City of Gold: Dubai and the Dream of Capitalism (20 page)

“His highness came in and it was all white,” my guide explains as we tour a residential floor with lozenges of sea color here and there. “He said, ‘It’s too white! Add more color!’ So we painted it turquoise and aquamarine.”

By that point, Sheikh Mohammed had turned into a difficult client. He’d arrive unannounced and order crewmen to change things. Wright couldn’t keep track. “Sheikh Mohammed had strong feelings about color. He wanted a modern interior, not Arab looking, but colorful. His houses are like that, bright colors and polished wood.”

The crown prince had long been an admirer of Chew, who had done the bold primary colors of the Jumeirah Beach Hotel lobby. Her style suited him, but Wright believes it clashes with the overall design. “It’s so different than everything else. I’d never have done it. But Sheikh Mohammed insisted,” Wright says. “It’s as unusual in its own way as the exterior. And the shock when you enter is one of the things people comment on. It’s a modern-day pirate galleon full of treasure. But it’s also quintessential Arabic Dubai—Sheikh Mohammed’s taste.”

Dubai has no underwater hotel or restaurant. Several articles and at least one book state that it does. There were plans at one point to build one. It never happened.

The Burj Al Arab has a restaurant that feels like it’s underwater. The eatery is stashed below the raised lobby, just behind the escalators. But to get there, you step into a slow-descending elevator shaped like a bathyscaphe. When the doors open, you’re in a Jules Verne set: a circular room set in a massive fish tank with menacing sharks and rays gliding past. The waiters wear captain’s garb. Diners, sitting unawares along the glass walls of the aquarium, are interrupted by a scuba diver blowing bubbles. Otherwise intelligent folks are fooled into thinking they are dining 20,000 leagues under the sea. “The hotel even has an underwater restaurant that’s only a short internal submarine ride away,” write Saeb Eigner and Jeffrey Sampler in their 2003 book,
Sand to Silicon
.

There is an oft-heard rumor about the Burj. It cost so much to build—estimates range from $650 million to $2 billion—that even at 100 percent occupancy for a hundred years, Sheikh Mohammed, who owns it, will never recoup his investment. That’s impressive, giving that the hotel’s three-bedroom suites go for $7,000 per night, double or triple that in high season. The royal suite is double that again. The cheapest room rents for $2,000 in low season.

The Burj is popular with Chinese, Japanese, and Korean tourists, but Russians positively obsess over it. It’s
the
place for Moscow’s
nouveaux riches
. The management has hired Russian speakers and caters to a preference for raw oysters and caviar.

The Burj, surprisingly, doesn’t have much of a beach. But why go there? The management offers yachts from its marina—$14,000 for three hours. Or you can rent a Lamborghini or a Ferrari. But why do that? The
hotel has a fleet of sixteen Rolls-Royces with chauffeurs to handle the driving. But why drive? The hotel will book you a helicopter from the saucer cantilevered to the roof. It’s $2,500 to the airport. Check that no one is up there whacking golf balls first.

Dubai has achieved an unlikely feat. The city has become a Mecca for Western tourists, bringing them to booze and carouse in the Muslim heart of Arabia, not far from the real Mecca, the holiest place in Islam. It’s the earth’s most barren landscape, a land with nothing in the way of historic sights, and big-spending visitors fly halfway around the world to see it.

The Burj Al Arab is the centerpiece and exemplar of that tourism sector. It’s part hotel, part attraction. The whole of Dubai’s industry is built around the same concept: the hotel as destination.

Dubai had 42 hotels with 4,600 rooms when Sheikh Mohammed got started in 1985. By 2008, the city owned one of the world’s highest concentrations of luxury hotels, 350 of them, with 40,000 rooms—nearly 10 times as many.

Vacationers have poured in to fill them. The number of overnight visitors to Dubai rose eighteen-fold, from 400,000 in 1985 to 7.3 million in 2008. The largest number were Brits, with more than 750,000 in 2007. But Americans also flocked to Dubai. In 1990, just 15,000 Americans made an overnight visit. In 2007, that number jumped to nearly 400,000.
¹³
Rooms aren’t cheap. In 2007, with occupancy rates at 85 percent, rooms rented for an average of $270 per night. Those prices and occupancy rates dropped in 2009 as the global downturn swept into town.

