Dubai tops FDI for 2008 but tumbles in 2009

The higher you climb the further you have to fall. But there is no denying that Dubai has made fantastic progress in terms of foreign direct investment.

A league table published by The Financial Times placed the city No1 for FDI in 2008 with $21 billion attracted for a total of 342 projects creating 58,000 jobs. This topped cities like Shanghai and London, and the UAE at $35 billion in total accounted for half the total of all FDI for the Middle East and Africa.

How such a small country has managed to become such a magnet for global investment flows will be a subject to challenge future historians. But political stability, oil wealth and dynamic leadership will probably be their conclusions.

Amazing progress

The UAE has indeed come along way this decade. Even in late 2001 this correspondent hosted the First GCC Inward Investment Conference, which was a complete flop just six weeks after 9/11.

Then the whole idea of investment into the Middle East seemed momentarily ludicrous with the region revealed as the source of the world’s worst ever terrorist attacks. Citi even pulled its billions out of Bahrain as a temporary precaution.

But then the tide turned, and far from curtailing FDI, 9/11 became its biggest stimulus as Arabs withdrew their capital from North America amid fears of confiscation. Plane loads of gold and dollar bills are rumored to have flown across the Atlantic.

Dubai was always far ahead in being open to foreign investment, and a timely decree to allow foreigners to own property helped to secure the lion’s share of returning capital. This mushroomed into a real estate boom that finally went bust last autumn as the global financial crisis hit bringing a credit squeeze, crashing oil prices and an over-valued currency.

It is always a problem being No1 as you only have one way to go next. And Dubai has taken a tumble from its high position. It will be interesting to see who tops the charts in 2009 for FDI but it is unlikely to be Dubai as the hot money fled the country last summer.

Urban infrastructure

However, while investors can temporarily withdraw their capital, they can not take away the amazing urban infrastructure that has been built in the 2000s. No other city in the region comes close, and even Abu Dhabi is many years behind with its construction program.

That means that as the global economy recovers the hot money will flow back into Dubai and revive the local economy. It also means that anybody buying up property or solid business interests during this economic slump is going to be well rewarded.

But with an ‘L’ shaped global recession in prospect there may not be any rewards for being first out of the trap in this race.