Monday, February 16, 2009

Dubai May Be Struggling, but Abu Dhabi Looks Strong

I'm back from Abu Dhabi and Dubai. I'm still a little jet-lagged, but I got a good night's sleep for the first time in a week. Here are some more thoughts about my trip.

The United Arab Emirates consists of seven emirates. The best known are Dubai and Abu Dhabi. When it comes to economic development, Dubai is considered the more aggressive one. Dubai embarked on a plan to quickly become the major financial center in the Middle East and one of the most important in the world. There was a tremendous amount of money spent on infrastructure. (Reminds me of the Obama stimulus plan.) Beautiful buildings and roads were planned and constructed. As I said in an earlier post, Dubai is at the cutting edge of architecture and construction.

While I was in the U.A.E., The New York Times published an article warning that the economic boom in Dubai has come to an end. (I thank Vitaliy Katsenelson and Todd Weintz for bringing this article to my attention.) I had already heard rumors of many of the things discussed in that article. Because I spent less than 24 hours in Dubai, I did not get a complete picture of the economy. I had to wonder, however, how there could possibly be enough demand to justify all of the construction going on. To my eyes, Dubai certainly seemed like a busy place. There was plenty of traffic on the streets and the Al Bustan Rotana Hotel where I stayed was busy enough, but I do not have a personal point of reference to make any comparisons.

I was told by some individuals that business activity is way down. Construction has apparently been suspended on some buildings. Most workers in Dubai--from laborers to executives--are from someplace else. One young finance executive told me he was concerned his company would be laying people off soon. A driver told me things were getting bad and many people were going back home or looking for jobs elsewhere. (Sounds a bit like the situation in the U.S.). Given a new law that imposes a heavy fine for disparaging the economy, I wondered if they were being cautious with their comments.

I spent about six days in Abu Dhabi and things there seemed perfectly fine. Abu Dhabi has been more conservative with its economic development plans. There is plenty of construction going on, but there are no obvious signs of overbuilding. People in Abu Dhabi appeared more confident about the local economy. Those in the finance industry were extremely concerned about the global economic slowdown, but not so much about the situation in Abu Dhabi.

Abu Dhabi also has one major advantage over Dubai. It has plenty of oil. While the plunge in oil prices has delivered a blow, this emirate can still generate tremendous cash flow from oil production. Yet those managing the Abu Dhabi economy understand the importance of diversification. Abu Dhabi appears to have struck just the right balance between relying on oil and seeking other sources of income. In fact, Abu Dhabi has the potential to become a major tourist spot. The Emirates Palace Hotel is right on the beach and has several swimming pools. The weather is almost always sunny. It is a perfect spot for a family vacation. The Sheikh Zayed Mosque is magnificent and open to the public for visits. Indeed, during my stay I noticed that Abu Dhabi was full of tourists, many of them German speaking. Abu Dhabi also has a world class golf course. The Abu Dhabi Golf Championship is on the European tour and offers $2 million in prize money.

There may be some friendly competition going on between Dubai and Abu Dhabi, yet at the end of the day, these emirates are a part of the same nation. If things get bad enough for Dubai, Abu Dhabi will likely come to its aid, especially if oil prices rise as global economies emerge from their collective recession.