DUBAI STRATEGY: PAST, PRESENT, FUTURE Michael Matly and Laura Dillon Harvard Business School, February 27, 2007 Sponsored by the DUBAI INITIATIVE, Belfer Center for Science and International Affairs, John F. Kennedy School of Government, Harvard University I. Introduction of Sheikh Mohammed as ruler of Dubai. Sheikh Rashid understood that compared Dubai is a monarchy, with all power to its neighbors, Dubai had a limited leading towards a single person. Dubai supply of oil and gas reserves (1/20th the has non-transparent government reserves of Abu Dhabi) that would run financials. Dubai is situated in a region out by 2010 and was determined to build that is strife with conflict, up Dubai’s economy so that could it fundamentalists, and hostile countries survive the end of the oil boom. His including Iraq, Iran, and Pakistan. famous quote was "my grandfather rode Dubai is located in the desert where a camel, my father rode a camel, I drive temperatures can reach 130F in one of a Mercedes, my son drives a Land the most humid locations on the planet. Rover, his son will drive a Land Rover, but his son will ride a camel." This quote Yet, despite all this, Dubai, a tiny city- signified Sheikh Rashid’s understanding state, located in the Persian Gulf has of the risks involved with the end of undergone an impressive transformation petrol money. Many have argued that over the last four decades, managing to Dubai’s success has been one of luck shift their economy from that of fishing rather than a thought-out development and trading to tourism, mass strategy. We intend to argue that Dubai communications, shipping, and finance. has been on a pathway set for nearly Dubai has created for itself an image thirty years, and while the rate of growth synonymous with luxury, multi-billion in the last decade may have been dollar real-estate ventures, 12 million surprising, the actual growth is not. visitors in 2005; and as Vanity Fair has Dubai’s Minister of Finance claims that described it, a “city on crack”.i there is a legend among the locals that in fact Sheikh Mohammed (the current II. Creation of Dubai, Inc. ruler of Dubai) has only implemented one of the three strategic road maps that But how did Dubai begin her Sheikh Rashid planned for Dubai. transformation? Locals attribute the key Whether true or not, the economic milestones to be the dredging of the development path of this tiny city-state, creek and the establishment of Jebel Ali in the minds of the citizens, is largely Port (in the late 70s), both under the attributed to their early rulers. sterwardship of Sheikh Rashid Al Makhtoum, ii,iii and finally the ascension 1 Boats and Planes successful trade with Europe, Middle East, and South Asia. This history is By establishing itself as a hub of trade still engrained in the minds of the by sea and a center of tourism and modern generation of Dubai’s prominent business travel by air. The Mina (Port) families.viii This set a cultural norm Rashid was completed in 1972 and by from the leadership of Dubai, planting 1978 the port had increased to 35 berths the seeds for a people open to the west, - including five berths large and deep foreigners and their culture. Unlike enough to handle the largest container other Arab kingdoms whose borders vessels. By 1979, the Jebel Ali Port was were practically closed to westerners and completed, located 35 km southwest of those that were open forced expatriates Dubai, and became the world’s largest within fenced communities, Dubai man-made harbors and the biggest port citizens lived and worked with their in the Middle East. In fact, by 1979, foreign partners. When the first bars Jebel Ali Port ranked alongside the Great opened in UAE, the local response was Wall of China and the Hoover Dam as nearly muted. And it is this very culture the only three man-made objects that and openness that has now propelled could be seen from space.iv The Jebel Dubai past its GCC neighbors in terms Ali Free Zone quickly followed in 1985 of FDI. with an airport currently under construction. The facilities are a In addition to the creation of the ports, significant distance from Dubai, in the Sheikh Rashid placed air travel as a top midst of the desert and when initially priority for Dubai’s development. The planned, Sheikh Rashid’s advisors did Dubai airport was established in 1959, not believe that the Jebel Ali Port would early in terms of Dubai’s economic be successful.v Jebel Ali is also home of situation at the time. In fact, Sheikh DP Ports, one of the world’s largest port Rashid purchased the plans for the operators. The development of the ports airport construction from the Ruler of was also a slow, step-by-step process by Qatar who sanctioned a study to build an Dubai, which had been known as ‘the airport in Qatar, but after local city of merchants’. DP ports has since disapproval, the