Survival of the Tallest

Tuesday's World Events — Posted on November 4, 2008

NOTE: The United Arab Emirates is a federation formed in 1971 by seven emirates known as the Trucial
States: Abu Dhabi (the largest), Dubai, Sharjah, Ajman, Fujairah, Ras
al-Khaimah, and Umm al-Qaiwain. In addition to a federal president and
prime minister, each emirate has a separate ruler who oversees the local
government. (see “Background” below for further information on the UAE)

(by Jill Nelson, WorldMag.com) – Global markets may be in retreat, but one Gulf sheikdom is showing no signs of it. The tallest skyscraper, the largest man-made marina, and a resort built on artificial islands in the shape of a palm tree are only a few of Dubai’s latest undertakings. Thanks to its planners, they’ve even brought snow to the desert: Ski Dubai claims to be the largest indoor ski facility, boasting five runs and enough snow to cover five football fields. “I think it’s somewhat poignant that the same week you have the second Wall Street crash in the United States, you have Dubai announcing a kilometer-high tower and opening a $1.5 billion Atlantis Hotel resort,” Gulf expert Christopher Davidson said.

But can Dubai survive the global financial crisis-or could the crisis bring down the country that finance markets and global leaders are counting on in part to underwrite the global bailout? Some economists question the emirate’s stability, pointing to its housing bubble, inflation, and its young and untested economy. “Dubai is probably not going to survive it, but Abu Dhabi will with flying colors,” said Davidson, a political science professor at Durham University in Britain whose latest book on the UAE, The Vulnerability of Success, has just been released in the United States. Just 75 miles down the road, Abu Dhabi is the capital of the United Arab Emirates (UAE), a nation composed of seven semi-independent states. While Dubai is the most famous and populous of the seven emirates, Abu Dhabi is the wealthiest, with one-tenth of the planet’s oil and almost $1 trillion invested abroad.

Dubai’s oil reserves, on the other hand, are drying up, and it has built an economy that depends on foreign investment and tourism that caters to those who crave excess: Guests at the famous Burj Al Arab hotel have a chauffeur-driven Rolls Royce and can stay in the island hotel’s nicest room for $25,000 a night. Tourism in Dubai will suffer, according to Davidson, if Western Europe and the United States slide into a recession: “What one might see happening is a scenario where Dubai needs to be bailed out by its big brother, Abu Dhabi-its much wealthier brother. And this in some ways might lead to a strengthening of the federation. It might end the autonomy of Dubai’s economic development.”

The UAE is taking measures to encourage continued confidence in its economy. On Oct. 13, the country announced a guarantee on foreign deposits in national banks regardless of the amount. And Abu Dhabi appears to be learning from Dubai’s mistakes. Although it has also created flashy tourist attractions, it has diversified its economy by investing in high technology and renewable energy industries that can likely withstand the global financial crunch.

Dubai’s future appears less certain as its lofty endeavors have led to massive debt. And its obsession with gigantism has come with another price: The emirate relies on hundreds of thousands of immigrant workers-who get paid little and often live in squalid camps-and human-rights organizations are sounding the alarm. “These are the people responsible for the wealth, going up there on skyscrapers, risking their lives, and getting paid pittance wages,” Davidson said. Guest workers-primarily from India and Pakistan-comprise 80 percent of the population in the UAE, and some human-rights organizations say there have been a host of unreported worker deaths and confiscated passports.

Environmentalists are complaining too: The massive artificial island projects are jeopardizing the region’s ecosystem, they claim.

Despite the controversies, there’s no doubt that Dubai has put the UAE on the map. The unfinished glass-covered Burj Dubai has already given the claim of “world’s tallest man-made structure” back to the Middle East-a title it hasn’t held since before England’s Lincoln Cathedral shot above the Pyramids of Giza in 1311. And just in case someone tries to outdo that achievement, the emirate has plans for an even taller skyscraper that will top 3,000 feet at a hefty $38 billion. But Dubai’s unbridled confidence could be its downfall if debt and human-rights abuses go unchecked.

“Most of the other emirates remain quite isolated from the phenomenal growth in the two wealthier emirates. It’s leading to resentment and internal labor migration,” said Davidson. “If there’s a greater mood of transparency and an awareness of the problems it faces, then it can strive to become the true bridge between Europe and Asia.”

Background

(from the U.S. State Dept website at http://www.state.gov/r/pa/ei/bgn/5444.htm)

The United Arab Emirates (UAE) is a federation formed in 1971 by seven emirates known as the Trucial
States: Abu Dhabi (the largest), Dubai, Sharjah, Ajman, Fujairah, Ras
al-Khaimah, and Umm al-Qaiwain. In addition to a federal president and
prime minister, each emirate has a separate ruler who oversees the local
government.
The pace at
which local government in each emirate evolves from traditional to
modern is set primarily by the ruler.
Under the provisional
constitution of 1971, each emirate reserves considerable powers,
including control over mineral rights (notably oil and gas) and
revenues. In this milieu, federal powers have developed slowly. The
constitution established the positions of President (Chief of State)
and Vice President, each serving 5-year terms; a Council of Ministers,
led by a Prime Minister (head of government); a supreme council of
rulers; and a 40-member Federal National Council (FNC). The FNC is a
consultative body with half its members appointed by the emirate rulers
and half elected.
The relative political and financial
influence of each emirate is reflected in the allocation of positions
in the federal government. The ruler of Abu Dhabi, whose emirate is the
U.A.E.'s major oil producer, is president of the U.A.E. The ruler of
Dubai, which is the U.A.E.'s commercial center, is vice president and
prime minister.
Since achieving
independence in 1971, the U.A.E. has worked to strengthen its federal
institutions. Nonetheless, each emirate still retains substantial
autonomy, and progress toward greater federal integration has slowed in
recent years. A basic concept in the U.A.E. Government's development as
a federal system is that a significant percentage of each emirate's
revenues should be devoted to the U.A.E. central budget.
The U.A.E. has no political
parties. The rulers hold power on the basis of their dynastic position
and their legitimacy in a system of tribal consensus.
Rapid
modernization, enormous strides in education, and the influx of a large
foreign population have changed the face of the society. In December
2006, the U.A.E. held its first-ever limited elections to select half
the members of the FNC. Ballots were cast by electors selected by the
emir of each emirate. One woman was elected to the FNC and seven
additional women were appointed to be council members.

The United Arab Emirates (UAE) is an important oil producer with the
fifth largest proven oil reserves in the Middle East. The UAE is a
member of the Organization of the Petroleum Exporting Countries (OPEC)
since joining in 1967. The emirate of Abu Dhabi is the center of the
oil and gas industry, followed by Dubai, Sharjah, and Ras al Khaimah.
In 2004, natural gas supplied 64 percent of the country's total energy
consumption, and oil supplied the remaining 36 percent. (from the U.S. Dept of Engergy website at www.eia.doe.gov/emeu/cabs/UAE/Background.html)