City of Gold: Dubai and the Dream of Capitalism (25 page)

In 2005, the
Financial Times’s
front page declared that U.S. investment bank Morgan Stanley would open an office in Dubai. The story triggered a mad dash for space in the district as Morgan moved more than one hundred people to Dubai. Prior to that announcement, most investment banks had decided not to send permanent staff to Dubai. They were content to send Middle East specialists from New York or London to the Gulf, where they’d spend a few weeks working from their hotel rooms. Morgan’s move changed the rules.

“We don’t open offices lightly,” says Georges Makhoul, who heads the Dubai office. “So the others went back to their drawing boards and said ‘Let’s see, did we make the right decision? What is it that these guys see that we didn’t see?’”

By 2008, more than 450 member companies had opened offices in the district, including the world’s biggest banks and brokerages: Goldman Sachs, Merrill Lynch, UBS, Citibank, Credit Suisse, and Deutsche Bank. Lehman Brothers came as well, and then shut down in September 2008 when the bank failed. The center cemented Dubai as the financial services hub of the Middle East, which, in turn, won recognition as the latest of the world’s major emerging markets. “Game Over. As far as business and economy in the region are concerned, it’s done,” Makhoul says. “It’s another Southeast Asia, another Eastern Europe, another China. That’s where it’s going.”

Dubai wants far more than leadership of a new emerging market. It
is angling to become the financial capital to an underserved central swath of Planet Earth, home to two billion people. This region stretches from Morocco to China and from South Africa to Turkey. At the moment, it’s got no financial metropole. You can see this on CNN. When the trading day begins in Hong Kong and Singapore there’s a gap of several hours before Frankfurt and London wake up and start trading. Dubai aims to fill that blank space.

Until the financial crisis clipped his wings, Sheikh Mohammed’s goal of ruling the financial world had begun to look slightly less far-fetched. In 2008, London hired the management consultancy McKinsey to help it compete against upstarts like Dubai. That followed a McKinsey warning that New York could lose its status as world financial center in a decade, without changes in regulation and policy. New York also named Dubai as a challenger. Earlier that year, Dubai’s commodities exchange fired a warning shot by launching trading in an oil futures contract previously only handled in London and New York.

But the Dubai International Financial Centre has struggled in other ways. The debut of its stock exchange, known as the Nasdaq Dubai, was badly timed, coinciding with the end of a two-year bull run on the local market that saw values rise more than 200 percent. When the floor gave way, the index plummeted by around 50 percent in 2006. Few people were in the mood to test the waters at the new international exchange. And as individual investors, they couldn’t. Trading was restricted to brokers and wholesalers.

In contrast to the local exchange, with its leather couches and screens that invite day traders to hang out, the international exchange has no public face. This was a mistake, says Essa Kazim, chief executive of Borse Dubai, the government authority that operates both exchanges. “It’s an unsuccessful business model,” Kazim says. “You need the retail market to drive your sales. Institutions take most of the sales, but we can’t trade among ourselves all the time.”

Dubai may be the financial center of the Middle East, but the Nasdaq Dubai can’t seem to attract listings. More than two years after it opened, the market lists just sixteen companies. City fathers hoped it would get a kick when it hosted the initial public offering of 20 percent of DP World in November 2007. The offering launched with hoopla at $1.30 a share and raised nearly $5 billion, after being fifteen times oversubscribed. It was the Middle East’s largest IPO. But instead of rocketing
in value, as was the custom on the local exchange, DP World’s shares fell from the get-go. By January 2009, in the credit crunch sell-off, they were worth just 25 cents.

The Nasdaq Dubai has since pegged its hopes on its tie-up with the Nasdaq in New York. In 2007, the Dubai exchange’s parent, Borse Dubai, sold a 33 percent stake to Nasdaq-OMX. In return, it acquired a 20 percent stake in the Nasdaq. This time, Washington’s security review triggered no major opposition from Congress. Kazim wants Nasdaq Dubai to serve as a bridge connecting U.S. and European stock markets with the Middle East. If it works, Dubai would serve as a link in a chain of exchanges allowing twenty-four-hour trading on Nasdaq’s platform. Companies wanting to tap the liquidity of the Middle East—nothing to sneeze at in the wake of the global financial meltdown—could list on the Nasdaq and sell shares in Dubai.

“Dubai can play the role of a market that can connect markets,” Kazim says. “If Nasdaq-OMX becomes one of the biggest globally, we’re now part of it. We own a big chunk of it.”

SPREADING OUT AND GOING UP

WHO WAS THE
twentieth-century artist with the greatest impact? Was it Pablo Picasso or Henri Matisse, with their modernist paintings? Edward Hopper and his scenes of America? The pop artist Andy Warhol? Hard to say.

In terms of physical impact, the greatest twentieth-century artist is Warren Pickering, a chunky fifty-nine-year-old from Christchurch, New Zealand. Pickering’s masterpiece is a 1997 untitled work with colored pens and airbrush on a piece of art board. The picture, never seen in public, depicts a stylized island in the shape of a date palm.