Dubai couldn’t have trusted the free market for such a grand entrance into the tourism business. Sheikh Mohammed kick-started the sector, building hotels himself and eventually launching his own hospitality brand, Jumeirah International, which owns and operates Dubai’s best resorts.

In 2007, the World Economic Forum ranked the UAE as the world’s eighteenth most competitive tourist destination, just behind Spain and ahead of Portugal and Japan. The closest Middle East rival was Israel, in thirty-second place.
¹⁴

Tiny Dubai now brings in more vacationers than Australia, Brazil, or
India.
¹⁵
Tourism made up nearly a quarter of the city’s economy in 2006, earning $8 billion.
¹⁶
The emirate’s goal is to host 15 million tourists a year by 2015, bequeathing the economy an annual $23 billion.
¹⁷
The recession that was beginning to spread across the globe at the time of this writing looked likely to defeat that goal, even with hotel managers cutting rates. Still, Dubai’s success is undeniable. One might ask: Who needs ruins?

In 1999, as crews were fitting out guest rooms in the all-but-finished Burj, the stock market, at stratospheric heights in the United States, was nearing its peak. The dot-com balloon was showing signs of trouble.

The Burj Al Arab was greeting its early guests when the tech-heavy Nasdaq Composite Index peaked in March 2000 and began its steep and jagged slide that shed savings and jobs as it tumbled. Money-burning Internet companies ran out of cash and shut down. Gulf Arab investors were among those holding crumbling U.S. assets.

It was the start of a rough patch for America. The Clinton era fizzed out with a disputed election, and cocky George W. Bush found himself in the White House. Shortly after, nineteen Arabs—including two from the United Arab Emirates—crashed passenger jets into the World Trade Center, the Pentagon, and a field in Pennsylvania. The battered U.S. stock markets keeled over again. All told, the dot-com crash wiped out $5 trillion in market value of technology companies. In the United States, the September 11 attacks were the catalyst for a period of fear, war, and economic worry that has yet to abate.

Not so in Dubai. In the Gulf, the September 11 attacks marked the start of a six-year economic boom that raged in gluttonous excess until finally losing steam at the end of 2008. In fact, the attacks played a role in triggering that boom.

The post-9/11 United States was not the place to invest, especially if you were an Arab. Gulf Arabs pulled tens of billions of dollars out of U.S. assets and sent the money home. American hostility toward Arabs rose after the attacks, and the U.S.-led wars that followed were broadly opposed in the Muslim world. “The Americans shot themselves in the
foot by being so harsh,” says Beshr Bakheet, owner of Bakheet Financial Advisers in Riyadh. “Do you want to put your money in a country that is involved in wars all over the globe?”

There were practical reasons to repatriate cash. Many Arabs thought the U.S. Patriot Act being drawn up at the time would freeze their assets on suspicion of terror links. That didn’t often happen. But investors moved their money first and asked questions later. More elementary, U.S. markets were tanking. Those in the Gulf were on the upswing, kicked by oil prices that rose for the next seven years.

Before 9/11, World Bank figures show, Middle Eastern oil-exporting countries plowed as much as $25 billion a year into U.S. investments. Between 2001 and 2003, the figure only reached $1.2 billion. The missing money, a lot of it, was rerouted from America to Dubai. “I lost about $200,000 in the U.S. market,” Mohammed al-Ghussein, a Dubai-based private investor, told me in 2005. “So I took it back to the Gulf and I made the money back.”
¹⁸

The Muslim-bashing in the States put Arabs on the defensive. Investing at home became a matter of pride. “If someone calls your cat ugly, you suddenly love your cat more,” says Georges Makhoul, managing director at Morgan Stanley in Dubai. “It brought a sense of, ‘I’m going to show you.’”

The results have been spectacular. Since late 2001, economies in the six Gulf Cooperation Council countries—Bahrain, United Arab Emirates, Kuwait, Oman, Qatar, and Saudi Arabia—billowed. The UAE’s gross domestic product swelled more than 60 percent between 2001 and 2008.
¹⁹
The U.S. economy grew 18 percent during the same period.

Cash poured into Dubai, which became the poster child for the Gulf boom. Dubai’s growth averaged a scorching 13 percent a year between 2000 and 2005, faster than China. The emirate’s population doubled between 2001 and 2008, reaching 2 million.

