Reporter's Notebook: Dubai

UNITED ARAB EMIRATES, Feb. 8, 2005 — -- For many Americans, the only time they run into the words United Arab Emirates is during an online transaction when it appears just above United States in the drop-down country menu. But once you visit Dubai -- the shiniest and newest sliver of this tiny Middle Eastern country -- you'll realize rather quickly that it will be a city and a country we will all soon become familiar with in one way or another.

You can see it as you begin nearing Dubai in the air -- either from the downward-pointing cameras that Air Emirates allows its passengers to sneak peeks from or the old-fashioned windows. From the minute you set foot on the tarmac, it becomes clear that the skeletal objects you saw dotting the landscape are massive cranes for construction. The entire city is growing -- in every direction, from condominium and apartment high-rises to hotels to beach villas to planned communities on manmade islands so big they are visible with the naked eye from space.

Dubai's airport features raffle tickets for Ferraris, Porsches, Harley-Davidson motorcycles and bars of gold, along with an enormous mall of duty-free shops that employs more than 1,100 people and generates more than $300 million in revenue a year. It's the first indication you have that you are walking into some sort of combination of Disneyland (disclaimer: Disney is the parent company of ABC News) and Las Vegas (without the casinos) -- to an exponential degree.

Dubai is a tiny coastal city along the Gulf. I hesitate to say Persian Gulf because there is some dispute in these parts whether it should be called the Persian Gulf or the Arabian Gulf.

Before you think that the bread and butter for this town is oil, think again. The United Arab Emirates' capital city, Abu Dhabi, has the oil. Dubai knows that its fields will dry up in less than 20 years, so it has launched perhaps the most ambitious plan ever to try and make its sand worth something. As of now, less than 6 percent of Dubai's economic success comes from oil. Dubai is planning -- in the space of five years -- to triple the number of people visiting it to 15 million, and increase the number of people living in it to 3 million.

Come One, Come All

One of the ways that this trading town along a creek has reformulated itself into a megalopolis is by throwing everything and the kitchen sink as incentives for companies to invest in and relocate to Dubai. There are free-trade zones where 100 percent foreign ownership is allowed, with no individual or corporate taxes or import/export duties whatsoever. The zones come in the shape of large office parks with unimaginative names like Internet City, Healthcare City, Media City and Knowledge Village, but inside the clusters of companies it's anything but dull.

More than 22,000 knowledge workers are now in these free-trade zones, earning moderate to high wages and spending that money back outside the office park. This is the tradeoff that the government here is banking on -- that an educated and trained population makes up for the lack of tax revenue from these employers.

When you drive around Internet City, you'll see familiar names like Cisco, Oracle, Microsoft, Dell, HP and IBM. A block or two away in Media City, you'll see Reuters, the Associated Press, CNBC and Showtime, along with al-Arabiya and al-Jazeera. In Healthcare City and Knowledge Village, Harvard Medical School is set to open its first operation outside the greater Boston area. These businesses are doors apart, with food courts and artificial lakes in between them -- where employees from competitors and partners all congregate.

The idea of industrial or technology parks is nothing new, but few around the world offer concierge-like services that take care of every piece of paper that needs to be filed, with a single Dubai government office for all contact and approvals-- creating a situation where all you have to do is show up and plug in.

A side note worth mentioning is that inside the free-trade zones there is unfettered access to the Internet -- meaning no proxies and no censorship. In the city at large, the Internet comes with a few snags: certain words and sites are blocked by the government unless you have a special workaround. When I asked the officials inside the free-trade zone how they manage to minimize the amount of "objectionable" content that may flow through in an Arab country, they respond with a smile and say: "it is not in our tenant's self-interest."

The tenants inside these free-trade zones are charged by the amount of Internet traffic they use, meaning if their employees start downloading bootleg MP3s or Paris Hilton videos, the employer has a financial -- more than moral -- interest in shutting the behavior down. This is illustrative of how Dubai often deals with prickly moral and culturally sensitive issues in a neighborhood of conservative Arab nations. More often than not, it creates market disincentives rather than reminders of the heavy-handed laws.

Think Big, Bigger, Biggest

Over the top doesn't begin to give you an idea of the competitive nature of this place. When you're standing near the world's biggest flagpole, you wonder what the world's tallest building will do to the ever-changing skyline. Construction on the building -- whose final height is still a closely guarded secret -- is scheduled to begin in a couple of years.

I visited a ski slope under construction called Ski Dubai. Yes -- a ski slope, and yes -- in Dubai. The complex's completely enclosed slope will feature a black diamond run (as well as beginner terrain) and a half-pipe for the 1,500 skiers and snowboarders an hour expected to use it. After riding the world's first curved chairlift up the hill -- it curves to the left as you ride up -- they will ski down the quarter-mile slope in a descent that will take the average skier a minute or two. And then they'll do it again. Ski Dubai will be part of the Mall of the Emirates, scheduled to open in September 2005. With more than 400 stores, it will be the largest mall outside of North America.

Ski Dubai's traffic might cool off a little when a huge new project called Dubailand opens -- complete with its own ski facility. Dubailand, a project as large as two Singapore-sized islands, promises to have the biggest mall in the world -- complete with a Jurassic Park-like robotic dinosaur section. The sheer size of Dubailand -- and its intentions to be the No. 1 family and leisure destination -- starts to become apparent when you look at the models in the lobby of its offices. There are hotels shaped like sand dunes, an aviation museum full of aircraft, a world-class racetrack and, of course, an enormous theme park.

Field of Dreams

The most dramatic example of Dubai's vision is a land reclamation and development project called The Palms. What do you do when you have a beautiful strip of ocean and not enough beach? Well, Dubai decided to build more beach in the shape of massive palm trees. Each massive "tree" will house residential properties along every frond, and hotels and apartment towers along the trunk. The first of three has already been dredged and built -- and is already big enough to see from space with the naked eye.

If you think this is a crazy idea, there are at least a few thousand investors who disagree. Developers of The Palms say that the 2,000 residential properties on Palm One sold out in three days. These are homes that won't be ready for another year. Palm Two is said to be sold out and some homes on that island have already gone up 25 percent in value.

Developers here are unabashed in their efforts to lure prospective buyers. For example, a five-star dive facility is expected to be built along the edge of the first palm -- when I asked the saleswoman why anyone would want to dive in waters that perhaps didn't have much fish in them -- she said "they might want to dive to look for the one-kilo bar of gold we'll be dropping into different parts of the dive area EVERY DAY."

While Palms One, Two and Three are under way, there is already a fourth project that boggles the mind. Further out to sea, Dubai has decided to re-create a map of the world with 300 tiny manmade islands -- islands that anyone can buy. The cheapest will cost a little more than US$4 million and the most expensive will be $36 million. Seventy of the 300 islands are already spoken for. One investor bought the 12 islands that make up Australia and Papua New Guinea. When you buy an island, it's up to you to present a plan in six months as to what type of house you plan to build on it, how you plan to get there and back, and so on. It's your island but there are still guidelines -- this is of course a product of Dubai, part of the United Arab Emirates.

There are even more projects in the works, but the point is that the impossible seems to take less time here. It reminds you of the optimism and entrepreneurialism of the dot-com boom, where every idea was funded. Here in Dubai, however, it's brick and mortar that's being hoisted by cranes. If there is a bust, the weight of the fall will be much worse than anything we've ever seen in the United States.