3 vital lessons from Dubai for global investors

Written by Andrew Henderson

Dateline: Cassis, France

Just a few decades ago, it was just sand.

Once a fishing and pearling settlement, Dubai fell on hard times in 1930 as it’s pearl industry collapsed due to the increased popularity of artificially cultured pearls. The depression didn’t contribute much to its development, either.

In 1958, however, things began to change when Sheikh Rashid bin Saeed Al Mactoum came to power. The driving force behind Dubai’s rapid development in the latter end of the twentieth century, the sheikh focused on creating a business-friendly administration free of red tape.

Not too long ago, I was passing through the Dubai airport where I saw a brief history of Sheik Rashid’s extensive infrastructure projects, including the Dubai airport. The story was so intriguing I decided to dig deeper.

What I found is the perfect example of what happens when a country — or, in this case, an emerging city — adopts business-friendly policies.

Dubai’s favorable business policies actually began back in 1892 when it declared that foreign traders would be exempt from tax. After the announcement, Dubai’s population doubled.

Sheik Rashid built on this pro-business legacy with his mantra that “What is good for the merchants is good for Dubai.”

In 1959, he sought to boost Dubai’s reputation as a leading trading hub by renovating the Dubai Creek so that it could accommodate large ships. In that same year, he ordered the construction of the Dubai airport, which began operating the following year with a runway made of compacted sand, soon followed by an asphalt airstrip.

In 1966, oil was discovered in Dubai’s Fateh Oil field. The discovery accelerated Sheik Rashid’s plans for Dubai’s development and secured the autonomy of the growing city-state as it joined the United Arab Emirates formed in 1971.

Now, many people will come to this point in Dubai’s history and assume that the rest of its success can be attributed to oil. But a lot of countries have oil. And — contrary to popular belief — it isn’t always about oil. In fact, Sheik Rashid did something so different from the leaders of other oil rich countries that many experts predict that Dubai will do just fine in an oil-free world.

What did he do?

It’s simple, really: He continued to invest in Dubai and promote business-friendly policies.

For example, Sheik Rashid commissioned the construction of the Port of Jebel Ali. Built in the late 1970s and finished in 1979, it became the world’s largest man-made harbor. It was also part of a new free trade zone.

Then, when oil prices dropped in the 1980s, Dubai made plans to reinvent itself as a tourist destination and created the Emirates airline. Because of those developments, though it is estimated that Dubai’s oil deposits will run out in 2029, by that time the city will be producing 90% of the income it generated in 2013 purely through the tourism industry.

Thanks to the business mindset of its leaders, Dubai has become an island of stability in an often volatile region. It has gained a reputation as the Hong Kong of the Middle East. Not only does its trade with ostracized Iran imitate the relationship between Hong Kong and the equally ostracized People’s Republic of China, but the country is brimming with some of the best talent on earth.

To make the situation even better, in 2002, Sheikh Mohammed launched two new “free zones”, designated as Internet and Media Cities, and pushed forward a land reform that allows foreigners to own real estate. This was the first time any Gulf state had allowed foreign real estate ownership and the response was beyond positive.

With these and the constant pro-business developments, there is little doubt that when its oil runs out Dubai will continue to grow on the solid commercial foundation it has built with its black gold and wise leadership.

Today, Dubai boasts a “skyline on crack” with record-setting skyscrapers, fast cars, the world’s only seven-star hotel, indoor ski slopes, and one of the most diversified populations on the planet. An incredible 96% of Dubai’s population is foreign-born and expat communities offer all the luxuries you could expect from a tax-free haven.

Lessons for global investors

So what does this story have to do with you?

First, it teaches you an important lesson about going against the grain. Back when Dubai was just a patch of dirt, people laughed at the idea of investing in such a place. People always laugh at this kind of thing.

Everyone wants their investments to be secure and so they are skeptical of the idea of investing in a place like Dubai when it’s just a patch of sand. It is the same today when I tell people to become a resident of places like Nicaragua, Georgia, Colombia, Latvia, or even Mexico.

You see, the argument people make is that country XYZ isn’t developed enough to securely invest; but once that country is developed, it’s too late to invest.

Doug Casey — author of the New York Times bestseller “Crisis Investing” — championed this idea. He advised buying property in Hong Kong right after China announced it was taking the jurisdiction back under its control. People were freaking out and money was flowing out of Hong Kong like mad.

Yet, that’s exactly when Doug Casey decided to invest — when it was at its worst. And that’s when you want to get in, too. If you want the best returns, you’ve got to take a risk.

Find your patch of sand

The second lesson to learn from Dubai is that you’ve got to go and find your own patch of sand. In reality, everything is just a patch of sand.

The government tries to get you to believe that because they’re great and they run this particular patch of sand, you should prefer their sand patch over any other option out there. For some reason, their patch of sand is different.

But it’s just sand. It’s all sand!

If you think about it, no one has a problem buying real estate in Las Vegas. That’s a patch of sand! And, sure, Nevada is friendly, but it’s still in the United States. If you buy a place in Nevada, you still have to pay US federal capital gains and jump through all the hoops. So what’s the difference buying property in one state or another? It’s all on US turf.

More importantly, the lesson here is not to fall for the idea that one patch of sand is better than another simply because the people in that country have a different religion or culture or language, etc. Don’t limit your investments to places and peoples that share everything in common with you. You’ll end up living in a very restrictive sandbox if you do.

Good fundamentals for global investors

Finally, look for good fundamentals. Places like Hong Kong and Dubai have always been very business-friendly. Sure, Dubai didn’t start out as a metropolitan mecca, but it had all the makings of one.

As we discussed earlier, people will write off Dubai’s success as a product of their oil wealth, but the city-state had the fundamentals in place long before oil came along.

And, in the end, money is money.

To illustrate what I mean, let me share from past experience. When I was in the radio business, there came a point that, though I was doing well, I could see that the industry was declining. So I decided to stop taking new clients in preparation to sell the business.

I was busy traveling and setting up things overseas at this point, so I eventually got down to very few clients. The business was still doing well, however, because the clients I had were all big ones.

One of them was bigger than the rest. I remember a friend of mine — who had been with me since the beginning of my radio days — told me that I was only doing so well because of this particular client.

And he was right.

But I told him, “You know, at the end of the day, money is money; success is success.” The idea that you have to slave away so that 100 clients will pay you five dollars doesn’t make any sense. If one client pays a million dollars a year, what’s the difference if you have one client or hundreds? The money spends the same.

The same goes for oil-rich countries. The attitude that these countries are only successful because they have oil says little about their investment quality. Rather than ignoring oil wealthy countries, the real question you should be asking yourself — about any country, really — is if they are business-friendly.

If they are, it doesn’t matter if they’re a patch of sand in the middle of the desert or an unseen dot on a boundless map; if they’ve got the right fundamentals, it’s worth taking a look.

Andrew Henderson
Last updated: Dec 27, 2019 at 2:59PM

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