Until very recently, there was little positive economic news to be had about Dubai. The global financial crisis hit the flashy Gulf city in swift fashion: with 40% of its GDP based in real estate and finance, Dubai found itself doubly vulnerable. Stories of expatriates fleeing debts and real estate projects suddenly going bust dominated headlines. The ambitious expansion wave that Dubai rode earlier in the decade has resulted in an estimated US$110 billion in debt for the Emirate.
But now there are signs of improvement. Despite its debt load, the city is preparing to seek an additional US$1 billion from the international capital market, as it now focuses on developing its infrastructure. Debt restructuring for Dubai’s biggest investment conglomerate, Dubai World, is nearing a resolution. And at the end of June, global consulting firm A.T. Kearney, in its FDI Confidence Index, ranked Dubai as the top destination for foreign investors in the region, and 11th in the world.
As the chief executive of Dubai’s Foreign Investment Office, Fahad Al Gergawi says such constant development is why the Emirate remains popular among foreign investors. In an interview with Arabic Knowledge at Wharton, Al Gergawi suggests that Dubai is a regional hub, benefiting from its proximity to Asia and Africa, and even from competition for foreign investment funds with Qatar, which is embarking on a hugely ambitious development plan.
An edited transcript of the interview follows.
Arabic Knowledge at Wharton: Despite the financial downturn, Dubai remains a top place for foreign direct investment (FDI) in the region. What is Dubai’s continuing appeal to foreign investors?
Fahad Al Gergawi: Regardless of the financial downturn, the restructuring of Dubai [World] definitely has given confidence to investors. Dubai continues to appeal to investors. Among Fortune 1000 companies, we are still ranked the most preferred destination in the A.T. Kearney FDI Confidence Index for the next three years. Dubai also scored the highest in the Middle East and the Middle East North Africa [MENA] region. It is the preferred destination for more than 80% of the companies who operate here. And they say they will continue and increase their investment here. So this shows confidence too.
As far as we can see, there is increasing demand. We’re not comparing to what we had three or four years ago, but according to normal indicators of investors coming to Dubai. We have a couple of announcements in the coming weeks regarding some multinational corporations setting up in Dubai. This is one of the good indicators of investor confidence. These are companies who have taken the decision [to come here], after looking at Dubai for the last year or two. They’ve seen the changes, they’ve seen the crises, and they saw the upcoming trends, and they made a decision to come.
What we are seeing now is investment in greenfield projects [a project that lacks any constraints imposed by prior work]; that in fact represents 80% of global FDI. We are seeing more of a focus on trade and logistics, as these are pillars of investment growth here for the future. We are also seeing an interest investing in green technologies. This all shows that investors are looking at the government’s facilitation of certain sectors, and they are going along with it, they believe in it. So it is a very good indicator as well.
Arabic Knowledge at Wharton: Are the multinational corporations that are coming the types of businesses and investments that you’d like to see and promote?
Al Gergawi: Large industrial companies might not look at Dubai specifically, but they do come and set up their operational offices for the region here. Regardless of who comes, it’s about what Dubai represents to them as an opportunity. It’s an opportunity to access a bigger market. Not only the MENA region; they now call it MENASA, including Asia now. We are close to India’s economy, which is a shining star along with China and Brazil. And we’re seeing continuous growth in East and West Africa … since they were the least linked to the financial crisis, and also because it is a highly populated region that is driving growth. There is a demand for products and services, and Dubai is a center for that. Not only because of our location, but because of what we represent: hope to these economies, a welcoming place where they can do their business, and it is a connecting place for them. Many of these countries have direct flights here through Emirates [Airline]. The airline has recently added a number of African destinations. We are now the connection between Africa and Asia. This is one of our most important aspects; I think multinationals should bet on that for continual growth.
Arabic Knowledge at Wharton: There is much discussion about foreign investment flocking to Qatar and Saudi Arabia, as they embark on massive economic expansion plans. What is Dubai doing to draw investment in spite of such regional competition?
Al Gergawi: More competition towards attracting investment is a very good thing for the region. Dubai is one part of the region….. Rather than looking at [the region] as a market or two, look at the region as a bloc. We don’t have to forget also His Highness Sheikh Mohammed Bin Rashid Al Maktoum [Vice-President and Prime Minister of the UAE and ruler of Dubai] has called competition among the Gulf countries a very good thing. It drives change, it drives implementing new ideas and developments, pushes for new management skills and [creates] a more attractive area for investment altogether. We’ve seen what has happened with success. It has brought a regional movement for development.
Arabic Knowledge at Wharton: You’re not concerned about Qatar? It seems they are investing everywhere, from buying Harrod’s [department store] to stumping for the World Cup in 2020. When you have such a wealthy competitor, doesn’t the competition become about having enough resources? Maybe Dubai will miss out on opportunities because its neighbors are bringing more money to the table?
Al Gergawi: It’s not about money. It’s about what you develop. At the end of the day, regardless of anyone else, you develop your plan according to your own economy. I’m sure our brothers in Qatar are developing according to that. So we see this competition as being very good for us. We are marketing Dubai as a regional hub. Companies will come here, and can focus on the entire region…. We don’t mind if companies set up here and open up offices there. It brings knowledge, it brings new ideas and it brings development of all economies. Why not? We look at it as a very positive thing. It’s always good for us to continue to develop what we have, and for our neighbors to further what they have. It’s not about saying, "Hey, look at what they have. Why don’t we do that?" Instead, everyone will be encouraged to work to bring themselves to the next level. Yes, there could be some small bits here and there that [is lost] to competition. But overall, we encourage this competition, actually.
