Whether or not Egypt flowers into a model democracy, whether or not Egyptians tomorrow live more freely than Egyptians today, today they threw off a tyrant. The surge of overwhelming bliss that has overtaken Egyptians is the rare beautitude of democratic will. The hot blush of liberation, a dazzled sense of infinite possibility swelling millions of happy breasts is a precious thing of terrible, unfathomable beauty, and it won’t come to these people again. Whatever the future may hold, this is the happiest many people will ever feel. This is the best day of some peoples’ lives. The tiny Dionysian anarchist on my other shoulder is no angel, but I cannot deny that there is something holy in this feeling, that it is one of few human experiences that justifies life—that satisfies, however briefly, our desperate craving for more intensity, for more meaning, for more life from life. Whatever the future holds, there will be disappointment, at best. But there is always disappointment. Today, there is joy.
– [Democracy in America - The Economist 02/11/11]

The moment of elated disbelief has not quite passed though the murderous neighboring madman, tone-deaf Gulf monarchs and cacophonous democratic debates of Tunisia and Egypt are quickly seeing to that.

For all the wonderful and consequential discussions of political process and system, it is the economics of Egypt that may be the country’s most pressing challenge.

A few characteristics of the required economic destination seem obvious (although I don’t know the Egyptian economy well enough to be certain):

Shrunken public sector.

Egypt’s legendarily bloated (6 million strong) and incompetent public sector is perhaps the biggest deterrent to economic growth. It’s the primary source of graft and a major source of inefficiencies in the economy. A smaller, better paid public workforce is needed alongside simplifying reforms to regulations and the tax system. Although the government undertook significant privatization programmes over the past decades, the government still has scope to reduce its direct role in the economy. The roles of the police and armed forces in the local economy need to be curtailed as well.

Subsidy free economy.

Unsustainable and highly distorting, subsidies will need to be dealt with to address the fiscal deficits. Probably makes sense to start with fuel ($12bn) and then tackle food (fuel. $3-4bn wheat not to mention associated terrible consequences to Egyptian’s well-being brought about by promoting bread based diets). Handouts to the needy can be introduced as the subsidies are wound down.

Export powered.

High unemployment, young demographics, proximity to rich markets (Europe, GCC) all point to the potential for export driven growth. The poor spending power of the local population necessitate an outward looking approach.

Corruption.

A cancer that permeates every layer of society deterring investment (foreign and domestic) and hindering growth. Transparency, free press, simpler rules and taxes, a well-payed public sector all have a role to play.

Infrastructure.

Though important strides were made over the last decade, much more needs to be done to upgrade Egypt’s urban, rural, coastal and air infrastructure. Tourism, agriculture and industry will all benefit.

Agriculture.

An important source of employment and a sector likely to enjoy secular growth over the coming decades, there will be opportunities to improve productivity and attract investment.

Tourism.

Woefully underperforming sector but important source of employment and foreign currency needs more agressive targets and should offer areas for quick wins once the security situation stabilizes.

Devolution.

I love the idea of Paul Romer charter cities sprouting throughout the mostly unpopulated country, but if that’s asking too much, there’s still much that can be done to encourage economic development in secondary and tertiary cities across the only large country to have become less urban in the last 30 years.

Egypt: After The Revolution from Marty Stalker on Vimeo.

Catching up on Middle East news as I prep for the upcoming Columbia Business School Chazen trip to Egypt and the UAE.

The Economist reports on Dubai’s strategic challenges as it continues to deal with its debt overhang:

Dubai is showing signs of recovery.

Certainly, the property market is still suffering. New apartment blocks and office buildings appear with few new occupiers to pay for them. The Burj Khalifa, the world’s tallest building—formerly known as Burj Dubai but renamed in honour of Sheikh Khalifa, Abu Dhabi’s ruler, after the bail-out—is reported to be largely empty.

