Sunday, January 31, 2010

Dubai & its sustainable advantages

It is during the times of difficulties that companies tend to retrench and focus on their core competencies and missions. The same applies to countries.

Recently I have been reading a lot of negative press with regards to our most famous neighbor: Dubai. The same journalists that just a little more than a year ago where writing long articles about the outstanding vision of HH Sheikh Mohammed ruler of Dubai are now writing articles about the shortcomings of Dubai strategy, the issues related to the hyperinflated real estate market and so on.

I am sure that foreign readers no longer know who to believe. Or at least they find it hard to set on a credible bearing. Caution and analysis are required to better understand complex economic systems.

Dubai like most economies in the world has been hit by the economic downturn due to its reliance on financing. When considering Dubai please note that the emirate is not blessed by the same natural resources as the capital of the country Abu Dhabi: Dubai has no oil.
Its development has been based upon trade and all its infrastructure development has been financed, like most of the businesses, by the international banking community.
In a country where there are no taxes (neither income, nor corporate taxes, nor property taxes) the mechanisms for development tend to be relatively simple: the government has created holding groups and companies that have been operating like a normal private organization. The majority ownership goes back to the government and the ruling family and that explaines the "semi governmental" etiquette that these companies have been receiving. The profits of these operations have been reinvested in the development of the country.

Detractors of Dubai at times forget what was the Emirate only 20 years ago. In addition, sometimes they forget the reality of where they write from. I recently saw an article from a Detroit newspaper criticizing Dubai urban development. For the people familiar with the abandoned downtown Detroit area, like I am, I am sure the critic sounded a bit out of place. In Italy, where I come from, there are dozens of governement funded infrastructure projects that have been financed that have been "IN PROGRESS" for decades: hospitals, highways, acquedots and more.

I will leave the critics to their job while I would like instead to focus my attention on the infrastructure that Dubai has developed and that is here to stay because it represents a clear competitive advantage given the current economic trends:
- Jebel Ali port;
- Dubai Airport;

Such infrastructure in combination with the well developed concept of the Free Trade Zones has created employment and sustainable development.

Jebel Ali Port is the 6th largest container port in the World (2008 data - Containerisation International) and handled around 12 million TEUs in 2008. It is the largest container port outside of Asia and has won the Award for best Middle East seaport for 15 consecutive year.

The 365-metre long Daniela (nominal capacity of 13,800 TEUs) being handled by the port's largest tandem lift gantries, the biggest of their kind in the world. (Image courtesy of DP World corporate presentation).

In tandem with the growth of the sea operations Dubai has been growing steadily its air traffic in spite of the global economic challenges.
As of June 2009, there over 5,600 weekly flights operated by nearly 100 airlines to over 200 destinations across all six continents.
In 2009, the airport was the 17th busiest airport in the world by passenger traffic and 11th busiest by cargo traffic handling 1.927 million tonnes of cargo in 2008.
With the opening of Terminal 3 on October 14 2008 the capacity of the airport has been increased by 43M passengers for a total of an estimated 60M passengers annually.

To understand the progress taking place:
  • in 1998 Dubai airport handled 9.73 million passengers, 431,777 tons of freight, had 110 city links and 2,300 weekly flights.
  • In 2009: 40.9 million passengers, 1.92 million tons of freight, 210 city links, 4,900 weekly flights.
Dubai has de facto become the gateway connecting Europe to the Middle East and Asia, more importantly it has become the gateway into many African countries by air & sea.
The logistics infrastructure combined with the favorable tax free environment has created important synergies for all companies interested in operating within emerging market economies.
These are facts not bound to be reversed by the current challenges. While emerging markets are leading the way out in economic development Dubai is a reality that is here to stay and its infrastructure is going to facilitate trade across this New Silk Road.

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