[arjun-menon]

The quote is actually likely from a member of Dubai Royal Family.

An interesting fact here is that the UAE will never become poor.

The UAE has saved up over 1.3 million USD dollars per citizen[a]. And this is just the government’s savings. Obviously, there’s immense private wealth on top of that as well. Even if with investment returns as low as 4% per year drawn out, that would translate to $52,000 per citizen.

This is 52k of money that you could almost call free money. We’re not counting for the fact that at least half these citizens are not going to simply sit at home. They’re going to work, earn, start companies, etc. And the citizenry is very highly educated. And a lot of them actually have STEM degrees too (which correlates with higher earnings). So realistically, the per capita annual income could be in the over $100k per citizen range, even after the oil has run out.

[a] The UAE has about 1 million citizens (most of the ~9 million who live in the UAE are not citizens), and the UAE’s sovereign wealth funds have total assets exceeding USD $1.3 trillion: https://en.m.wikipedia.org/wiki/List_of_countries_by_soverei...

[sabalaba]

It’s not impossible (more like highly likely) for that trust to go the same way of the Nauru Phosphate Royalties Trust. Administrative burden and corruption. Mismanagement. Exponential growth can’t go on forever.

It’s interesting that UAE is doing the same thing that Nauru did except on a larger scale with petrochemicals instead of phosphate.

https://en.wikipedia.org/wiki/Nauru_Phosphate_Royalties_Trus...

[fakedang]

I've worked with the UAE's SWF, and imo, they'll never collapse. Corruption is nonexistent nearly in the investment authorities, since they are highly regulated and treated essentially as defacto Western companies listed in the NYSE or something. If they collapse, we would have far bigger problems by that time, since they're invested heavily into the modern global economy. This is not oil wealth, but actual invested wealth.

[cik]

I came to share exactly this. The UAE is the most forward thinking, of any of the Gulf states. Economic planning literally spans 100 years and multiple scenarios. They're using oil wealth to actively invest in finance, tourism, technology, high-yield agri-tech, and medical research. They also have the most vibrant (by far) tech scene of the Arab world, and are working only to hyper-accelerate that.

[Thlom]

If they are so rich and forward thinking, why do they use slave labor?

[wongarsu]

Being rich and forward thinking is independent of morals

[fakedang]

First of all, it's not slave labour that's employed in the construction industry or any of the other sectors. I think I can speak for this considering my relatives worked those "slave" jobs as you put it.

The UAE had long been forced by the British and the Americans to abolish slavery before they gained their independence. This, unlike Saudi Arabia, where it was legal long after the 1970s.

About the "slave" jobs, most of them are basically menial jobs with really shit pay and a combined bunk accommodation. But it's far better than what we get back in India or Pakistan or Bangladesh, which is usually the unemployment line. A number of people have improved their station and are part of the local business community from those levels.

[scottmcf]

Don't they often take their passports and prevent them from leaving?

[znpy]

They get rich because they can exploit slavery, they are forward in a different direction than most people refer to when saying "forward".

[Nowado]

... why not?

[ben_w]

> imo, they'll never collapse

Things can change surprisingly fast. My grandmother was born close to the peak of the British Empire, within a few years (plus or minus) of Irish independence; by the time my older brother was born the Empire was reduced to about 5 million people outside the UK, and by the time I was born the UK had humiliated itself by managing to lose a naval dispute with Iceland despite the entire population of Iceland country being approximately the same as the number of personnel in the UK armed forces.

[fakedang]

Again, read my last line. The SWF is responsible for all the subsidies in the UAE, and if they collapse, it would mean we have far bigger problems. The SWF invests in all major indices across all major markets, and even in multiple private equity firms (including my old firm, which was one of the biggest in the world). The collapse of $1.1T worth of investments would be the signal of a global collapse. Imagine if Blackrock or Vanguard declared themselves bankrupt one fine morning - that's what you're implying.

Also Norway would collapse too, since both the Norwegian and Abu Dhabi SWF have very similar investment profiles.

Last time I checked, the British Empire hadn't invested a dime into either the US or Chinese stock markets. Or even had a sovereign wealth fund for that matter.

[ben_w]

I read you last line, but “if it collapses we have bigger things to worry about” was essentially the same argument my father used when he advised me to invest in Lloyds bank — those shares lost 95% of their value since I bought them precisely because “something bigger to worry about” did in fact happen.

Now I’m a software dev not an economist, so perhaps you know better, but I have been told that WW2 essentially bankrupted the British Empire, which was 36.54% of global GDP in 1913.

I am happy to assume the SWF is invested wisely, but even if the manager’s kids and grandkids continue to invest wisely and learn the explicit lessons of the mistakes of others without ever falling into the mindset that they’re “too big [for anyone else to allow them to] fail” and therefore take risks that make failure more likely, black swan events are an ever-present risk. Indeed, one reason I referenced British Empire is the phrase “the empire on which the sun never sets” — it set on the British, and one day it will set on all the nations that now exist, including UAE.