But the real economy is not doing badly. Tourists are returning. Trade is apparently growing, particularly with India and China, although sanctions have made it trickier to export to Iran. The expatriate executives who manage most of the private sector are defensive about Dubai. They focus on the positives: thinning traffic jams, lower rents. Local media provide a stream of good news. So what’s the worry?

Debt of course! Turns out we still don’t know how much is owed by the city-state, its transparency aversion remains.

Good to hear the ‘real economy‘ is recovering. I suppose things come down to how the Dubai – Abu Dhabi politics play out and here The Economist is probable more clueless than most (“Abu Dhabi was willing to help when crisis hit, but it is tightening its purse-strings and some of its own property companies are struggling“).
It is right on the longer-term implications though:

Dubai’s longer-term worry will be how to keep this edge in the face of rising competition from its neighbours, which are trying to build their way out of boringness. Abu Dhabi has its Guggenheim, Qatar new museums by I.M. Pei and Jean Nouvel (seearticle), not to mention the 2022 football World Cup.

Lost in all the Schadenfreude is how having the three of these dynamic cities jostling for leadership in the region is an absolute positive for the Middle East regardless who comes out on top.

Aside: I didn’t realize Sultan Bin Sulayem had been removed as chair of DP World! As I wrote back in March 2009:

Sultan Bin Sulayem I imagine will be one of the main losers when we get through this episode. DP World, Nakheel, Istithmar, Limitless are so loaded up on debt and so exposed to an imploding local property market (a bubble and oversupply both very much a consequence of Nakheel’s actions) that they alone probably threatened Dubai’s solvency. Unfortunately this all coincides with a global collapse in trade which will make life difficult for DP World – which is the Dubai World bedrock.

Related: Burj to Burj to Burj. AlAbbar to Zayed. Dubai’s Decade.

Hasan Kazmi and Andy Umans, two good Columbia Business School buddies who I accompanied on the Chazen study trip to Dubai last Winter have finally had their essays published on the Columbia blog.

They summarize meetings we had with McKinsey, Goldman Sachs, Abraaj Capital, Istithmar, Mubadala and try to make sense of our beloved little Gulf state.

Not sure I agree with Hasan‘s statement

A significant amount has been written about the debt crisis of Dubai World, the parent company of Istithmar. Many leading commentators and journalist have indicated that Dubai is on the brink of financial collapse. After our trip, I can safely say that Dubai is not going to collapse. There is no fundamental problem with the actual projects and investments; the problem is merely in how they were financed.

What does collapse even mean? Dubai’s finances are structurally broke, this isn’t simply a cyclical bubble pop, there’s more to it. The debt taken on over the past decade was enabled by the implicit expectation that Abu Dhabi would be there if (and more recently when) things soured. I can attest to this based on first-hand exchanges I had with bankers when I worked at the Dubai government – and that was back at the start of the decade.

Dubai will not collapse in the sense that the skyscrapers and man made islands won’t disappear (ok, the half-built islands might) but Dubai will I think emerge a fundamentally different place post-bubble. First and foremost it will never again have the kind of autonomy it has enjoyed since its contemporary birth. Now that the Abu Dhabi guarantee is explicit, the cousins up the coast will have a significant say in how the city-state is run.
Second the deleveraging process in Dubai has only just begun. It will take a while for the economy to work through the debt and real estate overhangs.
I would also argue that many of the investments Dubai made or announced were fundamentally unsound and not just victims of poor financing strategies.

Andy‘s history is for the most part spot-on, though some of the analysis

Dubai is the busiest port in the Indian Ocean basin after Singapore, far surpassing other ports not only in the Persian Gulf but also in East Africa and South Asia. We visited Dubai Ports World and toured their impressive facility. Their strategic plan calls for an increase in shipping volumes from 46.8 million 20-foot equivalent units (TEUs) in 2009 to 97 million TEUs by 2017. Despite its size, the port only employs roughly 4,000 people. If this is the economic driver of Dubai, one is left wondering why the emirate has built a city with a real estate capacity for a population of two million.

