Dubai's Dragon Mart - selling to the emerging middle classes of the world

Aerial view of the Dragon Mart Shopping Centre, Dubai

Dragon Mart provides an insight into a different world. It is a mall that is 1.2km  long and contains 3,950 shops. Both the shops that fill the mall and the products that fill the shops do not bear US and European familiar brand names as most of the world's shopping malls do. Dragonmart is dedicated to efficiency and cheapness. The China Ocean Shipping Company (COSCO) has a huge logistics centre next to the mall allowing new goods to be brought straight off the ship from China and wholesale purchases to be exported anywhere in the world.

Who are the customers and what are they buying?

 

To a large extent, the customers are wholesalers and bargain-hunting migrant workers in Dubai. The bargains are attractive, for example, a digital camera for 99 dirhams ($27) or a treadmill for 700 ($190) dirhams.The Dragon Mart may not be everyone's cup of tea, that is, not everyone may be attracted to polyester Persian carpets or plastic executive desks. Many companies specialise in producing cheap imitations of popular US and European brands. Yet Dragon Mart (and its Chinese manufacturers) cannot be dismissed. Dragon Mart caters for what many believe is the world’s most exciting group of consumers, the emerging middle class. The Consultancy Mckinsey estimates that this group could include 2bn people who spend $6.9 trillion a year. These people cannot afford to shop buying expensive branded US and European products, yet they too are seeking the status symbols of middle-class life. For them, many of the goods displayed represent the dream of upward mobility. The below video shows some of the products on offer at the Dubai Dragon Mart.

Dubai Dragon Mart is also evidence of the rebirth of one of the world’s oldest trading routes, the silk road. The old silk road specialised in luxuries like silk. The new silk road specialises in everything, interestingly with a stress on plastic. Furthermore, Dubai boasts two of the most important transport hubs on this road: the world’s ninth-biggest container port and one of its busiest airports. The rebirth of the new silk route will increasingly branch out to the emerging economies of the world by sea and air bringing affordable consumer goods to the new emerging middle classes in the Américas and Africa.

Doha Round of World Trade – who needs it most?

Shanghai Port in China

For the past 400 or so years Europe and by extension through the discovery of the Americas – the US, has enjoyed a comparative economic advantage over the rest of the world. European intellectuals advocated the ideas of enlightenment and progress and European and US businesses have harnessed technology to impose their will on the rest of the world.

How did Europe become so important economically

How is it possible that in the year 1000 the Middle East's share of the world's GDP was larger than Europe's – 10pc compared with 9pc? But by 1700 the Middle East's share had fallen to just 2pc and Europe's had risen to 22pc.

A new book by Timur Kuran, a Turkish-American Economist, entitled “how Islamic law held back the Middle East” tackles this question. The central thesis is that the Middle East fell behind Europe because it failed to produce commercial institutions – most notably joint-stock companies – that were capable of mobilising large quantities of productive resources and enduring over time.

Europeans inherited the idea of the corporation from Roman law. Using it as a base, they also experimented with more complicated partnerships. In the 19th century limited liability became widely available as well as other innovations such as double-entry book-keeping and stock markets. European and US economic dominance is rooted not just in the exploitation of scientific technology but in its ability to develop institutions that combined labour and capital in imaginative ways.

No more “third world”

Since 2008 so called “developing countries” have become the engines of the world. They have contributed almost all of what economic growth there has been from 2008-2011. In the 1980s they accounted for 34pc of global income at purchasing-power parities. In 2010 they accounted for 43pc provoking the President of the World Bank to proclaim in 2010 that: “2009 saw the end of what was known as the third world”.

The term “third world” used to mean poor and dependent. Hence almost by definition, third world countries were economic failures. But with the emergence of the East Asian tigers, developing countries entered a new era, shedding their dependency and entering the 21st century in a resurgent position at a time when the so called “developed countries” were in decline.

