Start-up Nation

chairman of “Dubai Inc.” There is no distinction between Dubai’s public finances and the sheikh’s private wealth.

Al Gergawi’s leap to prominence came in 1997 when he went to meet Sheikh Mohammed in the majlis, a forum for average citizens to come to see the sheikh—think of it as the Arab world’s version of a town hall meeting, only far less interactive. During the visit, Sheikh Mohammed pointed out Al Gergawi and declared, “I know you and you’ll go far.”²

It turns out that Al Gergawi, then a midlevel government bureaucrat, had been identified months earlier by one of Sheikh Mohammed’s “mystery shoppers,” whose job it is to scour the kingdom for potential business leaders. Soon after the majlis meeting, Al Gergawi was put on an accelerated path to management of one of the sheikh’s three major companies. Others within Dubai’s government told us that Al Gergawi was selected because he was regarded as a competent technocrat—he could execute extremely well but would not challenge the ruler’s vision.

Dubai’s economic system is based largely on patronage, which has kept the local citizens pliant (only 15 percent of Dubai’s 1.4 million residents are actually Emirati citizens). Like Singapore, it is an extremely orderly society, and there are no outlets for protest—even peaceful ones—against the government. Many of the founders of Dubai’s first human rights organization are also employed by the government and are dependent on Sheikh Mohammed’s largesse.

Freedom of speech is constitutionally “guaranteed,” but it does not cover criticism of the government or anything deemed offensive to Islam. When it comes to government transparency, especially as it relates to the economy, the trend is moving in the wrong direction. A new media law makes tarnishing the UAE’s reputation or economy a crime punishable by fines of up to 1 million dirhams (approximately $270,000). The government maintains a list of banned Web sites; the ban is enforced by state censorship of the Internet (users do not dial directly into the Web but go through a proxy server monitored by the state telecom monopoly). In compliance with the Arab League boycott, neither visitors nor residents can call Israel from landlines or cell phones—the 972 country code is blocked.

Sheikh Mohammed recently decreed that his twenty-five-year-old son, Sheikh Hamdan, would be crown prince; a younger son and a brother were named as his two deputies. There is no path for an Emirati equivalent of Erel Margalit to play a senior leadership role in government or run for office. Mohammed Al Gergawi himself is one of only 210,000 Emiratis in the entire country, and only people from this limited pool are eligible to serve in senior government positions or in leadership roles in the sheikh’s businesses.

Other than its official leadership circles, Dubai is open to outsiders for business and has a centuries-old history as a trade hub for everything from pearls to textiles. Sheikh Mohammed’s great-grandfather declared his city-state a tax-free port in the early part of the twentieth century. He wanted to attract Iranian and Indian merchants.

In the 1970s, Sheikh Mohammed’s father, Rashid bin Saeed Al Maktoum, ordered the dredging of the Dubai Creek and built one of the planet’s largest man-made harbors at Jebel Ali, twenty-two miles southwest of Dubai. By 1979, the Jebel Ali Port had become the Middle East’s largest port and, according to some experts, ranked alongside the Great Wall of China and the Hoover Dam as the only three man-made constructions that can be seen from space. Jebel Ali is now the world’s third-most-important reexport center (after Hong Kong and Singapore).

For Rashid, this liberal trade outlook was based on the reality that Dubai’s economic wellspring would eventually dry up. With only .5 percent of the oil and gas reserves of neighboring Abu Dhabi, and an even tinier fraction of Saudi Arabia’s, Dubai’s reserves could run out as soon as 2010. As Sheikh Rashid once famously said, “My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.”

In addition to creating a world-class port, Sheikh Rashid also established the Middle East’s first free-trade zone, which allowed foreigners to repatriate 100 percent of their capital and profits and allowed 100 percent foreign ownership of properties and businesses. This sidestepped the requirement in the UAE and much of the Arab world that all companies be majority-owned by a local national.

The royal family’s next generation—led by Sheikh Mohammed—took the free-zone model even further, with the creation of business parks dedicated to specific industrial sectors. The first of these was Dubai Internet City (DIC), designed with the help of Arthur Andersen and McKinsey & Company.

DIC provided an ideal base for any technology company doing business in the Middle East, the Indian subcontinent, Africa, or the former Soviet republics—collectively a potential market of 1.8 billion people with a total GDP of $1.6 trillion. In no time 180 companies signed up as tenants, including Microsoft, Oracle, HP, IBM, Compaq, Dell, Siemens, Canon, Logica, and Sony Ericsson.

In one sense, DIC was a remarkable success: by 2006, one-quarter of the world’s top five hundred companies had a presence in Dubai. Dubai then tried to replicate that success story, founding Dubai Healthcare City, Dubai Biotechnology and Research Park, Dubai Industrial City, Dubai Knowledge Village, Dubai Studio City, and Dubai Media City (where Reuters, CNN, Sony,