Saturday, December 20, 2008

Can Dubai Meet the Challenge?

Dubai never misses an opportunity to be out front. Yet, reality, a realization that even in Dubai global recession means it is no longer business as usual may be kicking in.

Within days of announcing plans for the world's first climate controlled beach, Emirates Sunland Group, a joint venture between privately-owned Emirates Investment Group and Australia's Sunland said the project was on hold until it could be established whether the project was environmentally sustainable. "If an environmentally sustainable approach cannot be found and guaranteed then Sunland Group will not develop the beach in this format," said Soheil Abdeian, the group's founding director, according to Abu Dhabi newspaper The National.

The reversal highlights the pressures on Dubai, a young shoot struggling to grow between two massive trees as Emirati film maker Hamad al Awar in his 2006 animated feature Once Upon A Seed portrays his native land's efforts to carve out its niche in a global economy. Framed before the global economic meltdown during the heyday of Dubai's Richard Bransoniesque development push -- Screw it, just do it, or more elegantly put in the words of Sheikh Rashid al Maktoum, the current ruler's late father, build and they will come -- Al Awar's metaphor probably referred to regional power houses Saudi Arabia and Kuwait.

It harked as far back as the late 1980s when Gulf leaders gathered in Abu Dhabi to create the Gulf Cooperation Council (GCC). Emirati leaders and merchant families then worried whether they would survive competition with the region's wizened, experienced traders, the Kuwaitis, and the far less shrewd but cash-rich Saudis who also benefitted from their sheer population figures. Those anxieties are long gone. Today, the emirate competes with the best of the best and in many ways sets the tone.

Just how far it has come was highlighted this week by a report commissioned by the office of London mayor Boris Johnson predicting that Dubai among others could overtake the City as one of the world's foremost financial centers. "Other centers are simply more coordinated, more strategic and more aggressive" than London said Bob Wigley, Merrill Lynch chairman for Europe, Middle East and Africa and the head of Johnson's panel.

Yet, the report came just as Dubai witnessed its first layoffs in the financial sector and credit rating agencies downgraded the region's financial institutions, many of them in Dubai. The downgrades in ratings and/or outlook reflected fear that already hard hit stock and real estate markets in Dubai and elsewhere in the Gulf could deteriorate further. That in turn would affect asset their quality and profitability.

Emiratis and particularly Dubai will certainly take pride in the fact that their Gulf outpost is viewed as a worthy rival to the world's foremost, albeit humbled, financial centers. But that may be less glory to bask in and more a clarion call that much remains to be done for the emirate to be continued to be counted in the world's top league. Being the world's best, most outlandish, biggest, tallest or whatever may no longer be the name of the game. Getting it right has replaced that. If anything, the Johnson panel warning to the elders of London poses the challenge to Dubai to rise to the occasion.

More to Middle East Arms Race

That Iran looms large in current Gulf thinking was further highlighted with this week's announcement that the UAE has signed a $3.3 billion agreement to purchase US patriot missiles. The deal also involves medium-range Patriot manufacturer Raytheon transferring technology and training. It follows Iranian advances in missile technology with the introduction of its Shahab-3 medium range weapon. For the UAE, the purchase is a balancing act. A key conduit for supply to Iran of goods that fall under US sanctions, some US legislators fear that sensitive technology involved in the Patriot deal as well as US willingness to help the UAE develop a civilian nuclear energy program could end up in Iran. The recent announcements fits a pattern and is part of an extensive military upgrade program. Earlier this year, privately-owned Emirates Advanced Investments joined forces with Raytheon to develop laser-guided missile technology in the UAE. Also, earlier this year, France and the UAE said France would be establishing a military presence in the Emirates by spring of 2009.

A Middle East Nuclear Arms Race?

Saudi Arabia following in the foot steps of Abu Dhabi has put its weight behind the development of alternative energy if oil prices settle at about $75 a barrel. The move is significant because the Kingdom as the world's largest oil producer drives OPEC policy. Yet, geopolitics as always in the Middle East may lurk in the background of that decision. Pointing to mounting friction between Egypt and Iran, The Wall Street Journal notes: "...the broader context of the friction is its steady progress toward a nuclear weapon and the encroachment by Iran into the Arab world -- principally through Hezbollah in Lebanon, Hamas in Gaza and the Mahdists in Iraq. States like Egypt and Saudi Arabia watched with dismay in the summer of 2006 as Israel failed to deliver a knockout blow against Hezbollah. Now they calculate that the U.S. lacks the will to prevent a nuclear Iran. As for Barack Obama's promise of 'tough diplomacy,' we suspect the Arab states take him about as seriously as they would a tourist who thinks he knows how to bargain at an oriental bazaar. Little wonder, then, that the Arab states are taking a keen interest in acquiring nuclear capabilities of their own."

The Journal's argument that major oil producers like Saudi Arabia or Algeria have little need for nuclear energy and may like Israel and India did view non-military nuclear technology as a first step towards obtaining a bomb, while probably accurate may be a bit narrow. Diversification is key to concepts of development, certainly in the Gulf and ensuring that Gulf oil producers are at the forefront of issues such as pushing energy frontiers, preserving resources and greening the world makes perfect sense.

But Arab efforts to play catch up with Israel are not new starting with Iraq whose Osirak reactor was destroyed by Israel in 1981. Libya as part of its reintegration into the international community admitted having a program and discontinued it. Israel this summer attacked what was purported to be a burgeoning nuclear North Korea-assisted facility in Syria and Saudi Arabia, despite the Kingdom's denials has persistently been reported to be working with Pakistan. Perhaps most advanced in efforts to obtain civilian nuclear technology is the UAE' with its nearly finalized 123 agreement with the United States on nuclear technology designed to help the Emirates build nuclear power stations for its rapidly growing cities. Backed by the Bush administration, the agreement already faces opposition from some members of the US Congress. Just how Iran lurks in the background of all of this, was evident when UAE Foreign Minister Sheikh Abdullah bin Zayed earlier this week joined representatives of Jordan, Egypt and Iraq in a meeting at UN headquarters in New York with the P5 + 1 group -- the five permanent members of the Security Council plus Germany plus the European Commission -- to discuss Gulf security and ways of stopping Iran from developing its nuclear military capability.

Still, it's difficult to see what use oil giants like the Saudis or Algerians would have for nuclear power except as a hedge against an Iranian bomb. IAEA safeguards or not, possession of "civilian" nuclear technology served India and Israel as the crucial first step to getting a bomb.