Tea Trumps Towers as Dubai Maps Way Back to Future as Trade Hub

By Henry Meyer

March 31 (Bloomberg) -- At Unilever’s Lipton Tea factory near Dubai’s main port, rows of machines convert leaves from Kenya and India into a million tea bags an hour destined for breakfast tables from South Africa to Canada.

“By bringing in tea here, we are close to the market, so we blend it fast, pack it fast,” said Sanjiv Mehta, Unilever’s chairman for North Africa and Middle East, in an interview at the factory, the world’s second-biggest. “And because of the logistics here being very efficient, we’re able to quickly move it to the consumer markets.”

Dubai is spending $13 billion on building a new international airport and expanding existing air and shipping terminals. The ruling Al Maktoum family is focusing on the emirate’s traditional strength as a trade hub, after borrowing $109 billion to build record skyscrapers and man-made islands led to the world’s worst property crash last year.

“What I really want to concentrate on is what is the core business,” Sheikh Ahmed Bin Saeed Al Maktoum, the uncle of Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum and chairman of the financial decision-making body, the Supreme Fiscal Committee, said in a March 16 interview. The emirate put too much emphasis on real estate as prices soared, he said.

About $330 billion of building projects have been put on hold, according to Proleads, which monitors real estate in the region, after a 50 percent slump in property prices. They include Dubailand, a leisure park that would have been three times the size of Manhattan.

The crash forced state-owned Dubai World to postpone paying back $25 billion of debt. HSBC Holdings Plc, one of the main creditors, yesterday said it welcomed a plan to extend repayments over eight years.

Capital of Commerce

Still on track, though, are investments aimed at enhancing the blend of geography and good facilities that transformed Dubai from a fishing village to a capital of global commerce. Located mid-way between Europe and Asia and Africa, it’s been a crossroads for trade linking the Gulf, India and East Africa since the early 20th century.

Dubai is already home to the largest port in the Middle East and the biggest Arab airline, Emirates. In June it will open an initial cargo terminal at Al Maktoum International airport near Jebel Ali, cutting the time it takes to transfer goods between ships and aircraft to four hours from at least 16.

When completed, Al Maktoum will have five runways, four passenger terminals able to accommodate 160 million arrivals a year, and 18 cargo terminals with a capacity of 12 million tons. A 21.5- square kilometer logistics center will link the airport with the Jebel Ali port, which has laid the foundations for a third terminal that could more than triple shipping capacity.

No Constraints

Dubai’s current airport, Dubai International, hosted 40.9 million passengers last year and is being expanded to accommodate 75 million by 2012 and later 90 million. That’s not enough to cope with expected growth in trade and tourism, says Andrew Walsh, vice-president for cargo and logistics at Dubai World Central, which is building Al-Maktoum.

“We need an area that doesn’t have the same constraints as now,” Walsh said in a March 23 interview.

The global recession has slowed construction of Al Maktoum, postponing the opening of the cargo terminal from last year. Emirates announced this month that it may delay moving to the new airport until 2030.

Still, the plan makes economic sense, said Philippe Dauba- Pantanacce, an economist at Standard Chartered Plc in Dubai.

‘No Equal’

“They are really succeeding in that strategy in becoming the major transport hub for the region,” he said. “Compared to all its neighbors, Dubai has no equal.”

Dubai is within eight hours flying time of two-thirds of the world’s population. Sixty percent of the Middle East’s imports pass through the emirate. The World Bank said the United Arab Emirates has the best logistical services in the Middle East in its 2010 global ranking.

Dubai’s infrastructure today stems from decisions made beginning from the late 1950s by then-ruler Sheikh Rashid, father of Sheikh Mohammed.

Rashid ignored objections from Dubai merchants and even from his son Mohammed to build Jebel Ali, the world’s largest man-made harbor, on an empty beach almost 35 kilometers (20 miles) from the city, according to “Dubai, the World’s Fastest City”, by Jim Krane.

The port is now linked to a free trade zone for manufacturing and distribution in which goods for re-export are exempt from all duties. Almost 6,400 companies from more than 120 countries operate at Jebel Ali, including Unilever.

“Where people in the last few years went wrong is that they started believing that real estate could become a real driver of economic growth,” said Unilever’s Mehta. “If you look at the brand of Dubai, it stands for free trade and commerce.”

--With assistance from Arif Sharif, Anthony DiPaola and Zainab Fattah in Dubai. Editors: Ben Holland, Philip Sanders.

To contact the reporter on this story: Henry Meyer in Dubai at hmeyer4@bloomberg.net.

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

Source: Business Week