A Tale of Two Emirates: Dubai v. Abu Dhabi

The theme of the inaugural contemporary Arab art show, entitled “Disorientation II, The Rise and Fall of Arab Cities,” which will run until February 20, seems particularly prescient and ironic, given the news up the coast, where Dubai World, the Dubai government investment arm, last week issued a terse plead for six months’ grace in repayments of 59 billion dollars’ worth of debt on many of its signature projects, including three artificial Palm-shaped archipelagos and a patchwork of mainly unsold private islets dubbed The World. Dubai may not be collapsing just yet, but it has a major cash-flow crisis. Financial analysts worry about the global implications of a potential Dubai default—on everything from the ability of Asian construction workers to wire cash to their families, to companies such as Airbus, where Dubai has 58 of its new super-jumbo A380 planes on order, to the costs of insuring loans to other heavily leveraged nations such as Greece, Ukraine and Ireland.

The Dubai World debacle underscored the fundamental differences between the two most powerful members of the seven United Arab Emirates.

Dubai has always been the most forward-looking, risk-taking, secular, and commercially minded member of the federation. It’s over-the-top investments such as the world’s largest shopping mall, tallest hotel, and longest indoor ski slope proved tourism could work year round in the harsh Arab Gulf climate, and that expatriate experts and laborers could be enticed to build the infrastructure. Though it has overextended itself on 180 billion dollars worth of mega projects, including the world’s tallest building, the Burj Dubai, scheduled to open this January, Dubai has already established itself as a political, social, and religiously tolerant haven where Saudi citizens can drink alcohol, Jewish residents can openly worship in synagogues, and where Shiite Iranians feel at ease. The looming issue now is sustainability. Real estate prices have tumbled by half in the last year, Dubai companies have laid off expat staff, and Dubai rents have fallen so low that residents of Abu Dhabi, where there is a housing shortage, are now using Dubai as a commuter suburb, which is what the residents of Dubai used to do to the emirate of Sharjah.

While Dubai’s oil will run out by the year 2015, Abu Dhabi sits on 90 percent of the UAE’s oil and controls nine percent of the entire world’s hydrocarbon resources. It’s secretive sovereign wealth fund, estimated at 500 to 900 billion dollars, is the world’s largest. To save the country’s reputation as a financial hub between Europe and Asia, the UAE Central Bank, headquartered in Abu Dhabi, has pledged to back all the country’s local and foreign banks. Abu Dhabi itself may eventually step forward, as it did last year with a 10 billion dollar injection, to tide over its spendthrift neighbor.

For more than a year, nasty rumors have been circulating that that Abu Dhabi will bail out Dubai World a la Wall Street and General Motors in exchange for harsh paybacks, possibly in terms of rewritten borders, shares in Dubai’s profitable ports industry, or even its carrier Emirates Airways. However, flush with oil revenue, and with no external debt of its own, Abu Dhabi doesn’t really need Dubai’s headaches or assets. Indeed, just days before Dubai’s embarrassing debacle, the Abu Dhabi Tourism Development and Investment Company announced it was seeking construction tenders for its own portfolio of cultural and tourism projects, some designed by star architects such as Frank Gehry and Zaha Hadid, and worth 33 billion dollars. “Now is a good time to be building,” Felix Reinberg, the TDIC’s project manager Saadiyat Island, told reporters with barely concealed smugness, adding that “the financial crisis has been blessing in disguise” for Abu Dhabi, because the slowdown elsewhere has forced construction companies to bid more competitively here for contracts.

The biggest long term threat to Dubai may stem from the fact that Abu Dhabi has its own ambitious 2030 master plan. As Abu Dhabi projects start to come to stream—the emirate is building convention centers and some striking new hotels, as well as cultural beacons—Dubai faces not just a global financial crunch but stiff local competition. One of the UAE capital’s new themed tourism developments is Yas Island, an adrenaline-charged haven with a Formula One race circuit that is already open along with a modish Gillette razor-shaped hotel straddling the course. An ocean-facing 18 hole links course will debut in January, and next summer families can go to a Ferrari World theme park (with the world’s fastest roller coaster), a driving school, and a shopping mall—an amenity built for the ladies, presumably, and anyone whose eyes glaze over at the thought of watching high performance cars zip endlessly around a track.

I myself am just back from Abu Dhabi’s newly-opened Qasr Al Sarab Resort, which looks like a walled and turreted Arabian city amid the towering sand dunes of the Empty Quarter in Liwa Oasis. It’s muzzle-clad camels, Thai massage artists, and planned falcon and saluki hunting demonstrations may have Wilfred Thesiger rolling in his grave, but certain desert traditions are being maintained. When the widow of the UAE’s first president arrived for a visit during my stay, huge flower displays and trays of tea cakes suddenly materialized (shazzam!) and all male guests and hotel staff were banned from the lobby until she left. I, for one, appreciated the air conditioned Land Rover and the South African nature guides who escorted me on a dawn walk to watch the sun rise, then whisked me back to the resort for eggs benedict, fresh squeezed carrot juice, camel milk, dates and cappuccino.