Will the Arab Spring turn Dubai into the next Hong Kong?

Posted on 16 September 2011 with 3 comments from readers

It took the communist revolution in China to really make Hong Kong a major global city with the mass emigration of capitalists and capital after the revolution in the late 40s that brought three decades of abject poverty to the Middle Kingdom.

Is it possible that the revolutions, uprisings and civil wars of the Arab Spring might bring a similar flight of money and people to Dubai? Reviewing some of the news stories of the past week and there are signs of it happening.

Capital in-flow

Daman Securities in its annual review flagged up an 11.5 per cent surge in UAE Central Bank deposits as a sign of money flowing back into the country – something that previously happened after 9/11 and kicked off the 2003-8 real estate boom (click here).

And Dubai estate agents have noted a 10-20 per cent recovery in the price of villas in The Meadows, a community located immediately behind the skyscrapers of the Dubai Marina (click here). Could this become the equivalent of the villas on the Hong Kong peak behind the famous central business district?

Talk of Dubai as a Hong Kong style regional and financial business hub is nothing new. The low-tax regime and enormous free trade zones of Dubai are modelled on Hong Kong and Singapore.

But Dubai falls short as a financial centre with its moribund stock market and comparatively low house prices. Hong Kong’s bourse is a regional giant and its house prices amongst the highest in the world.

However, the real estate boom in Dubai that crashed almost exactly three years ago left a legacy of an amazing urban infrastructure in Dubai which no other Middle Eastern city comes close to matching.

Whether it is the tallest building in the world, a brand-new driverless metro, endless empty high-quality office buildings or enough vacant apartments to accomodate another economic boom, Dubai has it all.

The Arab Spring appears a net positive for the city. Its multinationals might suffer losses in regional trade but then they also see the value of consolidating staff in a safe haven, while the regional super-rich are either looking for a new home or a second base just in case they need it.

Financial crisis exiles

However, what are really needed is an influx of casualties from the global financial crisis: the overtaxed and over-regulated financial firms; the overtaxed and over-regulated investors and investment professionals. Only if these guys set up shop in the city will its future as the next Hong Kong be secure.

Meanwhile, Dubai has the infrastructure already in place: a excellent airline and port logistics to serve a very wide region (click here), plenty of good inexpensive office and residential accomodation and the social infrastructure of schools and hospitals to international standards.

Times of crisis can produce some unexpected consequences and one of those might well be an enhanced regional role for the city of Dubai.