Gauteng wants to be a smart province, like Dubai. Its Blue IQ project tells us so in newspapers and on buildings in central Johannesburg, where the Gulf state is held up as an example of successful economic transformation. “In Dubai the contribution of the oil sector to the GDP [gross domestic product] was 80% in 1968. Today it is 8%,” runs the slogan.
Everyone in Dubai aims high. The city state in the United Arab Emirates has the tallest hotel, the Burj al Arab, while its Palm Islands are the largest artificial islands in the world. It also boasts the biggest duty-free shop.
Soon it will also have the world’s tallest building. The Burj Dubai office-tower, due for completion in 2005, will be taller than the Petronas Tower in Malaysia. The construction company, Emaar Properties, has allowed for the more than 500m-high tower to be extended by a further 50m, in case a similar edifice in Shanghai, also under construction, turns out to be taller.
Blue IQ wants to spur “smart” industry in Gauteng, along Dubai lines. The aim, according to Pradeep Maharaj, Blue IQ CEO, is to move the province away from its reliance on mining into a “hub” for tourism and high-value manufacturing.
But the Dubai model is misleading. Maharaj forgets that the Gulf state receives $150-million dollars in oil and cash each month from Abu Dhabi, the capital of the Emirates. The massive subsidy is designed to support it as the Gulf region’s industrial, trade and tourism hub.
Maharaj also forgets that Dubai is still run by oil, because although its contribution to its GDP might be 8%, it contributes more than half of its budget. Dubai’s aim of becoming a regional business hub is also helped by the billions of dollars of Arab money withdrawn from the United States since the terror attacks of September 11 2001.
The world does not need more than one hub in the Gulf. Iran, Kuwait, Bahrain and Saudi Arabia understand that Dubai is not a model for export. They invest in Dubai, which is starved of domestic investment.
Gauteng is not a hub in Dubai’s sense, and will never become one. None of the neighbouring states has an interest in investing in South Africa. Even if they did, they have nowhere near the required resources.
Besides, Dubai itself has problems in securing a return on its gigantic investments. There is a danger of over-investment in property, which recalls the Japanese real estate bubble of the 1980s. Neither economists nor estate agents know how Crown Prince Sheik Mohammed bin Rashid al-Maktoum, who scrutinises projects in detail, can avoid a massive over-supply in real estate.
His Highness is counting on 30-million tourists by 2010 — but the excess of hotel accommodation is already obvious. Last September, the 20 000 delegates and journalists attending the International Monetary Fund-World Bank meeting vastly outnumbered the tourist population. Some of the best hotels were forced to offer discounts of more than 50% — just a week before the meeting started.
Dubai offers “free zones” for industry and media and Internet development, which are exempt from tax and use cheap labour imported from the Indian sub-continent. Only 15% of the employees are local people.
With these inducements, and an international financial centre and excellent medical facilities, it hopes to fill the huge number of new hotels, apartment blocks and office towers.
But in one respect, it has already failed: the Dubai International Financial Centre, a stock exchange intended to bridge the time-zones between Tokyo and London, is still looking for tenants. The financial free zone was originally created to house 200 companies. To date, only 14 banks have shown an interest, with just four signing application forms.
At least in this area, Gauteng is ahead — the JSE Securities Exchange is the world’s 10th-biggest exchange. But Gauteng does not have oil.
Marcus Pfeil writes for Handelsblatt, Germany’s largest financial daily