The Doha Trade Round – serious risk of failure

The Doha talks were launched in the Qatari capital almost a decade ago, in the aftermath of the 9/11 atrocities. This was supposed to be the “development round”, with the US and the EU showing “more understanding” towards the rest of the world, dropping its trade barriers and abandoning “neo-colonial attitudes” so as to spread the wealth and hopefully temper the hatred.

However the initial Doha meeting was also the moment that China joined the WTO, re-engaging with the global trading system after a long absence. By the time of the Cancun WTO summit in 2003, China and the other big emerging economies had entered the global economic scene in a very big way. As such, they felt strong enough to reject the Doha deal on offer and insist on more access to G7 markets in return for opening up their own. At the 2005 summit in Hong Kong, the WTO talks foundered again – the emerging giants now even bolder and EU and US trade diplomats and politicians failing to grasp the speed at which the centre of economic gravity was shifting eastwards.

Six years later, emerging markets' goals have changed too. Many emerging economies are now more bothered about keeping food prices in check than about keeping rich-world subsidies down. The EU and the US espouse free trade yet, both maintain a vast web of barriers and subsidies that not only dump agricultural goods on world markets but also seriously undermine global commerce.

In April 2011, Pascal Lamy, Director-General of the WTO provided a blunt assessment of the state of affairs. He suggested a deal this year is in “serious doubt” due to “a clear political gap” which “is not bridgeable”.

What then for the future of free trade rules and for the US and the EU

The World Trade System has played a pivotal role in securing more than 60 years of relative peace and prosperity. But the WTO system of multilateral rules is near the verge of collapse. The Doha talks are at serious risk of being the first failure of a multilateral trade negotiation since the 1930s which led to protectionism and trade barriers being erected that stunted economic growth for a decade blighting countless lives and doing much to cause the ensuing global conflict.

The Geo-Trade Blog believes strongly that the the US and the EU needs the boost to investment, growth and jobs that Doha would deliver far more than the fast-growing emerging markets. The prosperity of the next generation of US and EU citizens depends on them being able to sell their goods to the mass markets of tomorrow – the very countries we are refusing to do a deal with. The US and the EU need to look upon the rising numbers of Chinese, Indians and Brazilians who can afford to buy US and European products and see this as an opportunity that will provide jobs and economic growth in the the US and the EU enabling their companies to prosper. The opposite is protectionism fuelled by fear that leads to a stagnated global economy blighting the lives of everyone. The US and EU need to lead the charge in freeing-up world trade in their own self-interest.

Turkey, the 'European BRIC'– a new regional power in 21st century

An aerial view of Istanbul - the Bosphorus

At the beginning of the 21st century Turkey is once again rising to become an economic and political power, both in its region and in the world. The rise of Turkey is one of the last decade’s most important stories. Last year it grew faster than any other big economy except China and India. As the world’s 17th-biggest economy, Turkey has become a leading member of the G20 club. It has NATO’s largest army after the US.

The reach of Turkish companies is also spreading. They operate not just across the region but around the globe. Many construction projects in the Middle East involve Turkish firms and workers. Turkish Airlines, has turned into a global force as Istanbul, now Europe’s biggest city by far (at around 15m), has become an aviation hub.

A new canal linking the Black Sea and the Sea of Marmara

Map showing where the proposed new Canal Istanbul
will be built by 2023

In the run up to the latest Turkish elections, the ruling AK party which won a new mandate on 12 June 2011, pleged to build another bridge across the Bosphorus and more spectacularly a new canal linking the Black Sea and the Sea of Marmara that would be a match for the Panama Canal. This project was first proposed by Sultan Suleiman the Magnificent in the 16th century.

The new canal will be called 'Canal Istanbul', it will link the Black Sea to the Sea of Marmara, which leads to the Aegean Sea. The new waterway will be located on the European side of the Bosphorus. Its main purpose is to reduce the heavily congested tanker traffic through the Bosphorus Strait and to minimise the risk of accidents. The proposed Canal will have a length of around 48km with a depth of 25m, a width of 150m on the surface and 120m at the canal bed. This will allow the largest vessels to pass.

The project is intended to be completed in time for the 100th anniversary of the Turkish Republic in 2023.