In 2001, Dubai’s urban area was a narrow ribbon along the shore, around the size of Milwaukee. By 2008, Dubai was nearly the size of Houston.
²⁰
The area under development had quadrupled to 565 square miles, with man-made islands rising from the sea and construction sprawling deep into the desert. The emirate’s population looked set to reach 2.5 million by 2010, until recession turned it around.

The scale of the post-9/11 investment in the Gulf was staggering. As
of 2008, more than $2 trillion in construction and infrastructure projects were planned or under way, with nearly 40 percent of those in the UAE, largely Dubai.
²¹

The repatriation of Arab holdings in America was the start of a bigger trend. Since 2001, a huge portion of global wealth has flowed to the Gulf. Most is due to the quintupling of oil prices since 2001 to levels of more than $140 a barrel in 2008. Even with the plunge in prices late in the year, Gulf oil revenues were expected to come in around $600 billion in 2008, up nearly tenfold over a decade. In 1998, oil brought them just $61 billion.

By 2008, the six Gulf states were on the receiving end of what American oilman T. Boone Pickens calls the biggest transfer of wealth in human history. The cash Americans and Europeans handed over when they fueled their cars correlates directly with the sprouting of the Dubai skyline, and those in Abu Dhabi, Doha, and Riyadh. By year end, Gulf states held $2.6 trillion in government reserves, banks, sovereign wealth funds, and assorted other holdings.
²²
That money was equal to America’s 2007 federal budget, before the value of some Gulf holdings was clipped in the downturn. This is the nest egg that will carry the Gulf countries through the global recession.

When the oil price started to climb in 2002, Dubai didn’t have much crude left. But the city didn’t need it. Its neighbors sit atop 60 percent of the worId’s known oil reserves. Sheikh Mohammed lowered barriers to investment. Oil revenue looking for a home found one.

Prior to 2000, most Gulf countries had no investment vehicles to soak up the cash that was coming in. Oil earnings were spent on social schemes, infrastructure, and simple consumption. Any surplus got invested in American stocks and bonds. But through the 1990s, Dubai and other cities began building the banking and financial infrastructure needed to transform their societies. When the September 11 attacks made America less attractive, the Gulf had opportunities at the ready.

By 2001, Dubai had a stock market. Now it has two, with a third in Abu Dhabi. The city has grown into a regional services and banking center, and, with the Burj Al Arab, a playground for the jet set. Investors had their choice. They could buy stocks or real estate, or start a business.

“Before, it had been barren land. You couldn’t have planted seeds,” says Morgan Stanley’s Makhoul, forty-two. “Now, the land was well tilled. It was fertile. The money came pouring in. The main axis that was ready to receive it all? It was right here.”

It wasn’t just money that came back. Arab professionals who’d fled saw an opportunity to return to their neighborhood without suffering a pay cut. Dubai calls it the “reverse brain-drain.”

“These were people who thought the West was alienating them because of their cultural background. Suddenly they could function just as well in their home region,” Makhoul says. “You didn’t have to worry about the stigma anymore. You were in a comfortable environment.”

Makhoul is one of these people. He’d fled his hometown, Beirut, when he was twenty, figuring he was abandoning the Arab world. But in 2005, after two decades in New York, Tokyo, and London, Morgan Stanley asked him to move to Dubai. Most Arab bankers and lawyers came in similar circumstances. “I like living here,” he says. “It’s Arab enough for me and it’s Western enough for me.”

In 2002, Sheikh Mohammed made perhaps his single most momentous decision. It would catapult Dubai onto the globe and, within a few years, into the household vocabulary of nearly everyone on earth.

He decreed that foreigners could buy homes.

The city was already the Gulf’s most desirable expatriate base. Suddenly it became the only place in the Gulf where foreigners could buy real estate. Sheikh Mohammed’s message to foreigners was: I don’t just want you to bring your money to Dubai. I want you to bring your skills and your family and contribute to our economy and society. And I want you to be comfortable.

The decree unleashed a typhoon of pent-up demand that was far stronger than anyone knew. A gold rush ensued. Expatriates jumped at the chance to buy. Investors followed, funneling cash into Dubai from ever farther away. Within a few years, developers turned the city into a giant construction site.