Messages from Dubais Burj Khalifa

Tallest buildings tend to have uncanny relationship with broader economy. Wherever constructed, they tend to be a harbinger of bad news than good. The opening of Dubai Burj Khalifa is no exception to this hypothesis.
In October 2009, Emaar, which has constructed the worlds latest tallest building, said it had completed its exterior and within two months; the Dubai government almost defaulted on its loans, only to be bailed out by its wealthy neighbor Abu Dhabi. Hence, the last-minute change of name to Burj Khalifa, after Sheik Khalifa bin Zayed Al Nahyan, the ruler of Abu Dhabi, from its earlier title Burj Dubai.
Another name that gained currency at the spectacular launch of BK on Monday is The Skyscraper Index concept put forward in January 1999 by Andrew Lawrence, research director at a now defunct British investment bank.
Lawrence used skyscraper projects as a predictor of economic crisis, not boom. He noted that business cycles and skyscraper construction relate such that investment in skyscrapers peaks when cyclical growth is exhausted and the economy is ready for a recession.
The buildings may actually be completed after the onset of the recession or perhaps even later, he observed. For instance, Malaysias Petronas Twin Towers, which opened up in the wake of the 1997 Asian Financial Crisis is just another recent of the many examples in history.
But Dubais problems aren just related to typical boom and bust cycles. Dubai is one big service industry, and service industries typically peak at the last leg of economic boom and forerun the bust.
The emirate is not an oil-rich country. Although its economy has been built on the back of the oil industry, revenues from oil and natural gas currently account for less than 6 percent of the emirates revenues. And, that too is expected to be depleted in as little as 20 years. Dubai is now much more dependent on its services like sporting events, trade and warehousing services, and financial services especially property.
Real estate and construction account for about 23 percent of GDP and financial services for another 11 percent. Assuming that many of the builders will now leave and knowing that global economy, though recovering, is still reeling from the recession, it is difficult to expect a green pasture for Dubai sands in the medium term.
So, for all those Pakistani and other sub-continental investors, mostly those young bloods who lost their daddys pensions in Dubais roulette, the message is clear: Dubai doesn have oil and it is massively overbuilt. Its more like a crisis symbol of the interconnected financial bubble-like world we are just trying to escape from.
P.S: Burj Khalifa also brings to light another changing dynamic: the gradual decline in American supremacy. The global balance of power is shifting eastwards not only in terms of economy or the status of leader-of-the-world, but also as host of the cluster of world tallest buildings.