Who Needs Oil When You Have Land?
March 28, 2022
The business of Dubai isn’t really business; it’s real estate. Dubai’s government takes a barren stretch of sand, begins to build, and monetizes adjoining land. Before long, what had been empty scrubland becomes a bustling, revenue-producing commercial center that drives further investment and pushes the city further into the desert. Dubai never had the oil wealth of many of its neighbors, but the emirate’s real estate prowess has made it rich.
For an increasing number of Middle Eastern states, the Dubai model of using land development as a source of wealth, rather than natural resources, is an attractive one. Some, like Saudi Arabia, are looking to diversify their economies away from fossil fuels. Some, like Egypt, never had many oil resources to start with. But the magic of creating wealth from previously worthless sand is hard to resist.
For veteran visitors to Dubai, the old Hard Rock Cafe on the road into town from Abu Dhabi was a lovable landmark. The café’s iconic facade—massive red and black electric guitars with crossed necks in front of a miniature Empire State building, all jutting into the air amid the sand dunes—was an incongruous juxtaposition of retro styles, modernity, and commercialism. When the café was first constructed in 1997, its isolation accentuated the joke. There was nothing else for miles around.
Over time, development in Dubai extended downward to Abu Dhabi. The Hard Rock Cafe went from being far out of Dubai to close in. Dubai Media City and Internet City expanded nearby and ultimately surrounded it. By the mid-2010s, the lonely outpost of Western commercialism was no longer lonely. Instead, it was demolished to make way for even more commercial development.
The almost unimaginable explosion of Dubai in the last 40 years has also created an almost unimaginable explosion of wealth. From a relatively small community of traders gathered around a newly dredged shipping channel, Dubai has become a financial and travel hub that houses millions of expatriate workers in a $100 billion economy. The government of Dubai does not have large oil and gas reserves, but it does have land. It controls the right to develop land, it builds infrastructure around it, and it shapes the legal and regulatory environment that residents enjoy. Dubai saw more than $80 billion in property transactions in the last year alone.
Dubai’s remarkable performance got the attention of Abu Dhabi, the oil-rich emirate down the road that has helped bankroll some of Dubai’s expansion. Abu Dhabi only had its first paved road in 1961. By the early 2000s, Abu Dhabi was expanding aggressively into new areas to develop residential and commercial properties alike, as a way to diversify the local economy.
Saudi Arabia has also caught the land bug. Much of the attention around the kingdom’s economic transformation plans center on Neom, an ultra-modern city planned for the Red Sea coast near Egypt and Jordan. While it is not the only land development scheme in Saudi Arabia, it is the most breathtakingly ambitious, seeking to invest hundreds of billions and create hundreds of billions more in value in a comprehensive, modern smart city that operates on rules entirely different from the country in which it sits.
Perhaps the most surprising entrant into the Middle East land development world is Egypt. Long accustomed to straining against the barriers of the Nile River Valley and the rich farmland of the Nile delta, Egypt is making a huge push to expand into the unpopulated deserts to the east and west that cover about 93 percent of Egypt’s landmass. President Abdel Fattah al-Sisi is planning 14 new cities, including a new administrative capital deep in the desert with a phase-one price tag more than $25 billion.
One might argue that investing more than $25 billion in a single city makes no sense, on top of massive concurrent investments in a commuter monorail, high-speed rail linking the Red Sea and Mediterranean Coasts, highways, flyovers, irrigation works, and a host of other initiatives.
Yet, Egypt’s rulers believe the country already has created tremendous wealth through real estate development. The satellite cities to the west and east of Cairo—6th of October City and New Cairo/Fifth Settlement are growing like Topsy, drawing millions out of Cairo’s urban core and creating value in what had been vacant, barren land. While those developments took decades, the government now hopes to spur the creation of a new and connected Egypt that features good infrastructure and adequate space, to jump-start an economy that will be able to create jobs for the more than one million young people who enter the job market annually.
There are challenges to all of these schemes, not least having the regulatory environment and the human capital in place to leap forward. But an equally difficult problem is getting the timing right. Dubai has had a series of setbacks, most notably in the 2008–09 financial crisis. Then, Abu Dhabi’s bailout of the emirate resulted in the iconic Dubai Tower being renamed “Khalifa Tower,” after Abu Dhabi’s ruler. The world’s tallest building thus became a symbol not of Dubai’s unique independence, but instead of its integration into a larger Emirati whole. Saudi Arabia has had setbacks, too, including the pause that came after the murder of Jamal Khashoggi and extended into the coronavirus pandemic.
Cairo appears to be going all-in now on a bet to resurrect the country’s economy through massive infrastructure investment. Yet, the war in Ukraine, combined with a broader global economic slowdown, a rise in commodity prices, and increasing risk aversion among global investors, all create a more dynamic fiscal environment than Egyptian officials had been hoping for. Ultimately, the United Arab Emirates and Saudi Arabia have very deep pockets that will allow them to ride out a multi-year dip in global conditions. Egypt operates on a tighter margin, made even more so by a determination to develop new properties quickly, monetize them, and develop still more. It is a high-wire act that leaves little room for error. Egypt’s leaders feel they have no choice and are plunging ahead. The fate of the Arab world’s largest country hangs in the balance.
Jon B. Alterman is a senior vice president, holds the Zbigniew Brzezinski Chair in Global Security and Geostrategy, and is director of the Middle East Program at CSIS.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2022 by the Center for Strategic and International Studies. All rights reserved.