The author is Chairman of Rockefeller International
If you want to escape the global gloom, simply take a flight from its epicenter of London to one of the leading Gulf capitals, the only region in the world where forecasts for economic growth are rising. As hosts of the Fifa World Cup, Doha is bubbling with anticipation, as are its neighbors, who are welcoming the abundance of Qatari hotels. Dubai is experiencing another real estate boom. Regional competitors like Riyadh are racing to become the next Dubai, channeling oil profits into real estate megaprojects.
Many Gulf leaders recognize that a boom fueled by high oil and house prices is unlikely to last, but this age-old problem can wait. Despite concerns in the West about human rights across the region, the party is now happening.
With 28 buildings over 300 meters tall, most of which were built in the last 10 years, Dubai is by far the most vertical city in the world, making even Manhattan and Shenzhen in China look flat in comparison. Now in its third and most bubbly property boom of the past decade, Dubai is setting records for the number and value of buildings sold, with sales prices rising fastest at the top end of the market. Dinner conversations at Dubai’s many restaurants featuring global brands, from Armani to Zuma, revolve around which billionaire paid how much for the latest luxury mansion.
Saudi Arabia and the United Arab Emirates, which includes Dubai and Abu Dhabi, account for almost 75 percent of the Gulf economy and are home to their financial centers. IPO proceeds have been a trickle so far this year in much of the world — plummeting 95 percent in New York to just over $7 billion — but they’ve more than tripled in Riyadh, in Abu Dhabi quintupled and have increased from zero to $7 billion in Dubai.
The Gulf boom started slowly, on the back of crisis-driven reforms over the past decade, then picked up speed when oil prices started to rise in early 2020, and the emirate made it even easier to move there tax-free. Now the city is attracting an ever-widening range of foreign buyers, from big hedge funds to Russian tycoons seeking a haven from Ukraine-related war-related sanctions.
The Saudis responded to the oil price shock of 2014 with even more far-reaching reforms, streamlining the state, relaxing religious restrictions, making it easier for women to work and for foreigners to invest. Public sector wage cuts have helped Saudi Arabia fund its budget with oil prices below $70 a barrel, down from just under $100 in 2015.
The proportion of working Saudi women has doubled to 35 percent in just five years. Longtime visitors to the country are now amazed to be greeted by female border guards and to find raves, coffee shop dating and Halloween parties in a country that banned all public mixing of the sexes just a decade ago.
However, the old ways have not completely disappeared. The religious police no longer enforce the hijab, but most women still wear it. Foreign visitors are asked not to show their knees. Still, the Saudis are moving toward openness at a time when many countries are turning inward. Riyadh seems serious about challenging Dubai as the commercial hub – if not the freewheeling Las Vegas – of the Gulf.
To surpass Dubai’s Burj Khalifa, by far the world’s tallest building, the Saudis last month began work on The Line, a 105-mile “linear city” consisting of two parallel skyscrapers, which are by far the longest and would be the world’s tallest buildings when the project is actually completed. The idea comes straight from Dubai: build it spectacularly big and they – global celebrities, financiers – will come. Gulf officials are now also talking endlessly about luring tech entrepreneurs into the party too.
Technology is a key driver of productivity growth. No region has a worse record in this regard than the Gulf. According to Citi Research, core productivity in the six Gulf economies has shrunk an average of more than 2 percent per year since the data began in 1980, tying this failure to ineffective governments that have made particular efforts to regulate soundly and are ready to his access to credit. Negative productivity growth explains why in an oil state like Saudi Arabia per capita income rises to developed world levels only when oil prices rise and falls when prices fall.
Gulf leaders recognize the task ahead: to channel more investment in technology and manufacturing to free their economies from the boom-bust cycles of oil and real estate. Without such changes, their destiny will be regular parties, not lasting progress.