plans weren’t carried become the #3 operator in terms of through. To complement the airport, global coverage and #1 from Australia to Dubai established its airline, Emirates Caribbean.vi In 2004, Dubai was the Airline, in 1985 with a $10 million USD third most important re-export center in capital infusion from the Dubai the world trailing Hong Kong and government.ix Emirates Airlines has Singapore with imports more than now become one of the most successful doubling between 1998 and 2004.vii airlines in the world. For 2004–05, Emirates paid an increased dividend of Sheikh Rashid’s strategy was to build on Dh368 million ($100 million USD) to Dubai’s successful history as traders. the Government of Dubai, compared to From its earliest history, Dubai was a Dh329 million the year before. In the trade hub from pearls to textiles. Many first six months of the current financial of Dubai’s prominent families built their year, Emirates Airline has reported a net financial empires not on oil (like profit of US$323m, up 29% from neighboring Abu Dhabi) but on US$251m for the same period last year. 2 The Dubai Government is still the sole Financial center (DIFC), a cluster owner of Emirates Airline, despite not initiative dedicated to the financial putting any money into it except the industry. original $10 million USD. By the time Sheikh Mohammed had Another important initiative of the late begun his rule, the concept of a free- Sheikh Rashid was the creation of the zone was already well established in the Dubai World Trade Center which was GCC, pioneered by the Jebel Ali Free built in 1979, standing 39 stories, it was Zone. A free-zone created a more liberal the largest building in the Middle East at regulatory environment which not only the time. It has evolved as the center of included freedom of ownership and the largest exhibition center in the management without taxes, but also a Middle East with 7 exhibition halls. The simplified approach to documentation World Trade Center now also hosts and government regulations. What was government think tanks such as the new was the creation of business parks Dubai School of Government which has dedicated to specific industrial sectors. partnered with the Harvard Kennedy And, in 1999, the Dubai Internet City School of Government as a center of was announced, Dubai’s first fusion policy research and training for Dubai business park/free-zone. 364 days later and the region’s future government (as a testament to Dubai’s speed) the officials.x result was 30 square million feet of land with 4 buildings representing 1 million Dubai, Inc. was now up and running. square feet of leasable space. One While Abu Dhabi and neighboring hundred and eighty tenants had joined in countries were busy building their the first year including Microsoft, economies around the vast oil reserves, Oracle, IBM, Dell, Siemens, Canon, and Dubai was developing an economy that SonyEriccson. As Wadi Ahmad, would be founded upon trade, business, Director of Marketing stated: and an airline to link it to the world. “We have made Porter’s theory a Business Parks and more Business Parks reality. If you bring all the companies from the same Sheikh Mohammed bin Rashid Al segment together, channel Maktoum is considered by many locals development opportunities as responsible for Dubai’s next phase of materialize. It’s real life development. He is responsible to networking. It is bringing the setting the “Dubai Vision 2010” which integrator together with the would attract the world’s top companies software developers. Our ICT to transform Dubai to a knowledge- cluster includes 600 companies based economy. And in 2006, it is working within 2 km of each working: one fourth of the world’s other. Our clients set up joint global 500 companies have a presence in ventures together and do trade Dubai.xi In fact, between 2004-2009, together. We are the only Dubai has earmarked $40 - $60 billion managed entity in the work to USD to projects like Dubailand, The house that many brands. Palm and the Dubai International Everyone who is anyone in the 3 industry is here. Silicon Valley class shopping and (2) unique, world- has some similarities but it is an class projects. Whether it was through area, not a single managed the famous gold souks or the top couture entity.”xii fashion boutiques, Dubai has established itself as a shopping destination. This is And with the successes of Dubai Internet further supported by Dubai’s infamous City, business parks began springing up shopping festival known as the Dubai all over Dubai: Dubai Media City, Dubai Shopping Festival in which 3,000 retail Studio City, Dubai Health Care City, outlets and 40 shopping malls offering Dubailand, Dubai Humanitarian City, huge discounts.xiv The shopping Dubai Knowledge Village, Dubiotech, festivals coupled with mega-projects and Dubai Industrial City.