City of Gold: Dubai and the Dream of Capitalism (24 page)

There was no question that America’s port operations would stay in foreign hands. Consolidation in the industry had forced most U.S. companies out. Eighty percent of container terminals at big U.S. ports were operated by foreign firms like Denmark’s Maersk and Japan’s Yusen Kaisha. Dubai’s only bidding rival for P&O was Singapore’s PSA International, another government-owned operator.

DP World didn’t lurch blindly into the U.S. ports business. Sultan bin Sulayem, the head of Dubai’s port authority, began acquiring foreign port operations in 1999 when he invested in Beirut. Soon after, Dubai bought long-term contracts to run Jeddah, Saudi Arabia’s big Red Sea port; as well as Djibouti, on the Horn of Africa. DP World deepened and renovated these ports, upgraded warehousing and cranes, increasing their capacity and thereby boosting trade and the company’s revenue. In 2003, bin Sulayem converted the port authority into a profit-seeking corporation that continued to buy foreign port operations. It was less constrained by ties to the government, although it remained a state asset. The company was called Dubai Ports World, or DP World.

By the time Americans heard about it, DP World was the world’s fourth-largest port manager by tonnage—carrying nearly 10 percent of global shipping—but held the greatest number of port management contracts, with forty-three container terminals in twenty-two countries.
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In 2005, DP World made its first major acquisition, buying the ports arm
of America’s railroad giant, CSX Corp., for $1.15 billion. CSX operated ports in Asia that went to Dubai. In Asia, there had been no outcry over Americans operating ports, or the subsequent Arab takeover.

Before making an offer for P&O, DP World did its homework. In 2005, it hired a pair of Washington lawyers to approach the U.S. Committee on Foreign Investment in the United States, known as CFIUS. By November, the lawyers learned that members of the twelve-agency panel would not oppose U.S. port management moving from Britain to Dubai.
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But a small Florida company did mind: Eller & Co., a joint venture partner with P&O. A Florida newspaper cited Eller’s fears: its customers would refuse to use its Miami terminal if an Arab company bought it; or perhaps the port owner might cancel its lease.
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In 2008, two years later, Eller lawyer Michael Kreitzer said the company’s chief reason for opposing the deal was its fear that DP World might have motives other than profit in mind, because it is owned by the Dubai government.
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The company hired a semiretired lobbyist living on a Maryland horse farm, Joe Muldoon, to persuade Congress to block the deal. Muldoon drove to Washington day after day, with his laptop and binder of documents, meeting with one lawmaker after another. Muldoon struck out until he found Schumer, whose pro-Israel credentials made him a likely pitchman for a plan that would stoke fear of an Arab government.
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Schumer had another asset: a talent for grandstanding. His attention-seeking efforts had spawned a joke: What’s the most dangerous place in Washington? The space between Chuck Schumer and a microphone.

Schumer was in a position to influence the Dubai deal. He had a seat on the powerful Senate Banking Committee and Dubai’s takeover of New York’s operations fell within his district. Schumer’s press conference with the 9/11 families triggered a media frenzy. Democrats found a convenient way to burnish their national security credentials, so they piled on. Republicans, sensing that Americans were behind the Democrats, began deserting President Bush, who had threatened to veto any congressional move to block the deal.

Schumer cleverly pulled strings that launched a wave of xenophobia. “It was just cheap political theater for him and he worked it, he played it. I think he was genuinely hostile towards the Arab world,” says David Stockwell, a former U.S. consul in Dubai. Stockwell stayed in Dubai after
retiring from the State Department and now runs the local office of Rudy Giuliani’s law firm.

CNN sent its anchor Wolf Blitzer to Dubai to interview UAE leaders. Emiratis were dismayed by Blitzer’s aggressive questioning, especially of Economy Minister Sheikha Lubna al-Qassimi, a member of the Sharjah royal family. The feeling grew stronger that Americans simply didn’t trust or respect Arabs.

Dubai felt blindsided by a storm that made no sense on rational grounds. Dubai is the most American place in the Arab world, a haven of fast food and Disney, with buzz-cut American sailors thronging the malls. Its brash capitalism and antitax attitudes would make Grover Norquist dance a jig. Even the pro-Israel angle fell flat. Israeli shipper Zim stood up for Dubai, its chief Idan Ofer sending letters to congressional leaders to say it was satisfied with the security in Dubai’s ports.

