This city will soon be home to the world’s tallest building, its largest shopping mall and its largest fleet of jumbo airplanes. There is a $4.3 billion World Trade Center in the works, as well as a $10 billion theme park and an $11 billion festival city. A signature hotel bills itself as the world’s only seven-star hotel. And Giorgio Armani, building a new hotel here, calls it “the new New York.” By some estimates, one-third of all construction cranes in the world are there.

It’s not in America, and it’s not in China. It is — of all places — in the Middle East. It is south of Iran, across the Persian Gulf, along the southeastern tip of the Arabian Peninsula. This city is nestled in the tiny United Arab Emirates, whose capital is Abu Dhabi, traditionally its richest emirate.

But some would argue for Dubai as the richest of the emirates — and that is the answer to the riddle. What’s happening in Dubai is emblematic of the expanding table of global finance, a banquet at which more and more nations come to dine. There is growing competition for the spoils of international trade. A while back, I wrote about Hong Kong as a bustling hub of financial activity in the East and as a rising competitor to New York for global capital.

Dubai is no Hong Kong, but it is an emerging capital market of great importance to the region and to the world at large.

The Petrodollar Addiction

Perhaps Dubai’s rise is not so surprising. We are in an energy boom, and the price of oil is at a lofty level. Isn’t this a simple replay of Saudi Arabia in the 1970s, when the last energy crisis made billionaires of sheiks? They made so much money that we coined a new term for it: “petrodollar.”

Other countries too, typically poor, have enjoyed “oil booms,” only to come crashing down later when the oil boom ended — leaving in its wake white elephant projects, debts and boulevards of broken dreams.

The easy flow of petrodollars is like an addictive drug. These economies grow dependent on the oil money. Oil revenue often flows to governments in these countries, where it is then wasted — lining the pockets of corrupt government officials or lost on poor investments.

Plus, the sudden infusion of wealth can be a bewildering experience for those who had practically nothing before. Few places on Earth changed as quickly as the Arab world, especially Saudi Arabia. As recently as the 1930s, they were small cultivators, shepherds and village craftsman. They rode camels and lived in mud-walled houses. Before 1962, slavery was still legal. Yet by the 1970s, the nation of goat herders had become a nation of billionaire oil barons.

But the boom in Dubai has a different feel. Dubai itself does not have much oil, though it is a conduit for Arab wealth. Indeed, Dubai may escape the oil curse. One reason is that it is becoming a tourist hotspot. A second is Dubai’s emergence as a major international capital market…

I have to cut it off here… But I’ll be back tomorrow with more on this new New York…

Sincerely,
Chris Mayer
December 11, 2007

P.S.: I recently returned from my trip to Dubai this fall, and what I saw will change your world. The opportunities there are amazing. My Capital & Crisis readers were the first to benefit on these opportunities.

Emerging Global Markets was originally featured in the Penny Sleuth.