And on the seventh day, Dubai created the Universe, Nakheel. While the West is recapitalizing its financial sector with money borrowed from the Middle East and China, a few countries in that region are allocating their petrodollar surpluses in astonishing ways, building islands and whole new cities where none existed before.
In Dubai, the same company that built an Island in the shape of a giant Palm tree and one in the shape of the world map is expanding. It's building "The Universe." Developer Nahkeel's latest project of artificial islands will recreate "the wonders of the solar system," in the form of sand. The islands will be shaped like the sun, the moon, and the planets, which we suppose means they will all be round... except for Saturn and Neptune, which have rings.
Saudi Arabia, too, is spending $500 billion in oil money on new cities, ports, and industrial infrastructure. One construction site on the Red Sea has 38,000 Chinese, Indian, and Turkish workers building a US$10 billion petrochemical plant. "The amount of steel being used is 10 times the weight of the Eiffel Tower," reports the New York Times.
The Saudis and the Princes in Dubai know that someday oil will not be the lynchpin of the global economy. But right now, oil is a form of capital. They are trading oil wealth for an industrial infrastructure and cities that can support commerce, tourism, finance, and trade. When the oil runs out, the cities will be left and will hopefully not become ghost skyscrapers over run by sand dunes.
How an economy allocates its capital determines its long-term prospects. Today, the long-term prospects appear much better for the oil exporters than the consumption based economies of the West. The massive building binge in the Middle East is also a good investment opportunity.
But behind the day-to-day movements of the markets, this other story is playing out. One set of economies are paying the price for capital allocation driven by greed, rather than long-term wealth building. The other set are using oil money to build economic diversity.
Dan Denning
The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by moondoong on 21 January 2008:
When the oil runs out where are the tourists going to come from?
I'm not sure that the Saudi's et al are going to be all that flash either.
As you say, ghost towns of skyscrapers being swallowed by the desert sands?
Comment by Brad on 21 January 2008:
I must admit I fail to see the logic too. If they're fully aware that the oil will run out, why build the sort of permanent infrastructure that is reliant on an oil dependant international trade and tourism?
Hmm... perhaps they're planning a pseudo corporation-state where all their remaining oil reserves are kept in inventory to ensure Emirates is the only viable airline in 2050.