“We knew there would be sensitivities and some PR flak,” says DP World chief executive Jamal Majid bin Thaniah, a big, slow-talking man in an office decorated with models of ships. “But we thought this would be manageable. I thought it would stop one day.”

The political agenda of those feeding the controversy was so bald-faced that former President Bill Clinton and his wife, Hillary, found themselves on opposite sides of the issue. While Hillary worked to derail the deal, Bill, a confidant of Sheikh Mohammed, was trying to usher it through. He convinced DP World to agree to a forty-five-day delay to allow U.S. investigators to reexamine the purchase.
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At the time, bin Thaniah was negotiating with the U.S. Navy about its continued use of the Jebel Ali port. Those negotiations went a lot smoother. “For a moment we thought we had very good relations,” bin Thaniah says, shaking his head. “From one side you’re opening the door and from the other side you’re closing it. They wanted friends and they started to create enemies.”

The U.S. terminals would have connected exports from DP World’s container ports in China to the massive U.S. consumer market. Dubai hung on as long as it could, hiring lobbyists to press its case, assuring the U.S. Congress that American agencies would still control port security. The flood of opposition was too strong. It became clear that President Bush himself couldn’t rescue Dubai’s investment. In Abu Dhabi, the national president, Sheikh Khalifa, got tired of seeing his country’s name
dragged through the mud. He told Sheikh Mohammed that the deal wasn’t worth all the bad publicity.
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In March 2006, bin Sulayem decided to sell DP World’s U.S. operations and pull out. Sheikh Mohammed’s team of American-educated advisers was too small and inexperienced to fight a political battle in the United States.

Dubai’s departure met a sudden silence. Schumer, Hillary Clinton, and the talk radio set looked like a pack of schoolyard bullies who’d beaten up a Boy Scout. They’d chased away a major foreign investor while the United States was sinking into deficit and economic hardship.

“There’s no sense in sugarcoating what is becoming clearer with each passing day: Killing the deal, at its core, was an act of racism,” wrote op-ed columnist Rick Martinez in the Raleigh, North Carolina,
News & Observer
. “Is it so hard to understand that when it comes to international trade, we’re going to have to deal with foreigners?”

Soon after, Eller & Co., the company that kicked off the furor, showed its hand. It offered to buy DP World’s U.S. port operations. “We think we are one of the companies (that could buy it). We have been in the business for 70 years. We could do it,” Kreitzer told the
Miami Herald.
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Eller’s initial motivation for blocking the deal wasn’t because it wanted P&O’s half of the Port of Miami, Kreitzer said in 2008. But soon after, it figured that, if DP World were forced to sell, it could pick up Dubai’s Miami operations, and perhaps others. “There is a linkage between them,” says Kreitzer. “It was all happening at the same time. We made multiple offers.”

Eller didn’t get the prize. In 2007, Dubai finally sold its U.S. port operations, but not to a shipping firm. The buyer was the American International Group insurance company, which would soon require a gargantuan government bailout. Negotiations into a U.S.-UAE trade pact fell apart around the same time, victim to the ports implosion. It made little sense to try to sell a trade deal to a hostile Congress.

Sheikh Mohammed must have been furious but kept his composure throughout. After the sell-off, he published a sober op-ed in the
Wall Street Journal
admitting that Dubai had been naïve by not preparing the political landscape. “The DP World experience taught us to approach international investment in a much more holistic manner. We now take the time to analyze the social, political and economic landscape, identify
the stakeholders and then carefully prepare the way by ensuring that the concerns of all parties are properly addressed.”
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While the Bush administration was alienating Arabs with its wars and hard-core support for Israel, Congress managed to do one better, insulting one of America’s most valuable Arab friends. Gulf leaders publicly questioned whether America was a suitable place for its burgeoning investment funds. Many began to turn to China and the rest of Asia, saying the political risk was lower.

Stockwell visited Washington after Dubai’s pullout and the air was thick with shame. “It was sort of like a lynching where the mob got all fired up and lynched an innocent guy. In the morning they looked at their work and said ‘Oh, this is terrible! How did this happen?’ People felt genuinely embarrassed,” Stockwell says. “In the end, America was the one hurt by this foolishness, not the UAE or Dubai.”

