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.
Markets and Money