Arabic Knowledge at Wharton: Currently, a number of enterprises in the UAE are family-owned. How would you see them competing against foreign-owned companies in the UAE, backed by large, well-funded international corporations?
Al Gergawi: Family businesses have been here for a long time, and they are a big component of the economy. Many of them are open to joint ventures, and have diversified into two or three different sectors. I know many of them would [be willing to] have a joint venture with a foreign company as part of their business, either as an investment or working with the multinational. It’s very good, as a number of family businesses are opening up, and want to become institutional. We’re very happy to see the announcement of one of the big family companies, Axiom Telecoms, announcing that they are going public soon. But we know that each family has their own business, and once they feel comfortable, depending on their structure and their strategy, they will look at what suits their business model. And not necessarily the whole business could go, but maybe parts of a business could be sold off.
Arabic Knowledge at Wharton: You’ve talked about growth in the number of businesses coming to Dubai and of the family businesses established here. Given what’s happened in the last couple of years, what modifications have you made in your strategy to help facilitate growth?
Al Gergawi: As an office we started two years ago. We are working with family businesses and companies to get them opportunities, either in joint ventures or investments from multinationals. There are multinationals that want to be in a real joint venture, not as a sponsor, but with equity and involved in development. We are encouraging this, as it opens a new sector of business, brings knowledge, and encourages other investors. There are many ways for international investors to be involved in business here. Investors will not only come and ask for 100% ownership of a company.
Arabic Knowledge at Wharton: Should there be market protections for local businesses competing against foreign-controlled companies?
Al Gergawi: I think it’s a balance. Our government has always looked at that, balancing between the local interests and those of the international companies coming in. And this balance is very important. If you look at Dubai itself, balance is a part of its culture. We really see it as one of the pillars of success for Dubai.
It is very important for us when we attract businesses that we know what those businesses are. We have our own indicators of what we need from investment. One of the areas that we focus on is creating jobs for local graduates. This is one of the most important factors for us. It’s not about protectionism.
I can’t compare what other countries do because there are many reasons why markets are different. Many ask us why there are so many Indians and Pakistanis and Iranians here. Our answer is that there have been direct trading routes with them for hundreds of years. These are our trading neighbors. So by nature this will happen. You cannot avoid that. This is a continual relationship.
Arabic Knowledge at Wharton: In past years, the other draw for foreign investment to Dubai was real estate. Real estate prices are forecast to remain depressed for the next 12-18 months. What would be a prudent plan for investment in Dubai real estate going forward?
Al Gergawi: Real estate is adjusting in Dubai. What we seeing right now is in fact one of the selling points for businesses to come to Dubai. The number of available units and the prices of office space make it very attractive for companies setting up in Dubai. You can cut your costs because your rental [prices] are less than what you expected.
As you know, real estate anywhere in the world works on a cyclical basis. It goes down and it comes back again. It’s one of the components of the economy, but it’s not the only thing. Let’s not forget that Dubai is based on trade, and we’re seeing growth there. Real estate is stabilizing right now. When it stabilizes it will mean [that] this is the point where investors will be interested in buying. First, the market has to take its time.
Arabic Knowledge at Wharton: Lending in the Gulf is beginning to pick up again, according to recent reports. But deposits still outnumber credits. As FDI picks up again, should local financial institutions seek to increase lending as well?
Al Gergawi: The financial institutions here will make investments based on their strategies. The most important thing right now is that they manage their risk. Definitely, when they see a trend, they will react to it. It’s not necessarily that we are pushing them to do that. They have their own marketing tools. But there is still uncertainty in the global economy. Lending will be key to Dubai’s growth but it has to be planned — when do I lend, how much, to whom and under what circumstances.
We have to be realistic; once companies come to invest, they should have already studied their financial capabilities.
Arabic Knowledge at Wharton: Looking at the MENA region, how would you improve the attractiveness of some of the other countries that have not enjoyed Dubai’s pace of growth? Which countries in the MENA region do you think could be exploiting FDI better?
Al Gergawi: I see three countries — the UAE, Saudi Arabia and Egypt — dominating investment because of their economies of scale. But I can’t say which country isn’t doing well. It’s all about each country’s plan. Other countries are going towards their own investment structures, and we hear announcements about what they are doing. Some are serious about getting all sorts of investments, and some only want it in certain sectors…. Again, what we say about competition, it is a good thing. Dubai is serving the region.
Arabic Knowledge at Wharton: If you were a foreign investor, what and where would you be considering for your money in the UAE?
Al Gergawi: Information technology [IT] is very important. [So are the sectors of] finance, logistics, tourism, education and healthcare. These are growing components of our economy. Logistics is seeing tremendous growth. Education too, because of he demands from our population growth. But education here also caters to the region, not just to locals, which is why we have so many universities here. Healthcare will continue to develop here, and we are promoting Dubai as a destination for medical tourism.
The fundamental pillars of Dubai are hope, and can-do attitude. When we did the A.T. Kearney study, the many recommendations we received from multinationals were the same requests that are made of mature economies — [to] continue the development of governance [and] continue the development of transparency. They never asked us to create transparency or governance, because it is there.
This is the essence of Dubai. Here, you cannot develop something and say, "Hey, I’m done." You cannot. This is what we have been taught by His Highness, to develop and continue to develop, to learn and continue to learn. Yes, we know there are certain areas of development needed, but we’re tackling them.