Pickering’s painting is the basis for a man-made island that is three and a half miles wide and three and a half miles long. It’s a city neighborhood built at sea for more than 100,000 residents and workers. From space, it’s clearly recognizable as a Pickering original. That’s more impact than even Christo can claim from ringing islands with pink polypropylene.

Astronauts peering down on Earth might ponder another Pickering masterpiece a few miles away: an array of hundreds of islands shaped like a map of the world. In fact, the Gulf off Dubai is becoming a gallery of Pickerings. He’s had a hand in designing two more man-made archipelagoes that are either finished or under construction.

The tale of Dubai’s island building dates to the mid-1990s. Even then, Dubai’s forty miles of beachfront was being eaten up by developers. Sheikh Mohammed wanted to raise his tourism venture to a new level, but the valuable coastline was too short for his ambitions.

At some point, the legend goes, he told ports boss Sultan bin Sulayem to build some more beach. It wasn’t as audacious as it sounded. Bin Sulayem, who had just overseen dredging and expansion of the Jebel Ali port, was Dubai’s expert on reconfiguring the coastline. And Sheikh Mohammed had done some reclaiming himself. A small picnic island lies in the sea off his beach palace.

Bin Sulayem must have had artificial islands on his mind when he and his family arrived in the Australian resort town of Surfers Paradise in 1997. Pickering happened to be living in the beach town on the Queensland coast, running a concept design business out of his modest bungalow. One day, he opened his front door and got his first glance at bin Sulayem’s mustachioed face.

Warren Pickering is a plainspoken man with a shock of gray hair, built like a rugby player. He speaks with the broad, flat accent of New Zealand, pronouncing “car park” as “cah paak.” He’d look more at home in a pub than an art gallery. It was in Pickering’s drawing studio that bin Sulayem divulged what he wanted: a concept drawing of an artificial atoll with a lagoon and beach. Pickering sketched a crescent-shaped island that looked a bit like two cashew nuts lined up end to end. “That’s exactly what I want,” bin Sulayem said, warning Pickering to keep it secret.
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Bin Sulayem took the drawing back to Dubai and showed it to Sheikh Mohammed. The crown prince liked the idea but not the shape. He wanted a design that maximized beachfront. And there were a few other requests. “We want it tied to the land,” bin Sulayem told Pickering, asking him to draw in a causeway. “And our national symbol is the date palm,” bin Sulayem said. “Keep that in mind.”

Pickering got right to work. He drew ten islands, each on the palm tree theme. There were double palms, quadruple palms, a palm in reverse—with a water cutout in the center shaped like the tree—and even a palm at sea mirrored by another dug as channels from shore. But
one of the drawings he sent bin Sulayem was a single stylized palm tree with seventeen curving fronds and a crescent-shaped breakwall protecting it from the open sea.

“That’s the one,” Sheikh Mohammed said when he saw the simple, strong drawing.
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Pickering focused on that design. He drew in hotels and homes and roads. The palm’s original “trunk”—the island’s main spine—was much narrower than it was built five years later. And the crescent breakwall was just wide enough to walk on. Pickering later widened it so that it could hold dozens of hotels.

Back in 1997, he could never have imagined that thousands of men would toil for years—a few would even die—to raise his concept from the sea. A hundred miles away, men would blast mountains into Volkswagen-sized boulders, load them in an endless convoy of dump trucks, and drop them in their thousands on the sea floor, until they rose above the surface. And they would dredge up square miles of the sea bottom and pile it and sculpt it until a landmass emerged as an exact match of Pickering’s air-brushed form. The Palm Jumeirah would give Dubai forty-eight miles of new shoreline, including thirty-eight miles of beach.

One day Pickering and bin Sulayem flew along the beach in a helicopter, trying to find the best place to plunk down an island. Peering down at the open sea, it was tough to imagine the island’s scale. Bin Sulayem figured the best site would be roughly in the center of Dubai’s coast, just beyond the Burj Al Arab construction site.

In 2000, Sheikh Mohammed launched a new company to build the island. He lopped it off the government’s department of ports and customs, and it eventually became known as Nakheel—palms, in Arabic. Bin Sulayem took the helm. The planners commissioned dozens of studies on the island. At least one of the consultants had a warning: Don’t try it. This told the ports chairman that he was on to something.

“If a consultant says, ‘Don’t do it,’ that’s great. It’s an opportunity for us,” says Robert Lee, who became Nakheel’s investment director after his stint at Emaar. “That tells us there are going to be barriers to entry for that market. If we can crack into it, we’re going to have a leadership position. That goes to the core of Dubai. We’re always encouraged to do what’s seemingly not possible.”

On April 22, 2001, four years after he’d done his drawing, Pickering
got called back to Dubai. Sheikh Mohammed had given the secret project the green light. It was time to start building. “It was a dream project,” he says. “The biggest thing anyone could’ve imagined.”

The selling of the Palm Jumeirah has to rank as one of history’s weirdest real estate pitches. In May 2001, Dubai hosted the Arabian Travel Market trade show. There, among tourism industry executives from around the world, the city made a rather bizarre announcement: It would build an island in the Gulf in the shape of a palm tree. Oh, and by the way, if you had a checkbook or credit card handy, you could buy a piece of that palm—a mansion or an apartment or a building plot.