First, Dubai. I never cease to be amazed by this city. Having very little oil, Sheikh Mohammed and his predecessors chose to use Dubai’s historic advantage as a trading port as the basis of growth and development. Having achieved world class status as a port, tourism hub, commodities trading hub, trans-shipment hub, technology/communications hub, and finance hub, the latest ambitions are to drive development as a centre of excellence for higher education and medical treatment – and then a space programme.
I would never, never bet against Sheikh Mohammed. I’m not sure he isn’t more successful at investing than Warren Buffett, were a dollar for dollar comparison of returns possible. Unlike Warren Buffett, the Sheikh does not invest in equity of companies with proven management, but creates whole companies and industries from scratch by driving high achievement throughout the Emirati community which he educates and appoints to managerial positions, and through attracting the best business talent globally. Dubai’s scale, sophistication and prosperity are proof he understands both leverage and results-driven management.
Is Dubai a bubble economy? Of course it is, but even when the bubble bursts the accomplishments and dynamic commercial skills concentrated in Dubai will persist and form a solid foundation for enabling future growth. My guess is that as the US and UK financial-based economies implode from debt-deflation, and their military influence in the Gulf recedes, Dubai will strengthen its network of trade and finance deeper into former Eastern Europe, Asia and Africa. Dubai will facilitate the investment capital flows that allow all of these diverse geographies to develop according to their internal political, economic and resource constraints.
A word about cronyism and the difference between the USA and Dubai. In the US the well connected can fail upward, with friends covering for them and promoting them and financing them to new ventures. George W. Bush’s whole miserable business career and cronyist administration of failed Nixonites is proof of that. In Dubai, you don’t fail because it would shame your family. I have seen young Emerati with no background in the businesses they were appointed to mature rapidly into good managers because the massive pressure of family and social connections demands that they not screw up when given an opportunity to perform.
The reward for good work is more good work, and Sheikh Mohammed only promotes those who have proven adept at managing the opportunities formerly provided to them. Being a small country that loves to gossip, he stays very well informed. Those who choose to be corrupt, lazy, selfish and self-aggrandising are given enough commercial rope to hang themselves, and then obligingly hung (metaphorically) as an example to others. Those who are diligent, professional, ambitious and productive are promoted, also as an example to others. Families gain status by producing good executives, reinforcing a family interest in educating and motivating their young. Those who fail can go into business for themselves, as there is no shortage of opportunity, and that saves the emirate underwriting their risks while it gains from new enterprise. I suspect the recent investigations of corruption at real estate and finance companies are based on good evidence, but the subtext of the very public inquiry is a warning to every manager in Dubai to remember that they owe their success and their loyalty to the leadership, family and community that put them in their current positions.
I once heard of Franklin Delano Roosevelt that in his administration, he owned the successes and the appointees owned the failures. That seems to me to be a reasonable way to motivate innovation and infrastructure development. It doesn’t fit with the bonus-centric incentive programmes so beloved of modern boardrooms and management consultancies, but as a means of engineering social prosperity through government programmes, it might have merits. FDR would not have renewed massive no-bid contracts with Halliburton’s KBR and others once they failed to deliver essential goods and services to wartime troops in a combat zone. FDR would not have appointed the delusional and incompetent Defense Undersecretary Paul Wolfowitz as president of the World Bank. Times have changed.
Perhaps Halliburton in Dubai will corrupt Dubai, or perhaps Dubai will reform Halliburton. Since Halliburton is moving its global headquarters to Dubai to evade US taxes, investigations and subpoenas, we will have the chance to find out.
Now to Johannesburg, where I stay in as comfortable a hotel as anywhere I’ve been. I drink the tap water – that says a lot in Africa. The food is excellent, with springbok shank and kudu steak new favourites.
I have been here every two years since 2004. Each time I am impressed with the rapid progress. There are problems, sure, but there are problems everywhere. The electricity grid failures in the early part of this year were a wake up call that the government needs to focus on the basics of infrastructure if it is to continue to provide growth and jobs to the vast population. Unemployment remains stubbornly high, at almost 40 percent. The refugees who have fled to South Africa from neighbouring Zimbabwe, add to the pressures (and explain why stabilising Zimbabwe is more important to the Mbeki government than confronting the egregious Mugabe).