A new regional player

Turkey's location between Europe and the Middle East lends it huge geo-trade significance, not least as an energy and pipeline corridor. Over the last decade, it has developed closer relations with Georgia and with Iran, Iraq, Syria and other Middle Eastern countries, to the consternation of its traditional allies, the US and Israel.

Azerbaijan provides Turkey with access to the energy-rich Caspian Sea states of Kazakhstan, Turkmenistan and Uzbekistan. Turkey is also a strong supporter of the 1,768km Baku-Tbilisi-Ceyhan pipeline that runs from Baku to its Mediterrenean port of Ceyhan.

The EU accounts for 75pc of foreign investment in Turkey and roughly half its exports and inward tourism. Turkey is Europe’s third-biggest producer of televisions. Likewise, Europe's energy security depends on the transit of oil and gas from Central Asia and the Middle East through Turkey.

Europe and Istanbul relations

Europe in its history has had an uneasy relationship with Istanbul during the Ottoman Empire, in fact, some might say that Europe has been almost defined, through the centuries, by a tension between Christian and Islamic boundaries and by Muslim encroachment in Europe from the East and the South. To some extent, in some European countries, this view still pervades policy makers today when considering Turkey's accession to the EU.

Today the EU needs to ensure that it does not turn inwards and become fixated on internal questions. There is a real danger that Islamic identity is defined as 'the other' and while this debate ensues, Europe misses the bigger picture of what is happening in the world in the 21st century. The EU – with 330m people alone in the Euro-zone area has a key role to play in the 21st century. But it needs to remain outward-looking to understand the changes taking place in emerging economies and in the greater world in Asia-Pacific to become an active global player.

In the 21^st century, Turkey is the closest thing Europe has to a BRIC. The EU must find ways to enhance its relations with this important new emerging regional power. Perhaps through a Special Economic Zone to provide access to the EU internal market, the EU's greatest success to date. Then maybe with the option for Turkey to join the Euro too if it meets the fiscal criteria. Turkey could also be invited to join the Schengen agreement to enable free movement of persons through the Schengen Member States. Europe needs badly to embrace Turkey, it needs the fresh perspective and energy of the Turk people and to harness the economic firepower of an important emerging economy on its dooorstep.

The Power Vacuum left from the collapse of the Ottoman Empire in 1922 - almost 100 years later

 

Map of Ottoman Empire - at its greatest extension it included

Turkey, Egypt, Greece, Bulgaria, Romania, Macedonia, Hungary, Palestine, Jordan, Lebanon, Syria,

parts of Arabia and much of the coastal strip of North Africa

The Ottoman Empire (1301-1922) was the one of the largest and longest lasting empires in history. It was an empire inspired and sustained by Islam, and Islamic institutions. It replaced the Byzantine Empire as the major power in the Eastern Mediterranean. The Ottoman Empire reached its height under Suleiman the Magnificent (reigned 1520-66), when it expanded to cover the Balkans and Hungary, and reached the gates of Vienna.

When the Ottoman Empire eventually fell in 1922, it left behind, predictably, an immense power vacuum. But less expected is that close to a 100 years later in the 21^st century, we are still feeling the effects of an ongoing power vacuum re-adjustment process.

The ongoing power vacuum is illustrated by the sheer number of major conflicts in recent decades that have broken out within the confines of the former Ottoman Empire geographical area. The Balkan wars in Bosnia/Serbia and Kosovo in the 1990s, Algerian civil war 1991-2002, the war for Kuwait in 1990 -1991, the invasion of Iraq from 2003, the second Palestinian intifida 2000-2005, the Lebanon war in 2006, the Gaza war in 2009, and most recently the Tunisian uprisings at the end of 2010 leading to the ousting of President Zine el-Abidine Ben Ali in January 2010. Followed closely by the Egyptian uprisings that also ousted President Hosni Mubarak, in Feburay 2011. Uprisings have spread across the Middle East and North Africa countries to Algeria, Libya (on the brink of civil war), Yemen, Jordan, Bahrain, Oman, Iraq and to a lesser degree Saudi Arabia in February and March 2011.

