An emirate's equine affluenza

AUSTRALIAN academic Jim Langridge remembers Anzac Day 1993, when he travelled along single-lane roads to open a campus for Wollongong University in a place most people had barely heard of: Dubai.

The campus was opening with just four part-time students, all studying English, but for a regional Australian university, this was a brave new world.


That original campus and Dubai bear little resemblance to what they are today - Wollongong University (Dubai) now has almost 2500 students from 82 countries, and Dubai has become an international financial powerhouse whose sovereign wealth funds prowl the globe armed with billions of dollars.


This week Australia came on to Dubai's radar as the ruler of Dubai, Sheik Mohammed bin Rashid al-Maktoum, committed $500million for Australia's biggest thoroughbred breeding and racing operation, owned by Bob Ingham. It focused renewed attention on 58-year-old Sheik Mohammed, the man worth an estimated $17.5 billion who has driven the dramatic expansion of Dubai.


The centrepiece of the sheik's vision has been to dramatically reduce Dubai's dependence on oil to protect it as oil supplies run out.


More than 20,000 people a month are moving to Dubai, many from surrounding countries and many from international companies such as Halliburton - the oil company linked to US Vice-President Dick Cheney - which is moving much of its headquarters, along with 11,000 staff, from Texas to Dubai.


The United Arab Emirates were created in 1971 from seven emirates - Abu Dhabi is the biggest, with oil reserves predicted to last 100 years; Dubai is the second largest.


Sheik Mohammed has relentlessly pursued a strategy to make it independent of oil revenues. Oil now accounts for only 5 per cent of gross domestic product, with the rest from construction, financial services, transport and tourism. One of the key people in developing modern Dubai has been David Knott, the Australian who from 2000 to 2003 ran the Australian Securities and Investments Commission.


Knott is chief executive of Dubai's version of ASIC - the Dubai Financial Services Authority. Following the sheik's decree that he wanted a financial system that was transparent and had enforceable rules, Knott has overseen the development of the financial system.


While he enjoyed his time at ASIC, "here you start with a clean sheet of paper - you write the rules, you write the laws and you can be much more involved in being part of the development of the financial sector".


Sheik Mohammed made it clear 10 years ago that if Dubai was going to attract foreign investment it needed a transparent financial system and a legal system that enforced common law rather than sharia law. He decreed that a 44ha zone would be carved out - the Dubai international financial centre.


Sheik Mohammed decreed that Dubai would be one of the few places in the region that allowed overseas investors to buy land freehold.


"This place has his personal stamp on it - absolutely," says Knott. "Dubai is a very liberal and cultural environment, it doesn't have the sort of religious conservatism that one would find for example in Saudi Arabia, and so it's a place where people feel safe, where people can live a normal lifestyle.


"There are good employment opportunities across a range of areas, and the quality of education is improving all the time."
There are about 15,000 Australians working in the UAE, mostly in construction services, but many in financial services. The DFSA has licensed a stock exchange and a futures commodities exchange. Much of this has been driven by the sheik. Another thing he has done is establish a common law system presided over by a retired British High Court judge. "There's a certainty of the rule of law and contract law within the centre," says Knott.


And, almost with an understatement, given how Sheik Mohammed and his royal family dominate government and business there, Knott says: "It's one of those types of systems where once the sheik has said this will happen, it does happen."


A sense of the boom can be gained by looking at an Australian development company, Sunland Group. Of the company's $6.5billion of property developments, $4.5billion worth are in Dubai. The company entered the Dubai market three years ago.


Joint managing director Sahba Abedian says: "We identified a number of years ago that the Australian property market would go through a gradual decline phase."


They wanted to enter a market in "an upswing", and Dubai has become the major part of their portfolio.


One of the interesting features of researching this article was how fearful people were, not just to say anything negative about the sheik, but to be seen to be negative.


The wife of one Australian working in Dubai told The Australian that if her husband was not "overt" on the phone it was because he was conscious of "listening". Another person, who runs a resort in Dubai, was clearly nervous discussing the sheik, and his final words were "everything positive".


While the US, Europe, Australia and parts of Asia are stressed by the fears on world stock markets, the times suit cashed-up Dubai.
The change in world trade balances puts Dubai in a prime position - while China has as much as 50 per cent of the estimated $US6trillion in surpluses held by emerging markets, Dubai and the UAE enjoy a share of that. Part of that money was this week used to buy a serious slice of Australia's racing industry. But could the "Dubai Miracle" become the "Dubai Mirage"?


Indeed, Macquarie Bank, which searches the world for good investments, baulked at Dubai. The bank's former property guru, Bill Moss, noted in 2006 that the bank was not comfortable enough at the time to invest.
"There appears to be no relationship between supply and demand, and it is a market where you could potentially see a massive oversupply, especially hotel rooms and apartments," he said. "If you invest in a boom, you would like it to be demand-led."
To outsiders, Dubai certainly looks like a bubble. Will it burst?


"There's no doubt that for somebody coming from our economies to come here and look at the construction industry that is the first thought that occurs to you," says Knott. "But they've been saying it for 10 years. And because there is so much regional investment in Dubai, because Dubai is seen as a safe haven, I think the likelihood is that the population will continue to expand and demand for housing will therefore be strong and the investment interest from the other parts of the region will (be strong)."


Abedian says he has travelled to Dubai four times since Australia's financial woes escalated in December with the collapse of property group Centro, and he says the Dubai economy appears far more robust as it is driven by equity, not debt.


He compares Dubai today to Switzerland during World War II: an island of stability surrounded by much turmoil.


Abedian says he believes that as a result of the September 11, 2001, terrorist attacks on the US, Arab investors want to invest more in their own "back yard". That coupled with the fact that the price of oil has gone from $30 a barrel to about $100 a barrel has provided significant surplus cash flow, he says.


Langridge has seen Dubai change from a small town in a desert to what it is today. "To his credit, he has been able to bring about change in one generation that most people would not see in a lifetime, and bring it about with genuine stability."


Wollongong University decided in the early 1990s to look for a new market. In the wake of the Dawkins higher education changes of 1986, which allowed foreign students to attend Australian universities if they paid fees, many Australian universities looked to expand.
Wollongong decided, rather than follow a crowded field into Asia, to look elsewhere. Langridge flew to Dubai and met the UAE's minister for higher education - in those days there was not even a department - who told him Wollongong would be welcome.


Today, there are 47 accredited and about 60 non-accredited higher-education facilities in Dubai. Wollongong's campus contributes up to $4 million a year to the university.
Last year eight million tourists visited Dubai and about 30 million passed through the airport. The prediction is that within 10 years that will increase to 15 million and 50 million. This weekend is the Dubai World Cup, the world's richest horse race. Betting is not allowed on either of Dubai's two racetracks; instead a quaint "raffle" system operates.


A person can choose a horse and put the name of into a hat. If your name is pulled from the hat you may win a luxury car, but one cannot make a physical bet. This clearly doesn't worry Sheik Mohammed - when you're worth $17.5 billion, you go for sure things, not gambles.


Source:  John Lyons | March 29, 2008 The Australian