When I first visited in 2004 there were still vast shantytowns around the capital. When I next visited in 2006 these had been largely replaced with neat little tract houses, each with plumbing and electricity. Now the housing boom is slowing, credit is tightening, but millions have homes they did not have before. That is a major achievement. Unlike America where huge houses are the norm, here the norm is much more modest and sustainable.
On learning I was in banking, my driver from the airport handed me an e-mail he had received quoting John Mauldin’s recent praise of South Africa:
Johannesburg is a world-class city, on a par with New York or London or any major city in terms of facilities, shops, infrastructure... and traffic. There were new shopping malls all over, and the stores were busy. The restaurants were excellent. The hotels I stayed in and spoke at were excellent and modern. The Sandton area is particularly pleasant.
Durban is a tropical jewel on the Indian Ocean. Again, there was construction everywhere - a green, verdant city of 1,000,000 people, with modern roads and great weather.
I have been to Sydney, Vancouver, and San Francisco. I love all of them. But for my money, Cape Town is the most beautiful city I have been to in the world. Amazing mountains, blue water harbours, white sand beaches, with wineries nestled in among the mountains and valleys. The Waterfront area, where I stayed, is fun and vibrant. Again, an amazing amount of construction everywhere, especially in the waterfront area, as investors from Dubai are pouring huge sums of money into creating a massive residential/business/ retail/restaurant development. There are several similar, quite large developments going up in different parts of Cape Town.
. . .
The simple fact is that as the world grows more prosperous we are going to need more grain and other foods. Where is the land we are going to need to feed the world? There is an abundance in Africa, along with the needed water and labour. And as African countries upgrade their infrastructure, it will improve the ability of farmers to get their grains to market at profitable levels.
There is much to like about emerging markets. That is where a great deal of the real potential growth in the coming decades will be. And South Africa will be one of the better stories. If you are not doing business there already, you should ask yourself, why not?
Mauldin offers specific praise for development of South Africa’s housing, retail, banking, commodities and farming sectors. I have never read a piece by him so optimistic about anywhere else, particularly in the developing world.
I thanked my driver for the Mauldin article, but suggested that the problems in the banking sector would cause problems for South Africa too. My driver then proceeded to detail his own preparations for a downturn in the economy: selling his old passenger van to pay off the newer one; paying off all his credit cards and keeping the balance at zero each month; delaying his purchase of a new house for at least a year while he sees what happens in property. This lone tour driver was more prepared for a shift in the economy than most of the bankers in the City of London. And if he reads John Mauldin, he is better informed too.
The group of bankers which showed up the next day for my workshop was another pleasant surprise. In 2004 the group was widely mixed as to backgrounds, race and abilities. In 2006 it was whiter and more professional, but also less friendly. In 2008 the group is blacker, more professional still, more experienced, more knowledgeable and universally friendly too. They are delightful to teach as they know enough to take in information readily and apply it to their careers and specialties. They collaborate readily, with clear trust and confidence in each other. Everyone is respectful and considerate.
I asked some neutrally each break about the challenges in South Africa, and they were uniformly optimistic. This is a big contrast to 2006, when the group complained about racial quotas, reforms and problems much more. One expressed concern about the potential damage of a corrupt government when Zuma takes over from Mbeki, and the others all nodded, but then he confirmed that the direction of change for the present remained for the better, and that it would take time to reform the ANC.
I have always believed that democracy can only really exist in those states with a large middle class. I do not subscribe to the view that democracy should be universal, as poor or rich are too self-interested to allow uncorrupted democratic government unless constrained by a middle class from abuses. As South Africa continues to grow at 4-5 percent each year (probably an under-estimate of real growth), the middle class continues to grow and prosper. So although a Zuma administration may hold risks, I hope there will be constraints on their policies as the already substantial and growing middle class enforces longer term discipline on the government.
I could not live in Dubai, but for the first time, I find myself looking around me and thinking I could live in South Africa. That says more about the optimism I feel here than any statistics.