November 2011 Update

Since publishing this post in March 2011, the countries occupying the territory of the old Ottoman empire have begun to look even shakier. On the one hand, the UN Security Council approved Resolution 1973, applying for the first time, the new UN concept "responsability to protect" within the UN Human Security Framework prevailing over national sovereignty has been enacted. This led to the NATO-led campaign which saw Muammar Gadaffi unseated and later killed. The NATO campaign officially ended on 31 October 2011. On the other hand, Tunisia has recently celebrated its first free elections with an Islamist party winning around 40pc of the vote. Egypt is soon to celebrate its first free elections with the Islamist parties expected to do well there too. Finally, Syria has become a bloodbath with its Leader, Mr Assad refusing to leave power.

Meanwhile Turkey's Prime Minister Erdogan, after his election victory in June 2011, has begun to implement a new "activist" foreign policy, which has prompted some commentators to proclaim "that the Ottoman's are coming back". Turkey was caught unprepared for the Arab Spring. Moreover the Western Balkan countries, who are mostly actively seeking EU Membership -Bosnia, Serbia, Kosovo, Albania and Macedonia- have also begun to hedge their bets with a modern Turkey awash with cash ready to invest in major new airports and other big infrastructure projects on their soil. In the words of the Turkish Foreign Minister, a new "Golden Age" of the Balkans with Turkey at the head is getting underway. The power vacuum appears to be no further resolved after the Arab Spring developments.

Why did the Ottoman Empire maintain power for so long

There were many reasons why the Ottoman Empire was so successful. It was highly centralised, power was always transferred to a single person, and not split between rival princes. This meant the Ottoman Empire was successfully ruled by a single family for 7 centuries. Religion was incorporated in the state structure, and the Sultan was regarded as "the protector of Islam".  It was highly pragmatic, taking the best ideas from other cultures and making them their own. It had a very strong military base with a slave-based army, good expertise in developing gunpowder as a military tool and a strong military ethos pervaded the whole administration.

Constantinople which had been at the heart of the Byzantine Empire, was conquered in 1453 by the Ottoman Sultan Mehmet II. It was made the capital of the Ottoman Empire and renamed, Istanbul – the 'city of Islam'. Istanbul became not only a political and military capital, but because of its position at the junction of Europe, Africa, and Asia, one of the great trade centres of the world.

Since the fall of the Ottoman Empire in 1922 – why is there still such a vacuum of power

Perhaps the answer to this question lies in the fact that what in the 21^st century we call “the Arab world” is a big and amorphous thing, and arguably not one thing at all. It is more likely a collection of different ethnicities, with confessional and sectarian differences that did not matter when they formed part of a greater empire. This is equally true of the Balkans which contained many different fragments.

The Economist in a recent article described the political instability of the Arab world as being connected to further problem: the missing glue of nationhood.

“Many years ago an Egyptian diplomat, Tahsin Bashir, called the new Arab states of the Middle East “tribes with flags” (though he exempted Egypt). His point still holds. In countries as different as Lebanon and Iraq, ethnic, confessional or sectarian differences have thwarted programmes of nation-building. That is why Iraq fell apart into Sunni, Shia and Kurdish fragments after the removal of Saddam despite decades of patriotic indoctrination. Syria could follow suit if the minority Alawi sect of the ruling Assad family were somehow to lose control of this largely Sunni country. Sudan has seen not one but two civil wars between its Arab-dominated centre and the non-Arab minorities in its south and west.”

Until the question of how to re-structure the old Ottoman Empire geographical region is resolved, an ongoing battle for power looks likely to continue in the foreseeable future. Perhaps we might have seen an earlier resolution and re-ordering to reduce the power vacuum if the region had not been home to around 75 per cent of the world's oil resources which powers the modern world. This has inevitably led to greater intervention from world powers to guarantee a vital strategic resource for their peoples and has not made it any easier for the re-ordering process to take place within this context.