The Lessons of Dubai

* username: rupertbu

If the rulers of Dubai cringe at the bad publicity the emirate city-state has copped since its go-go economy burst in 2008, they have only themselves to blame. After all, it was they who courted the media glare in the first place. Little more than empty desert a generation ago, Dubai had no logical reason to build a Manhattan-style skyline, let alone the world's tallest building. No reason, that is, except the kind of grandiose ambition that turned what was a backwater into one of the world's most dynamic cities.

When construction began on the Burj Dubai — as the record-breaking tower was originally called — Dubai was in the midst of an epic boom, fueled by foreign speculators and one luxury development project after another. By the time the tower opened on Jan. 4 with a lavish fireworks display, though, the showmanship had faded. Weeks earlier, Dubai's biggest state-owned development company had declared it was unable to pay its debts. Officially, Dubai owes its creditors $80 billion, though a recent report by regional investment bank EFG-Hermes estimates that the city may be in the hole for as much as $170 billion. After Sheik Khalifa al-Nahyan, the oil-rich ruler of neighboring Abu Dhabi, stepped in with $10 billion to stave off an embarrassing default, the skyscraper's owners changed the building's name to Burj Khalifa. For a city used to grand statements, it was a remarkable comedown.
(See pictures of the world's tallest building.)

In all the panic, finger-pointing and schadenfreude that has ensued, though, it's easy to forget that the gulf is more than just Dubai. Neighborhood rivals — some of them much wealthier than Dubai thanks to much bigger oil and gas deposits — have emerged from the financial crisis in better shape than their badly bruised neighbor. The gulf region is poised not only to recover from the global slump this year, but could become the second most important center of world economic growth after the economies of east and south Asia, according to John Sfakianakis, chief economist for Banque Saudi Fransi in Riyadh and Crédit Agricole in Paris. "The world has always been too focused on Dubai, but Dubai is not the GCC," he says, referring to the Gulf Cooperation Council, a loose political and economic union of gulf nations. "In the short term, Dubai's problems may impact how the world sees the region. But over the long term, the region has and will show a tremendous amount of growth."