The investments in the port facilities in Dubai (great example of the emirate’s sound investments) need to be looked at in terms of the overall effect and potential they produce for the Dubai economy. The port may only directly employ 4,000 people but combined with the various free zones and other infrastructure investments it ensures Dubai position as the default regional base for international and regional businesses which translates into hundreds of thousands of jobs.

He’s right to highlight the importance of India to Dubai’s economy but the city-state ‘s geographic dependencies are more diversified that the article implies. Iran, Africa, Russia and the GCC are a few of the other important economic partners.

I take issue with this

Most expatriates we met have been in Dubai since no earlier than 2006, and most planned to leave relatively soon. Furthermore, it is virtually impossible to obtain a residence visa except by employment.

Firstly, there are plenty of entrepreneurs and expatriates that have made Dubai home for many years and decades. Secondly, in response to the visa statement, how does this really differ to other countries? There are immigration barriers to the movement of human capital everywhere you look in the world including the US where Andy is from and South Korea where is currently lives and works. If anything the barriers to entering and working in Dubai are amongst the lowest in the world (now the terms of the employment is another matter altogether).

He had a great concluding passage:

In contrast to its portrayal in the media, Dubai’s boom in the 2000s was a natural continuity of its historical success, built on openness and trade. As the Standard Chartered economist pointed out, wild as some of the real estate projects may have been, they were prerequisites for generating publicity and attracting skilled international talent. The McKinsey consultant compared Dubai’s overinvestment in real estate and infrastructure to American overinvestment in rail during the turn of the last century: It may have precipitated a financial crisis, but it left the country with excess capacity in transportation that spurred further economic growth. Dubai willcertainly need to be innovative, create new industries and attract a more varied array of people if it expects to fill its glut of office and apartment towers, but at the least it will likely remain successful in its bid to be the trade, logistics and finance hub of the Gulf. From that position, with competent leadership and a little bit of luck, it can continue to capitalize on its advantages to ride the wave of economic growth spreading throughout the Indian Ocean basin to a new era of prosperity.

Interestingly neither Andy nor Hasan talked much about the role of politics in the city-state’s recent missteps. The lack of checks and balances has been a double edged sword- on the one hand it has allowed an incredible transformation to take place over the last few decades, on the other it led to some very obvious strategic and financial mistakes that have in essence bankrupted the emirate and tainted what still is a hugely compelling case for a new type of Middle Eastern city.

PDFs:
Hasan’s report: Oasisi or Mirgae in the Desert.
Andy’s report: Dubai’s Bid for Sustainable Prosperity.

BA’s Willie Walsh seems to have woken up to the threat from the GCC airlines:

“These are our competitors. We’re financing our competitors by providing them with cheap access to capital. There’s something not right there. I do not take this threat lightly. I think this is a very significant threat.” he says in the FT.

Perhaps he finally got round to reading the special report put out by The Economist in June. The seemingly startling to Mr. Walsh ambitions of the Gulf airborne trio – Emirates, Qatar Air, Etihad – have been evident to anyone keeping even passing tabs on the region or the industry.

The Economist’s report was uncharacteristically positive on the region’s aviation strategy, even though the shapes in charts like this:

seem to imply impending oversupply. There’s a lot going for the industry in the region not least geography (although what SuperJumbo giveth SuperJumbo may taketh. After all the advantages of geography are neutered by the increasing reach that other hubs around the world will enjoy – don’t count the superior airports of Europe and Asia out) and a unique lack of restraining stakeholders (no pesky electorates and environmentalists here). However the customary opacity (see the retraction at the end of The Economist’s special report re: losses at Etihad and this FT article about shady dealings at DAE) make it hard to analyze the market.

The gulf’s airline industry has been a tremendous success over the past decade, Emirates in particular – which is one of the best run Dubai companies – but surely there is a worry this is another bubble in the making – two bubbles really: airline and airport capacity.

One would think that the rationale for Abu Dhabi and Dubai to consolidate their aviation plans was hugely compelling. Lets see whether the politics allows for it.

