Will Dubai recover from the current attacks as a global PE rising star?

We have been actively involved in the Gulf for several years, and typically, businesses in Dubai were expensive (by multiples), positioning themselves as constantly growing opportunities. We passed on several of those (a week before the conflict), where the owners believed they were exceptional, while we had a reasonable scepticism and had seen lots of greed and splurge.  

Current attacks on Dubai by Iranian forces have shown us the truth underneath what an Arab dream looks like. Compared to a magazine cover, the reality often feels different. Its ruling family and sheikhs have spent billions of dollars trying to build their own vision of what the future could look like. Tallest skyscrapers, unique designs, digital and smart urban infrastructure, and absolute safety. Those were the building blocks on which the modern Dubai miracle was based. And for foreigners or 1st time visitors, this story could have been shown as a complete success. Even though after some time one may start spending long hours in traffic, experiencing a high cost of living, and overall "hushness" around anything which is going wrong in the emirate, the overall advancement of Dubai (compared to what it was just 30+ years ago) is extraordinary. 

But the question is - is this sustainable for the private equity investments industry? And if previously it has been more of a hypothetical polemic, now, due to the Iranians’ attacks, it has become apparent that there is much more to an illusion than a reality in Dubai. 

There is no need to go any further, but to consider where the entire population of the emirates has gone over the first days of the attack. They are out. Literally. Most of those who could have travelled abroad have done so. By plane, by car, by camel, etc. The population of the emirate is typically spread between two groups: HNWIs, who can afford expensive living, and low class, typically hard-working Indians, Bangladeshis, and Pakistanis. And as the business in the emirate is based on the latter group, as they fled, the entire economy got stuck. Even though tourists may still pay their hotel bills, the consumption basket has massively eroded. Instead of fancy stores, rented luxury sports cars, and yacht tours, some 3-day food supplies and minimal consumption. An enormous economic disaster by itself. If this continues, the country's status may collapse. Simple law of supply and demand.

Second, the inner security system in Dubai has worked; however, it is apparent that the external security system has been compromised against various threats. No current Dubai tech can defend the emirate against Iranian drones and missiles, which, for example, Ukrainian army forces have been working on since the Russian invasion. Why haven’t the UAE officials yet deployed enough funding to source all the best deep tech startups that work in the defence space? Dubai wasn’t ready for a massive flood a couple of years ago, nor is it ready now. Looks like they trust to russian word “avos” or “perhaps”. Perhaps it never happens. 

Third, Iranians are targeting specific parts of the emirate (not always accurately), but they aim to harm the brand of Dubai. As in business, a reputation is built over years, but could be diminished within seconds. And that’s the biggest threat factor for Dubai, which, due to the proximity to Iran, should pay attention to and cannot neglect. 

What could the Dubai ruling family and sheikhs do to mitigate those risks?

First - launch a new program for foreigners who want to live and work in the emirate. A simple visa program doesn’t really have any impact on it. Make these people stay because it’s their home, and protect their home against the invader. Could be an individual KPI-based. You can introduce certain requirements: official salary, higher education, perfect English knowledge, etc., but the idea is that when the majority of your population is going to flee, how would you defend yourself?

Second - start investing massively into startups and dragging them to relocate to the emirate. Not all, but deep tech with the focus on infrastructure and defence. The best tech teams shall look no further than to move to Dubai. Dubai shall seed the entire world with the seed money (aka YC-space of the world), and it shall become a no-brainer sandbox for every innovative company it can get its hands on. Literally, you have an interesting idea - come here, relocate, and we will help you with the rest. Work for 3 years (at least) and share with us the results of your work. It’s like being an LP with every top-notch deep-tech startup in the world. Imagine how this is going to change the emirate?

Third - invest in boring yet must-to-have infrastructure, which are vital in an emergency time, yet that may not be utilized during the normal years: bomb shelters, bunkers, underground datacenters, underground tunnels, etc. This will kick-start the new economic cycle and nourish the long-term sustainability of the emirate.  

Last, yet not least - instead of hushing and penalizing the bad news about the attacks and its own failures, Dubai shall invite the world’s best minds to form an amazing team, which would develop a new strategy to transform the emirate into the world’s leading destination. And then sheikhs shall spend any funds to execute it. If the execution is at the level, residents will spread lots of positive and amazing things about the emirate at no cost. 

Epilogue: Instead of supporting the “making money quickly and then returning home” idea, which many foreigners carry, the Dubai government should once again re-identify itself and accept some fundamental changes. This may create a new class of citizens, originally not emiraties, who will foster the growth and previously unimaginable prosperity of the emirate. But what's more, if the rulers of Dubai make this step, the rest of the world will be asking for their help, as the emirate will demonstrate by example what is achievable when a strong visionary leadership is merged with disrupting creativity and innovation. Plus, it is important to stimulate succession development in the emirate, the availability of debt financing, stimulate LBO persona to move to Dubai, because this will spur the overall score of the emirate in the M&A league, increase regional efficiency, and nurture a new class of wealth.