Inside the Exploding Economy of Dubai

Desert Emirate Becomes a Global Marketing Hot Spot

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DUBAI, U.A.E. ( -- Dubai is a place where the world's tallest building, the Burj Dubai, is being built next to the world's biggest mall.

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It's a city of fewer than 2 million residents that has decided it needs four more of the world's largest malls -- one with an indoor ski slope, another with the world's largest aquarium -- within its limits, including a few inside a theme park twice as big as Walt Disney World, dubbed "Dubailand." That's in addition to the palm-shaped islands, underwater hotels and archipelagos being built off shore.

It's the kind of place where the visitors are told they should come back in three months, or in September, or in two years -- when these fantastical projects have been finished and the next round of the world's ultimate game of one-upmanship gets under way.

Westerners, and especially Americans, have had a hard time wrapping their minds around the paradox that Dubai represents. The recent collapse of Dubai Ports World's bid to take over the operations of six U.S. ports as part of its $6.8 billion purchase of Britain's P&O Steam Navigation dramatically underscored Americans' inability to separate this emerging 21st century city -- the world's highest-functioning benevolent dictatorship -- from the terrorist threats of the Middle East.

International ad conference
But as the attendees of this week's 40th annual International Advertising Association World Congress will discover, Dubai is the home of the world's hottest economy. Taken independently from the rest of the United Arab Emirates, Dubai's second straight year of 16% GDP growth was nearly double that of second-fastest China, according to local government figures. The U.A.E.'s ad market (which also includes Abu Dhabi and several smaller cities) grew at 27% in 2005, according to Gulf News, rising from $700 million to nearly $1 billion last year.

Surprisingly, the engine of this growth isn't oil, but real estate. Despite its perch on the Persian Gulf and the presence of vast oil fields just down the coast, Dubai is almost entirely bereft of black gold. The emirate's ruling family, now led by Crown Prince and national "CEO" Sheik Mohammed bin Rashid Al Maktoum, resolved more than 30 years ago to diversify its economy via massive investment in shipping, global trade and tourism.

Economy has grown 236%
The results so far speak for themselves. Dubai's economy has grown 236% over the past decade, and is now poised to surpass Saudi Arabia's as the largest in the region. Tourism is expected to increase from 6 million visitors last year to 15 million by 2010, according to the Dubai Department of Tourism, and emboldened real-estate developers are now busy building massive cities-within-cities combining office space, retail and residences. This has seemingly everyone in the emirate either fretting that Dubai is sitting atop the world's biggest bubble (an estimated $100 billion is currently being invested there, nearly twice the reconstruction cost of Iraq) or else confidently asserting that it will become the de facto business hub and tourist Mecca of the region.

One of Dubai's shopping malls includes an indoor ski slope building.

Regardless of how it will all end, real estate is by far the No. 1 ad category in the U.A.E. at the moment, "and frankly, that beats the hell out of oil," said Roy Haddard, CEO of JWT's Middle East and North African division. The largest single advertisers are development giants like Dubai, Emaar and Nakheel, and the main beneficiaries of their largesse are the emirate's rapidly proliferating newspapers and magazines. Mr. Haddad estimates that as much as 75% of all U.A.E. advertising is devoted to print.

Gold rush of Western brands
The convergence of these factors -- developers desperate to stock their projects with luxury brands and even more desperate to promote them -- has created a gold rush for Western brands unafraid to mix it up in the Middle East's answer to Las Vegas (minus the gambling, of course). Giorgio Armani has partnered with Emaar to create as many as 30 branded hotels worldwide, with the first one set to open inside the Burj Dubai. Even Donald Trump will have a hotel here.

All of which makes the area a great capitalist tool. Western magazines like Forbes have set up local editions in the Dubai Media City free-trade zone near the Burj Al-Arab, Dubai's iconic sail-shaped hotel. "Dubai's got the flavor of a Wild West town at the moment," said Steve Forbes, CEO of Forbes and one of the speakers at the IAA Congress. "Without oil, they've learned to live by their wits." Forbes began publishing Forbes Arabia here nearly 18 months ago "because it is an open economy there, and seems to have the kind of capitalist spirit."

Restrained ad agencies
But the regional arms of the ad-agency conglomerates are less sanguine about the boomtown ethos and the dominance of real estate here. "Let's say you get involved in a project at the blueprint stage, where you're branding the building," JWT's Mr. Haddad said. "You have 'Dubai Waterfront' or 'Dubai Business Bay' and you start advertising to attract investors. When it's sold, it stops, and it's not something you can build the future of an agency on."

And then there's the larger fear that a bust must inevitably follow the boom, especially when the boom includes a building slated to be twice the height of the Empire State Building and a mini-city of 20,000 residents living around it. Dubai's supporters somewhat convincingly argue that the beloved "Sheik Mo," as he's called, has earned the benefit of the doubt, and that Dubai sits smack in the middle of a vast flood plain of emerging nations that have money and nowhere else to spend it. "Dubai is in the middle of 3 billion consumers within a six-hour flight from everything they want to see," said Joseph Ghossoub, CEO of Holding Group, a unit of Young & Rubicam and incoming president of the IAA. "And what you see today is only 10% of the vision; there is still 90% to go."

Much of that 90% has to do with developing its own brands, rather than simply inviting the world to set up shop tax-free in its own backyard. Mr. Haddad notes that most of his company's business is comprised of multinationals, and that isn't likely to change anytime soon, not when expatriates in the service of those companies now make up the majority of Dubai's population.

Still, two hometown favorites are poised to emerge as major players on the world stage.

Emirates Airlines is already a household name in much of Europe thanks to its aggressive sponsorship of sporting events, including this summer's World Cup, a $175 million endorsement of the London Arsenal football team, plus horse racing, golf and tennis.

Worldwide expansion
And, over the next five years, the Jumeirah Hotel Group (owner of the Burj Al-Arab) intends to open 40 new luxury properties worldwide, beginning with the newly renamed Jumeirah Essex House in New York. The combination of Emirates and Jumeirah launching new routes and opening hotels across the U.S. (San Francisco and Los Angeles may be next) will hopefully prove to be a corrective to the black eye Dubai received from the ports debacle. "Everything that Dubai does is ultimately an ad for itself," Mr. Ghossoub said.

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