The Middle East Institute presents a lecture entitled, “Media Revolution in the Middle East” with Wadah Khanfar, the Director-General of Al-Jazeera network. Khanfar was ranked as one of the most Powerful People in the World by Forbes Magazine, named a Young Global Leader by the World Economic Forum (Davos), recognized as the 3rd most influential Arab in the world by Arabian Business, and one of the most influential Muslims in the world (Royal Islamic Strategic Studies Centre). During his tenure Al Jazeera went from a single channel to a media network with multiple properties including the Al Jazeera Arabic channel, Al Jazeera English, Al Jazeera Documentary , Al Jazeera Sport, Al Jazeera’s news websites, the Al Jazeera Media Training and Development Center, the Al Jazeera Center for Studies, Al Jazeera Mubasher (live), and Al Jazeera Mobile.
Date: March 24, 2010, 12:30 pm to 2:00 pm EDT
Location: Columbia University, Morningside Campus, International Affairs Building, Room 1512
Contact: For further information regarding this event, please contact Leia Reisner at lrr2131@columbia.edu

The QS World MBA Tour is back in Dubai Wednesday 21st of April.
The event gives prospective MBA candidates a great chances to meet face to face with admissions officers of the world’s leading business schools such as Duke, Hult, Manchester, LBS, IE and many more.

My J-school prof is giving a talk next week:
Join the Institute for Israel and Jewish Studies for a discussion:
Covering Israel: The First and Second Drafts of History with Gershom Gorenberg Krueger Family Visiting Professor, Institute for Israel and Jewish Studies and Nicholas Lemann Dean of the Graduate School of Journalism and Henry R. Luce Professor of Journalism.
Monday, February 22 at 6:30 PM, Columbia University School of Journalism, Lecture Hall—Third Floor.
Mr. Gorenberg, a National Jewish Book Award finalist, has written for Atlantic Monthly, The New York Times Magazine, The New Republic, Newsweek, Ha’aretz, and many other publications.

Emaar was my first client at my first job out of university (a consulting gig at Andersen). The company had launched with a heavily oversubscribed IPO based on nothing but vague plans to develop Dubai‘s ‘High Growth Corridor’, now better known as New Dubai and the backing of the government and then crown prince Sheikh Mohamed.

Shiekh Mohamed had recently spent a few hundred million dollars building the iconic Burj AlArab and the Emirates Towers and it had become very obvious very quickly that he was in charge of the city and that he was on an ambitious mission to transform it much as his father had in the 70s and 80s.

Emaar was a tiny company at the time, with an executive team of about a dozen people working out of temporary offices in the Dubai World Trade Center complex (that Emaar CEO Mohammed AlAbbar used to run. In a classic Dubai development, AlAbbar was relieved of all duties related to companies – DWTC, Dubal etc – officially overseen by Sheikh Hamdan, Sheikh Mohamed’s older brother. This was one of the first of many falling outs between AlAbbar and eminent political figures in the region).

Our engagement team at Andersen was small and working out of the Emaar offices, we had constant access to the firm’s senior management. Mohamed AlAbbar was still at the helm of the Department of Economic Development, where he first established himself as a force in the local business community. He would come into Emaar in the afternoons after the DED had closed for the day. The firm’s initial strategy was focused on super-luxurious master-planned gated-communities. They had launched Emirates Hills but sales were slow and the company was trying to figure out how to spur growth. The launch of its Dubai Marina development (the world’s largest man-made marina) was an initial step in the direction that lead to Emaar’s astounding success: opening up sales to foreigners and catering to the city’s burgeoning middle-classes. Emaar’s management team were a mixed bag in terms of abilities and experience, one of the company’s major challenges in those days was recruiting and retaining world-class talent, Dubai was still very much off the global radar at the time. But even in those early days AlAbbar was obviously a serious talent. Super-charismatic, strategically brilliant and shrewd as needed. There’s no doubt in my mind that the history books will identify him as one of the most visionary Emiratis of his generation. Most of Dubai’s recent successes can be traced back to him. Most of Dubai’s missteps to his rivals.

