By Jeremy Lawrence
Why investing in mega-projects means overriding short-term economic cycles
There’s an often repeated quote bandied about by investors that says success comes with ‘time in the market, not timing the market’. That phrase seems apt when considering a couple of this week’s stories.
On page 38, ‘Airports of the Future’ looks at the war of attrition between the world’s leading aviation hubs to attract new business. Singapore’s Changi airport will roll out biometric technology later this year. It also plans to introduce robotic cleaners complete with butlers’ uniforms, as will Seoul’s Incheon airport, where androids will clean floors and carry luggage. Presumably without requiring a tip.
Meanwhile, Dubai Airports has bigger ideas. The plan is to shift operations from what is already the world’s biggest international airport, DXB, to an even bigger one, Dubai World Central (DWC), pushing capacity from 90 million passengers to 240 million by 2050.
But it won’t be just a case of ‘same, same but bigger’. Dubai Airports CEO Paul Griffiths outlined his vision to our sister publication Aviation Business last month of a transportation system that could cut the travel time from Downtown Dubai to DWC to five or six minutes. Passengers could check in at a terminal in the heart of the city and then jump in a pod that takes them to their aircraft in minutes.
This is next-level thinking, which will make its other innovations – 3D cameras and heat sensors to manage queues; biometric data that allows travellers to use a phone selfie at departures – seem tame by comparison.
Meanwhile in Ras al Khor, another Dubai institution has set a new milestone. A video was released last week to mark the completion of foundations for The Tower at Dubai Creek Harbour. This is a major step for a project that is staggering in scale, even by UAE standards. The $1 billion tower, a joint venture between Emaar and Dubai Holding, will stand 100 metres taller than Burj Khalifa and will be finished by 2020.
Both these projects are vast in scope, requiring imagination, huge investment, and the ability to hold one’s nerve. Returning to the airline anecdotes, this has not been the best year for aviation. The sector has faced downward pressure as a result of low yields, the US travel bans, and a softening global economy. And while real estate is now regaining momentum, it still has demand/supply issues to work through, as well as the global caveats of sluggish oil prices and lower consumer purchasing power.
Seen from this perspective, it would have been understandable if Paul Griffiths, or his boss, Dubai Airports chairman Sheikh Ahmed bin Saeed Al Maktoum, decided to hold off any major investments until they see which way the wind is blowing in terms of demand.
Equally, Emaar chairman Mohamed Alabbar could have quietly scaled back the timetable for his new tower and waited for the next uptick in the real estate market.
This would have been prudent but it would also have been wrong. Investments in mega-projects, which will define a city or industry sector’s future for decades to come, cannot be timed to coincide with economic cycles that last an average of six years. Its leaders have to make bold decisions and stick to the long-term vision. And, on purely a practical note, construction costs are far lower in a soft market than they are when everyone else is investing.
So perhaps we should stop worrying for a moment about this week’s oil prices, or how many residents’ visas have been issued in 2017 compared with last year, and ask these questions: is it likely that as technology improves and costs lower, more people will fly in 2050 than theyworl do today? And secondly, will the number of people within a six-hour flight of the UAE – the demographic that is willing and able to work here – increase or decrease in the next 30 years?
The answer to both questions is fairly obvious, which explains why they’re busy digging holes in the ground at Ras al Khor and DWC. The leaders of those projects know that if you want success in any given market, you need to commit for the long-term, rather than trying to second guess its every move.