I'm a big fan of great cities on the water.

New York, Boston (my home town), San Francisco and Miami here in the U.S., and Venice, Hong Kong, and Sydney, among others, overseas. I love visiting all of them.

That's why I want to talk about another port today, one that I believe holds a lot of financial promise over the next decade. It's Dubai and, as commercial investment centers on the water, it's getting bigger and better all the time

The United Arab Emirates, and especially Dubai, have skillfully groomed their strategically located ports for many centuries—a factor that has contributed to the country’s (and Dubai’s) growing financial strength. In 2006, the total trade exchange in the UAE (including imports, exports, and re-exports) reached Dh530 billion.

Dubai’s economy is growing at breakneck speed, and given its tax-free benefits to foreign investors, it’s more than likely to keep on growing.

There are many ways of profiting from the soaring growth in Dubai and the Middle East are now experiencing. It’s common knowledge that the entire region is one big commodity market and that the one commodity is oil. Right, but times have changed. Oil is a vital commodity that is getting more expensive because oil is not renewable. On top of that, oil is becoming increasingly expensive to produce. In sum, higher prices at the pump mean higher profits in oil-producing countries.

But that’s not the whole story.

These oil riches are opening doors for investors like us who want to invest in breathtaking real estate opportunities below market or who are looking to find unique tax-free profit opportunities. How? You see more oil revenues mean governments’ need fewer taxes and wealthy citizens demand higher priced goods and services. The current oil bonanza finances thousands of offshore businesses and billion dollar real estate projects, as these countries steer towards locative investment projects that we all can share.

A good example is the $1 billion dollar project called Riverwalk—a recent freehold residential development financed by an American company. The largest capital foreign direct investment (FDI) to Dubai, this mammoth project developed by Capital Partners, an American Private equity firm, is leading the way for other U.S. companies. Phase One will cover 1.5 million square feet of commercial and residential space in Dubai Internet City.

W. Jonathan Wride, Managing Director of Capital partners FZ, LLC, said, “The real estate, leisure and hospitality sectors are booming in Dubai, and will continue to be instrumental in securing regional investment; meanwhile oil & gas, power, water and industry continue to show huge potential.”

Right now, foreign investment in the Middle East stands at less than 1 percent of world FDI funds. While the GCC managed to secure $1.81 billion of FDI in 2003, $7 billion was invested in the wider Arab region. Of that money $480 million was invested in the UAE, largely in its capital city Abu Dhabi.

Wride adds, “A successful case study like Capital Partners has already encouraged American firms to look to the UAE for investment opportunities. With all of the right mechanisms in place, including the support for private sector initiatives, high levels of transparency, and a commitment to FTA initiatives, American companies will set up operations here.”

Proposed changes in Dubai’s Company Law, which currently limits foreign investment to 49 percent will also improve upon an already attractive business environment for foreign companies. Changes in this law will automatically invite more foreign investment, by encouraging more Dubai businesses (especially family businesses) to go public without having to worry about losing their influence over their companies.

Let’s get to some numbers.

Dubai’s GDP per capita ($46,200) soared higher than any other country in the world during 2006. To put that number in perspective, this rate of growth, 16%, doubled that of China’s 8.5% rate, which was previously viewed to be the fastest growing economy in the world. Looking at Dubai’s numbers in regional contrast –most other GCC states achieved less than half that amount of GDP per capita— US$13,500.

Oil and non-oil exports were up by 79% to Dh442 billion in 2005 from Dh 330.8 billion in 2004. Mohamed Ali Alabbar, Director General, Department of Economic Development emphasizes that the key to Dubai’s financial success is its focus on long-term sustainability.

"At current prices, Dubai's GDP has recorded a significant increase and is estimated to reach Dh136 billion in 2005 up from Dh118.4 billion in 2004," said Alabbar. "When compared to Dh 62.3 billion in 2000 and Dh 44.7 billion for the year 1996, this puts the accumulated annual growth of Dubai's economy in the last decade at among the highest rate of growth in the world."

But investors understandably nervous about the erratic nature of oil prices, there is reassuring news. The non-oil contribution to the GDP grew by over 14% in2005, to Dh128.4 billion from Dh 111.7 billion in 2004. When you look at the 1996 reports, non-oil was just 38.17 billion. So, non-oil contributions to the GDP rose by 236 percent over that ten year period.

Or course, rising oil prices have also contributed to Dubai’s growth rate, a sector which grew by 18% over last year’s Dh 6.7 billion—and will likely come to 7.9 billion this year. Yet, the director of Economic Development in Dubai pointed out that the “contribution of the non-oil sector was 94.20% in 2005.”

Here’s some regional context. In the UAE oil revenues contributed to over 30% of its real GDP. Oil only contributed 6.1% to Dubai’s real GDP. In part, this is due to Dubai’s surge in construction and real estate.

I'll spend a few blogs in further discussion on Dubai (consider this one a table-setter). In the meantime, do your own research on Dubai and see if I'm not on to something. Bet you I am.