Burj AlArab was announced in 1994 and was completed in 2000. Its success as with so many projects completed in the Dubai Decade (the naughty noughties) took even Dubai’s leaders by surprise. Initially planned as a monument to put Dubai on the map, it did more than that becoming a viable business – thanks in no small part to the newly minted Russian super-rich and their love of our ostentatious and sunny little-city-state- and helping to launch one of Dubai’s best companies – Jumeirah. Each success egged on the ruling classes to take bigger and brasher (and it must be said sillier) gambles. Early on in the decade Sheikh Mohamed, advised by McKinsey and former McKinsey-ites, launched important and strategically sound projects that aimed to make Dubai the regional hub for media, technology, healthcare, finance and tourism. Unfortunately the implementation on many of these strategic initiatives left lots to be desired (Dubailand in particular, planned as Dubai’s answer to Disneyland was stupendously mismanaged). Still there were plenty of definite successes including Dubai Media and Internet Cities, the Jumeirah hotels, and decent enough starts for Dubai Healthcare City and the Dubai International Financial Center.
Over time though the small circle of advisers to the rulers grew and combined with more liquidity than anyone knew what to do with (thanks to high oil-prices and low US interest rates – both a byproduct of China’s economic emergence), announced projects got more and more outlandish: The world’s biggest hotel, a Las Vegas strip without the gambling, 3 giant palm-shaped islands, The World islands, rotating ski slopes in the desert etc.

Emaar saw the Dubai bubble bursting earlier than others leading it on to geographic diversification (some – India, Egypt, and most importantly Saudi, more successful than others – its US foray was terribly mistimed leading to a bankruptcy filing). But the secret of the company’s success and profits was tied to the model of receiving free or dirt-cheap land from the Dubai government and developing highly-profitable developments that simultaneously helped Dubai reach its regional hub goal. Hence the Burj Dubai launch. Over the last few years Emaar was a client of the marketing agency I co-founded in Dubai and within the company they would refer to the Downtown Dubai project as Mohamed AlAbbar’s Mona Lisa – his masterpiece. He was so involved in the project that even the Ramadan tent we designed and operated for Emaar had to have his sign-off before we could get the go-ahead. My friends at the company would tell me how he was involved in even the choice of tiles used in the Armani residences that would occupy the first few floors of the world’s tallest building (alongside the world’s first Armani Hotel).
Whatever your opinion on his leadership style, there can be no doubting AlAbbar’s achievements at Emaar. While his domestic rivals piled on enough debt to bankrupt the city-state, Emaar delivered world-class projects, consistently impressive profits and a world-class organization. It just takes a short walk around the Downtown Dubai development to appreciate its corporate excellence.
Still the launch of Burj Dubai marked the frothiness era of the Dubai Decade. We allowed the Anything is Possible outlook to become our strategy.

As any student of recent history will tell you, the world’s tallest building almost always opens after the bubble that produced it has burst (Empire State, Petronas Towers – see The Economist chart below that compares economic growth of the relevant country when a tower was opened, with the respective annual growth rate enjoyed half a decade earlier). And so we have the unfortunately and unsexily rechristened Burj Khalifa that officially opened yesterday marking an era of living in Abu Dhabi‘s shadow and under its wings (Check this BBC video of the opening fireworks).

Dubai had an incredible run and it is mission accomplished in terms of paving a way for a modern Middle Eastern city. Its influence (good and bad) is visible throughout the troubled region and Doha and Abu Dhabi (the two cities that will share this new decade) will become greater cities thanks to the experimentation and mistakes made on our watch.

So congratulations are in order for Dubai, Emaar, SHeikh Mohamed and Mohamed AlAbbar on the spectacular launch of the Burj Khalifa. Lets see what Doha and Abu Dhabi have in store for tens.

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Goldman Sachs held a conference call on the Dubai World debt developments for their clients recently:

It’s worth a listen. Highlights:

HT: ArabianMoney.

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HT @SimeonKerr @HindMezaina