UAE: Where oil will still be king

On the flight back from Dubai, I picked up a copy of Monocle’s The Forecast, and found inside an article about Masdar City in Abu Dhabi. During one of our company visits we visited the “city,” a ~$12 billion project to create a perfectly planned city in the middle of the desert (sound familiar?) with the mission of being solar-powered, carbon-neutral, zero-waste and car-free. The article praises the efforts of careful urban planning, but “it’s hard to imagine anyone dreaming wistfully of living there.” The streets are empty, it’s almost eerily quiet, and there’s not yet enough development to make it seem more inviting than any other corporate park. While it does seem similar to many of the other cash rich developments in the emirate (Ferrari World), in reality Masdar is “a bulwark against decline built by people who have come to enjoy power and wealth, and have no interest in losing it.” As we heard time and again at many company visits, Abu Dhabi knows oil will, eventually, run out and are seeking to diversify ahead of that scary event.

Perhaps most interesting is the quote from the director general of IRENA, a renewable energy agency that we visited early in the week; he says that Masdar City is a hugely counterintuitive idea. It seemed to us (or perhaps just me) that IRENA was also counterintuitive – an intergovernmental agency focused on clean energy, headquartered in a country and funded by a government that is almost entirely dependent on oil and natural gas. When questions about this were posed to IRENA, they looked at us as if we were the ones confused.

Masdar City (via Monocle)
Masdar City (via Monocle)

Upon our return to the US, we had one final class together where we discussed our overall thoughts and shared reflections on the trip. There was a consensus that the country will still be fully dependent on oil for the next ten years, that only after that timeline would things start to change. Abu Dhabi just simply has too much of it, and the rest of the world depends so much on it, for there to be a true push away from oil in an economic sense. Another comment was on the ubiquity of foreign workers in the UAE, sometimes making it easy to forget you were smack in the Middle East. While that that workforce, by some estimates 98% of the population in the UAE, is integral to the economy and sustains the existence of Dubai and Abu Dhabi, it’s hard to tell if there is a real sense of belonging. There are very strict rules on citizenship, which can only be conferred if you are born to an Emirati father. There are a few other, hard, ways to gain citizenship, but for the most part one’s tenure in UAE is entirely dependent on work visas. Many in class thought it was dangerous for the emirates to rely on so much foreign labor; there is a lack of ownership in the wealth creation and nation-building, because ultimately as an expat you are never fully welcome. It’s unclear if and when this might change, but judging by a quick poll in class a majority of us will still gladly move over for a short term period. The lure of a tax-less workplace plus higher salary is just too hard to resist for a MBA grad.

Looking Forward to Our First Class Emirates Flights

The second half of Global Immersion UAE saw the group travel to Dubai, which though only an hour away from Abu Dhabi, indeed feels much different. For one, it is a city of 2.1 million, compared to the 920,000 of its neighbor, and is the second most expensive city in the world. It also lacks oil almost all together, its supply is expected to run out in the next three years according to some estimates. As a result, the emirate made an effort early on to become a financial and business hub. Our company visits were still quite diverse; Crescent Group started as a petroleum exploration company in the 1970’s, but has since expanded to become a holding company for enterprises as diverse as private equity, shipping ports, and emerging ventures; the middle east office for Boston Consulting Group, where we were met by Columbia alum Doug Beal; M Capital Group; the Dubai International Finance Center; venture souq, a growing angel network run by five millennials.

Emirates Airlines Training School
Emirates Airlines Training School

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However, I think it’s safe to say our favorite trip was to the Emirates Airlines training school. Here, all flight attendants come for an eight week training program. Statistically, it is harder to get into the program than it is to be accepted to Harvard – 130,000 apply, 7,000 are interviewed, and only 4,700 are accepted. There are 160 nationalities represented amongst all the attendants, and by 2020 they want 35,000 crew in total. It’s a quickly growing company, though the standards and level of brand representation is still held very high. There is image training, because as they explained, “do you look like you’re worth $6.6 billion or $100,000?” There is a maximum of two rings allowed, one on each hand, all watches must be approved before getting on board, lipstick color matches the uniform hat, and there are only a few hairstyles allowed. On board, there must be minimum of six languages spoken to accommodate all guests, though on average there are usually 10 to 15 languages amongst all the crew. And finally, the crew even gets delivery training – there are 15 to 19 babies delivered a year.

After being taken through the mock (but life size) airplanes in which they conduct safety training and food and drink service, we met with the Senior Vice President of Learning and Development, who was a 20 plus year veteran of the company, having joined in the 1980’s when the airline was just starting. Essentially, the formation of Emirates was a response to Gulf Air protesting Dubai’s open sky policy and leaving the emirate as a hub. To avoid losing air traffic, Dubai started its own airline; the other Gulf states initially closed their airports to Emirates, forcing them to move from a regional to international airline overnight. Now there are 511 departures per day from Dubai carrying over 80,000 passengers. They can boast of a 3-4% margin, compared to the 0.7% margin for the airline industry overall. This year they are adding three North American, three South American, and double to trip the number of daily flights to some European routes. With their US customers, 75% of first time flyers return to Emirates. While not many of us knew much about the airline industry, I think we all left sufficiently impressed and looking forward to the day when we can afford the first class private cabin with walk in shower! That’s why we’re getting our MBA’s, right?