Some good did come of the episode. Suddenly, Americans, heretofore oblivious to Dubai’s emergence, knew about the place. The size of the controversy accorded Dubai far more clout than it merited. People thought tiny Dubai was as powerful as China.

“I hope Americans have come to learn what a big friend the UAE is to them,” says Paul Bagatelas, who heads the Dubai headquarters of the Carlyle Group, a politically connected buyout firm based in Washington. “This is a very important relationship—my God—terribly important for the United States. We need to cultivate this relationship and treat our friends better.”

Quietly, some in Congress repented. A Dubai-based U.S. diplomat said that a number of them visited Dubai and told bin Sulayem and Gergawi that they were embarrassed by the affair. “We even had someone who came and said, ‘I voted for the measure and I am ashamed,’” the diplomat said. Many of the visiting congressmen also stopped by the Carlyle Group’s office for briefings. “They’ve all been over here. Many of them have been to our offices and they have a much different attitude now,” says Bagatelas. “Every single one has a positive view of Dubai now.”

Bin Thaniah says he’d received a few apologies as well. But those don’t mean much. The representatives who expressed remorse didn’t do it in public and didn’t repeat their statements when they got home.
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The UAE has also implicitly admitted its own mistakes by moving to shore up its next investment drives. Abu Dhabi’s Mubadala group
reached out far more methodically to the Washington elite when it bought a 7.5 percent share of the sensitive Carlyle Group in 2008. The UAE government also launched the UAE-U.S. Business Council as an avenue for the 750 American companies doing business in the country to use their influence in Washington.

Two of the UAE’s most powerful women, Sheikha Lubna and diplomat Reem al-Hashimy, also sought to improve the UAE’s image in America. They embarked on whistle-stop tours of the American heartland, giving talks and answering questions—many of which were dismayingly naïve. Al-Hashimy, now a federal minister, says she was shocked by Americans’ scant understanding of her part of the planet. She found herself dumbing down her talks so audiences could grasp them, even in sophsticated cities like Chicago. “She had to start with the basics, like: ‘The UAE is about the size of Maine, our population is around five million.’”

In 2007 a colleague and I pay a visit to the Dubai International Financial Centre for a chat with its chairman Omar bin Sulaiman. Before we can leave, bin Sulaiman says he’s got small gifts for us. It’s a Dubai tradition, these business handouts. “We’ve got rosaries for you guys,” he says. My colleague, Jim Calderwood, shoots me a look that says “What the hell?” He’s a Northern Irish Protestant.

Bin Sulaiman hands us lacquered wooden boxes. I flip mine open and there’s a set of Muslim prayer beads, with a card describing the Emirati artist who made them. At first I think it’s mildly amusing that, being a Catholic, I’m told I’m going to be given a rosary and then am handed a set of Muslim prayer beads. Then I take a closer look. The beads come to a confluence where the cross would hang on a rosary. But instead of a cross, there is a metal bead shaped in the diamond logo of the Dubai International Financial Centre. “These guys want us to pray for money!” I tell Calderwood, who laughs. Dubai is truly unabashed.

Sheikh Mohammed wants Dubai to rule the financial world. He doesn’t envision it as a scrappy challenger to the world’s centers of finance. In
his book
My Vision
he declares that he wants Dubai to be “on a par with the world’s most prestigious financial centers, including London and New York.”
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It’s a goal that his aides don’t usually mention, because it sounds either unrealistic or overly aggressive.

In 2002, Sheikh Mohammed recycled his free zone model again, launching a new district called Dubai International Financial Centre. This time he handed over prime real estate in the city center, and approved a much grander plan. It called for a Vatican-like enclave of stark modern architecture, where the U.S. dollar is the official currency and the financial code of the City of London holds sway, not the civil law of the UAE.

The centerpiece of the financial center is The Gate, a blocky Arc de Triomphe in gray granite and glass. Sleek Germanic office buildings surround the arch, and the whole place basks in a hushed atmosphere of understated wealth. On one level, the financial district has done exceedingly well—by luring major international banks to Dubai.