The alternatives are simply that things can go up, they can go down, or they can stay the same.
In the Kingdom of Saudi Arabia, we have witnessed a growing trend that seems to follow the same game plan of a number of countries and states.
The game plan is to build commercial and residential locations that will consume utilities.
The idea is then to market the locations in a way where a huge number of people would come to rent and pay the utility bills.
It’s an excellent plan at first glance because it is ideal for all sorts of investors ranging from both Islamic to conventional forms of finance.
Let’s take a moment to define and analyze the strategy in a variety of locations around the globe.
In Saudi Arabia, they are building infrastructure for new and existing cities.
Custodian of the Two Holy Mosques King Abdullah stood tall and wrote royal decrees to ministries that subsequently began to dole out cash for infrastructure projects around the Kingdom.
Let’s go over a few of the recent contracts that were awarded by Saudi Aramco, Saudi Rail, Saudi Maaden, Al-Mabani, and the list goes on.
The money has begun to flow to the industrial sector, transportation sector, oil and gas sector, along with infrastructure projects that are crucial in terms of preventing floods in the metropolitan cities.
While this form of direct investment is growing in popularity in the form of stimulus plans around the world, it is a only a small part of the overall end to end solution.
The vision and brilliance of the custodian of the two holy mosques seems to have no bounds.
The outstanding issue of tenants and customers are going to be an issue in the next phase of the plan, so we recently witnessed the GCC extend invitations to both Morocco and Jordan to join their ranks.
The king has literally turned the tide of depression and pessimism in the MENA region, and brought about an international celebration of Islamic ideals. It seems that hope and generosity have reclaimed their rightful place in the grand scheme of things in the Middle East.
The business model is diversified from oil revenue to Islamic tourism revenue to the ongoing industrialization programs.
The utility bills will be paid from the growth of all three of these revenue models.
Dubai went with the financial and tourism model as they built skyscrapers, indoor snow skiing, palm-shaped islands, giant aquariums, movie theaters, media cities, Internet cities and the list goes on.
They built world record holding architectural marvels to capture the imagination of tourists from all around the globe.
They are currently trying to adapt to the different tourist markets by providing menus at restaurants in English, Arabic, and Russian.
It is a totally dynamic metropolitan city that’s doing its level best to pay the bills.
In hindsight, it’s clear to see that they over anticipated the flow of tourists, as they obviously built too many buildings.
The fact is that as the flow of rental income declines, so does the flow of bond installment payments. At the height of the crises, investors experienced a series of defaults that lead to consolidation and a number of government acquisitions.
The fundamental problem with the Dubai Business model is that it needs to diversify its income stream away from tourism, because that tends to depend on a flourishing global economy full of disposable income.
Dubai needs to re-engineer its game plan to include industries that have a steady income stream.
The financial industry and its various tenants disappeared with the last global financial crises, and the tourism dollars are currently coming from Russians and the rest of the eastern block.
As a result the question remains, who is going to pay the bills in Dubai?
New York is a city that resides in a State that is suffering from overwhelming debt.
They have the same three choices of growth, bankruptcy, or refinancing. In terms of the growth prospects of New York, we believe they look dim at best.
On one side the combination of fear and hate-mongers have driven fortune 500 businesses in New York to set up redundancy computers and offices in places like Connecticut, which reduces the number of tenants that pay utility bills in the State.
The situation is even worse as the decade-old hate-mongering campaign has created a trend of insulting and abusing tourists, which will lead to yet another wave of bankruptcies on a corporate and municipal level.
In the news recently there were stories about intolerant behavior that drove away even more tourist income.
The question remains how is NY going to pay its huge municipal debts? Is the current hate mongering business model going to lead to a new series of downgrades from the rating agencies? Are they seriously going to sell the iconic NYSE New York Stock Exchange? Are they going to destroy the very fabric of the city to the degree that they are going to remove the Emma Lazarus’ Famous Poem on the statue of liberty, "Give me your tired, your poor, your huddled masses yearning to breathe free, the wretched refuse of your teeming shore".
Each of the aforementioned locations has its own allure and its own identity.
While some of them are guarding their reputation and growing their business models, others seem to be stuck in a spiraling deflation hope.
The key is to stay consistent with their regional marketing campaign and their respective revenue generating game plan.
— Khalid I. Natto, [email protected], is chairman & CEO of The KIN Consortium.
