Economic Globalization and G8 Security Fears: a Weighing Scale for Dubai Foreign Investments
Ali Tawfik Sadek Al-Hayat - 11/03/06//
The globalization term denotes a complex and multi-faceted phenomenon, encompassing dimensions related to culture, politics, security, and society, in addition to economy. It should be noted that the protests held during the meeting of the World Trade Organization (WTO) in Seattle, US, at the end of 1999 showed that globalization is a phenomenon that does not gain global consensus, but is rather a controversial issue. One party clearly sees the tremendous benefits that can be drawn form the increasing integration to the global economy and society, while another party sees the damages and risks therein.
Thus, it is not easy to define and specify globalization, just as it is not advisable or proper to pretend that globalization is the shortest and only way toward sustainable development, improved standards of living, and eradication of poverty, in light of countries that enjoy a substantial and advanced economy but lift protectionist barriers and incite security fears.
However, it is possible to say that globalization expresses a growing interaction and integration between the human activities of societies in general, especially the economic ones, worldwide. I reckon it is Dubai's view of globalization.
Dubai belongs to the group seeing numerous benefits in globalization, if well-managed. Thus, Dubai embraces more than 150 nationalities on its soil and receives Direct Foreign Investments (DFI) and portfolio investments from many countries. The UAE Minister of Economy, Sheikha Loubna al-Qasimi, mentioned that her country received DFI totaling 18 billion dollars during 2005, the double of what it received in 2004 as a result of the liberal policies of its 23 free zones.
It seems that Dubai has an income amounting to nearly 30 billion dollars in 2005, using the GDP scale, i.e. 29% of the GDP of the UAE. Dubai is adopting a foreign investment strategy relying on the basic principles of "diversifying investments to avoid putting all eggs in one basket." This is a popular and very effective saying that is often cited when it comes to diversification of investments, whether local or foreign, direct or in portfolio. In addition to this investment diversification, Dubai, with its geographically diverse foreign orientation and its goods and services activity, confirms what was prevalent in the past: investments flow to places with ample workforce, in light of the local markets' abounding immigrant workers and affluent foreign monetary assets as it is the case in the UAE.
But this economic globalization Dubai is adopting in its investment dimension, is not practically in conformity with the concept promoted and theoretically upheld by the G8 nations, which encompass the USA, Canada, Britain, France, Italy, Germany, Japan, and Russia. It stands for allowing the free flow of capital to wherever investors yearn for without any interference from the governments, safeguarding their rights, and treating them like local investors. However, a group from the US Congress raised security fears and enticed the US government to block the deal signed between "Dubai Ports World - International" (DPW.YY) and British "P &O", according to which 6 US ports in New York; New Jersey, Newark, Baltimore, New Orleans, Miami and Philadelphia become under its supervision and management.
In this framework, we mention that the GDP, whether with respect to Dubai or the UAE, does not reach 1% of the GDP of the US, estimated at 12,770 billion dollars for 2005. We also mention that Dubai Ports World - International " (DPW.YY) plays two main roles; the first one stands for organizing and managing the ports, and the other for developing and operating them. It is expected that the Peninsular &Oriental Steam Navigation Co. (P&O), which was acquired by Dubai Ports World - International for 6.8 billion dollars, will expand and enclose total handling capacity therein to 50 million cargo containers, in 51 terminals, in 30 countries around the world. Thus, It will rank third among the leading container terminal operators worldwide after "Hutchison Whampoa" in Hong Kong and "BSA" in Singapore. The two companies are state-owned and each one operates ports in the US. We did not witness objections when these two companies were involved in operating US ports. So, the question raised in this respect is: Was the nationality of the Dubai Ports World - International (DPW.YY) the reason for prompting and provoking the outcry of the US Congress members, who sought to address the security fears in the US society and urged the administration of President Bush to block the deal?
The evidences show that the politicians who rebuffed the deal were driven by a political background that may not necessarily be hostile to the Arabs or Dubai, but they exploited this deal benefiting from the local US policy game as is the case with Senator Hillary Clinton, who rejected the deal from the onset. Conversely, her husband, former US President Bill Clinton does not discern a security threat to the US if Dubai Ports World - International operates the six US ports.
It is known that the Americans are well-versed in research and study with respect to separating between the management and ownership of institutions. Dubai Ports World - International operates and does not own the mentioned US ports. Distinguishing between the management and ownership of companies is still brought to debate every once in a while. A new book entitled "The Theory of Corporate Finance" by Jean Tirole from Toulouse University stirs doubts about what the economic thought endorsed with respect to the corporate financial structure that was reached by the two economists Franco Modigliani and Merton Miller in the late 50's and early 60's. This stands for the connection between corporate financial structure and value. Tirole concludes that the corporate financial structure plays an important role in its performance. I believe that this is what the Dubai Ports World - International has concluded before it got acquainted with the book of the economist Tirole.
*Mr. Ali Toufic Sadek is an economic consultant at the Canadian Institute for Middle East Studies.
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