History shows Dubai growth depends on over investment!

This is not the first time that Dubai has over-invested in infrastructure during an oil boom.

In fact, this has been a recurring feature of the growth of the city over the past 50 years. This is arguably one of the best kept secrets of Dubai’s success in transforming itself from a fishing village and trading port of 30,000 people (see photo from 1950s), many of them living in huts made from palm tree leaves, into a modern metropolis with a population of more than 1.5 million.

Sheikh Rashid

Look back at the late 1950s and the massive projects undertaken even before the first great oil boom by Sheikh Rashid. Then dredging the Dubai creek was critical to the development of Dubai, and implemented despite costing three times the GDP of the city at that time.

This over-investment in infrastructure was repeated many times over the years. The late 70s saw the building of the Dubai dry docks to accommodate tankers of one million deadweight tons, a tremendously successful project as demand for its services was huge on completion, although ships of that size have still never actually been built.

The same era saw Dubai’s most ambitious project ever, the Jebel Ali Port. It seemed a massive white-elephant project in the early 1980s and cost more than $3 billion – more in real terms than any of the Dubai mega projects today – and yet became the Jebel Ali Free Zone and the backbone of the city’s next expansion phase.

So if Dubai temporarily seems to have overdone it, beware that what seems a weakness may actually prove to be a success. That is certainly what the historical record of Dubai suggests, and history does have a habit of repeating itself.

History rhymes

Skeptics will always argue that ‘it is different this time’ but how often is that really true? Those who held on in the tough periods have generally come out on top in Dubai, although the swings and roundabouts of a dynamic economy are not for the faint of heart.

But in the hub city of the oil-rich Middle East an oversupply of property can turn into a shortage much more quickly than in traditional markets, and this cyclical pattern offers opportunities for the astute investor.

However, calling a market turn too early can also be a big mistake, and history also suggests that a period of years will elapse before the next oil boom.
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