000 outlets and 1,700 Chinese retailers, attracts 19 million shoppers a year – most of them entrepreneurs from key sub-Saharan economies like Nigeria and South Africa that are sourcing Chinese goods to sell back into their home economies.

Dragon Mart today says it is “the world’s largest Chinese trading hub outside China”, and with the even-larger Dragon Mart 2 close to completion, this is a claim that cannot easily be dismissed. Dubai is now home to more than 230,000 mainland Chinese people and 4,200 firms from the country, including most of its leading banks.

Dubai’s similarly steroidal Emirates Airlines now flies 100 direct flights a week to 13 Chinese cities, meaning Chinese passengers today account for 5 per cent of the 78 million passengers flying through Dubai last year. Dubai Ports – now called DP World – has stakes in Tianjin, Yantai, Qingdao, Quanzhou and of course Hong Kong.

Dubai’s similarly steroidal Emirates Airlines now flies 100 direct flights a week to 13 Chinese cities

As China extends its outreach into Africa’s economies, as the One Belt, One Road policy slowly takes meaningful shape, and as the Dubai World Expo fast approaches in 2020, so China’s links and influence cannot be underestimated. Already leading Asian airlines like Singapore Airlines and Cathay Pacific are feeling the hot competitive breath of Emirates on all routes west, whether to Europe, Central Asia or Africa.

At this point, Dubai’s precocious ambition is fragile and built all too obviously on lifeless desert sand. Lacking the massive oil and natural gas wealth of its Big Brother Abu Dhabi, it has had limited choices on how to build itself to an economy of consequence. It has built massive debts to finance its ambitions (today still around 140 per cent of gross domestic product), and has had to be bailed out twice by Abu Dhabi – the last time for US$20 billion in 2009. But paradoxically as oil prices have crashed over the past two years, so its diversification away from oil and gas has made it one of the region’s more robust economies with GDP growth last year at about 4.5 per cent.

While its vulnerabilities are only too obvious, its courage in addressing them deserves serious attention. First and least escapable among its vulnerabilities is its location, perilously close to the dreadful endless conflicts across the Islamic world. While the conflicts in Syria and Iraq are not so near, the growing conflict in Yemen, where troops from the United Arab Emirates are fighting alongside the Saudi military, is definitely too close for comfort.

Yet despite this vulnerability, Dubai has made a strength out of weakness. By adopting a remarkably open and tolerant iteration of Islam, in contrast with the intolerance and xenophobia of the militant Islam currently tearing apart countries like Syria, it has created a home for pragmatic and open-minded Muslims from across the world. Here, the executive ranks of many large local companies will see Muslims from Egypt, Saudi Arabia, Palestine, Syria, Turkey and Tunisia working alongside each other, mixing alongside expats from Britain and Australia, and Hindus from India.

The same company will be employing labourers from Pakistan and Bangladesh, and middle-ranking accountants and managers from Indonesia and the Philippines. Here, Islam wears a coat of very many colours, and should be applauded for providing a living example of how Islam can be tolerant, multifaceted and globally integrated.

Dubai’s second obvious vulnerability is the astonishing extent of its reliance of international workers. With a total population today of just more than eight million, just 900,000 are native Emiratis. According to the Oxford Business Group, 22 out of every 23 active members of the workforce are expatriates. Out of the tiny number of Emiratis active in the workforce, over 55 per cent hold government jobs.

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With labour migration such a dirty word in Europe today, and with so many sensitivities in Hong Kong over foreign nationals working locally, Dubai’s willingness to let foreign mercenary workers fill more than 95 per cent of the economy’s non-government jobs is nothing short of astonishing. And yet Dubai’s growth would have been impossible without it, and future growth is likely to be impossible without even further relaxation.

The systems it has created to manage these massive mercenary flows seem cumbersome and complex, but its courage in putting out a welcome mat to working people from across the world has to be commended. We have much to learn how sustainably it can work.

So as I return home to Hong Kong, allow me to admire Dubai’s marvellous experiment, but to remain sceptical about its long-term sustainability. It deserves to succeed, and we can learn important lessons from it, but I am happy not to be part of it.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view