An Introduction to the UAE: Abu Dhabi

Tuesday marks the halfway point for Global Immersion UAE, where we made the hour long drive from Abu Dhabi to Dubai. As the work week here actually starts on Sunday’s, we were able to fit in several different company visits; it also helps that the city of Abu Dhabi within the emirate of the same name, is actually fairly small. At most, a drive across the city will take thirty minutes. Our itinerary included a variety of different companies – though as we learned, they are almost all linked by the presence of government financing. Our first stop was Mubadala, a holding company with several different industries in their $60 billion portfolio. For instance, the company started with just Dolphin Gas, a subsea pipeline, but has expanded to include renewables, real estate (The Galleria), and healthcare (The Cleveland Clinic partnership). Later in the afternoon we went to Al Maryah, the new home of Abu Dhabi Global Market, which sits above The Galleria and across from The Cleveland Clinic. There we were introduced to the tradition of Arabic hospitality, welcomed into an atrium complete with coffee, tea, fruit, pastries, local dates and photographers accompanying the executives. After nearly thirty minutes of mingling we were ushered into an auditorium for a presentation by the heads of strategy, risk and regulation, and most interestingly, the chairman Ahmed Ali Al Sayegh. As we would hear in later company visits, Abu Dhabi is trying to diversify away from oil and gas – while we continue to have some skepticism on this point, we did agree with their statement that “if you’re going to build a global, diverse services sector, a financial market is very important.” Thus, the (delayed) rush to get the Abu Dhabi Global Market up and running. ADGM sits within a financial free zone established in 2004 nationally, but only formalized in Abu Dhabi in 2013. Here they created their own English Common Law court system, operate outside of local sharia law, have zero (corporate and personal) taxes for 50 years, and have no restriction on foreign ownership (otherwise max 49%). The area, Al Maryah, is its own physical island (one of several in Abu Dhabi) and is twice the size of the Dubai International Finance Center. When asked if they see the DIFC as competition, they declined and said it is about collaboration, but the answer felt incomplete – likely due to the presence of the chairman. It will be interesting for us to follow the development and launch of the ADGM as they start registering companies, to see if there is a shift of companies from Dubai or other financial centers.
It’s hard not to want to rehash all of my notes here, as we had so many interesting presentations and Q&A sessions across the three days. One of the most interesting visits was with Khalid Al Ameri, a fellow MBA and columnist at The National. While still taking pride in his country, Khalid was refreshingly open and insightful in his presentation and answers to our questions. Then there was Alsa, a pipeline engineering company headed by our TA Rami Arbid’s father. Another was Takreer, the national refining company, IRENA, an international renewable energy research center, and Aldar, the main developers of Yas Island, Raha Beach, with 77 million square meters of Abu Dhabi land assets in total. Outside of Alsa, all of these companies are government subsidized and thus essentially government controlled in our American free-market opinions; while top level executives are generally western expats, the board of directors and chairman are all local Emiratis. On the bus we discussed that it seemed like this would make for an interesting dynamic – how much influence did the government have? Would these companies be self-sustaining without government backing? It was hard to get clear answers, both because we didn’t want to be rude in our questioning, and our hosts usually skirted the topic in general. After a quick stop at Ferrari World (fastest roller coaster in the world!) and Yas Island Water Park, it was off to Dubai!

Global Immersion UAE visits Alsa Engineering & Construction
Global Immersion UAE visits Alsa Engineering & Construction
The Guggenheim Museum in Abu Dhabi
The Guggenheim Museum in Abu Dhabi

GIP UAE: Building Something Bigger

For spring break this year I am lucky enough to be traveling to the two largest cities of the United Arab Emirates, Abu Dhabi and Dubai, for an in-country study of the economic growth in the UAE and the region at large. Prior to the class trip, which begins this weekend, I decided to come to Oman since it was next door to the UAE and despite knowing little about the country, it had been listed in several “places to travel in 2015” lists. On the flight into Muscat a free copy of the English-language Gulf News had an interesting comment piece titled “A hunger that defines Dubai’s spirit to achieve.” It speaks of an intense hunger to achieve something more, first driven by the need to build infrastructure to become the hub for regional trade, and then the farsighted need to build an economy that wasn’t entirely driven by oil. The people who built Dubai “craved something more; they wanted to help people to have personal incomes, to have the best life possible.” Over time, as the country grew and became what it is today, that hunger built on need became a hunger of habit. Ambition, power, and achievement became a daily way of living, both addictive and infectious (MBA’s can surely relate to this).

For many of my classmates, this culture of (extreme) wealth and a rush to build the biggest building, mall, etc., is the first and maybe only thing that comes to mind when thinking of Dubai. For some that may seem nouveau riche, but for the author of the comment piece, that ambition when combined with need can create purpose and action. It’s something to be proud of and defines the leadership style that is unique to Dubai, allowing people there to “achieve what others are afraid to even think about.” This outright and perhaps blatant pride in “super accolades,” as the writer calls it, might be received differently in the States. It seemed odd to be so forthright about the need for material recognition. I have always found that reading foreign news publications allows a great deal of insight into another culture, and this proved no exception. Of course to actually visit a country and meet locals is an even better way to learn about a different society, and I hope to gain greater understanding of this mindset next week. Luckily we have quite a full slate of company and cultural visits on the agenda! I’m looking forward to sharing more, but until then, signing off from the Gulf of Oman.