[fakedang]

You're willfully ignoring statements. Your father asked you to invest in one company's single security. The UAE, Singaporean and Norwegian wealth funds are invested in everything from real estate to stocks to bonds to private equity. If those funds were to fail, the cause of that would be because the underlying securities failed, which would imply a collapse of the global financial system.

As for the managers' capabilities, it's not some dude sitting in an office managing a trillion dollars - it's a team of highly brilliant investors who either invest directly or outsource the investing to multiple megafund investor firms across multiple risk profiles such as Blackrock or Blackstone or Vanguard or Citadel, all of whom hire really talented folks (unlike the typical investment banking industry). Nowhere near your dad advising you to invest in LBG.

Also the term "The Sun never sets on the British empire" implied geographical dominance across the world, not immortal dominance. Before you guys, it was the Spanish claiming that.

[ikerdanzel]

You making an assumption UAE will never dip their hand into their golden goose. Money come and go. Just go ask Rothschild and Rockefeller when they had wealth beyond imagination back then. I wouldn't put too much faith in SWF. Nokia gone. Lehman gone. They take along a lot of billionaire money too. So SWF will have to be incredibily lucky like Buffet to keep their wealth. Let just say in 50 years, it will be very different than what you praised about SWF today.

[fakedang]

Fun fact, the Rothschild and Rockefeller wealth still exists, although it's heavily fragmented. For the Rockefellers, the US government explicitly stepped in and split their golden goose (Standard Oil - > Exxon + Chevron + Texaco). The Rothschild money permeates Europe throughout. The split is because that's what happens when you get a family spanning more than thousands of members. And each of their branches are massively wealthy.

You mention the UAE dipping into its SWF, except it already does that. The SWF accumulates the oil wealth from exports, which is reinvested into various investments around the world. A fraction (about 50B USD) of the annual returns from that wealth is what is used to run the UAE and all of its welfare programmes, its military, etc. Unlike the Saudis, UAE and Qatar both benefit from really small local populations - there are about 300k Qatari citizens and 1M Emirati citizens worldwide.

And Buffett is not lucky. He made a lot of successful bets everywhere year - I recommend reading his investor letters if you can, where he explains his rationale behind every investment decision, including the ones that turned out to be duds.

Just as you say that SWFs won't exist in 50 years, there are banks in Switzerland that have existed for hundreds of years. Oxford and Cambridge are just as prestigious today as they were 800 years ago. Once a culture is established and buttressed, it will be hard to shake it off.

[dalbasal]

Idk if a monarchy where citizens are a small minority can be thought of this way.

It's like saying a company has lots of money saved. Doesn't matter much if the operation aren't profitable.

Economic activity ceasing is still what it is.

...in any case, gulf oil will likely be the last well abandoned. It's so cheap to produce that production can continue at very low oil prices. The last half of any adoption curve is long, and people will still consume some oil and gas for several more decades.

[ehnto]

I wouldn't so boldly claim they won't go poor, you trust in good management and no internal misfortune or subterfuge. Though their savings buy them considerable time to figure out an economic path forward, the loss of their profit center will surely affect the weight of their currency and political influence.

Oil won't go away of course, once the huge capital investment no longer makes sense it will become less abundant as fewer companies will be extracting and refining it. So they could see profits from oil as a niche resource in a post oil world.

[imtringued]

If they are well prepared then they will actually do better after the oil is gone. The resource curse results in countries focusing on a few narrow industries. Resource extraction is easy but it only benefits those who are directly employed by it. Usually governments don't make it easy for other types of businesses to flourish because they can entirely support themselves on resource extraction.

[frobisher]

Indeed. That said, what will they diversify to? I wonder if it will be solar energy generation due to natural abundance. Barring that, it will have to be something like high tech, which itself will be dependent on importing talented labour. That will only happen with low tax rates, with Dubai acting as a hub for transient talent looking to save for a few years, then head off.

Meanwhile, given the local Emirati will form a small fraction of the economy, they may effectively act as rent seekers on income and corporate tax from the rest of the economy.

Will this be an ideal egalitarian society? Probably not, at least in terms of my values. But those seem like the underlying dynamics, for better or worse.

Of course, if diversification isn't competitive relative to the rest of the world, things will go the other way.

[arjun-menon]

> I wonder if it will be solar energy generation due to natural abundance.

Yup, it’s happening. Gigawatts of solar power is being constructed. The UAE is getting this solar energy at the cheapest price per watt worldwide as well: https://www.forbes.com/sites/dominicdudley/2020/04/28/abu-dh...

> will be dependent on importing talented labour

This is already happening at a massive scale.

> That will only happen with low tax rate

This is also already true. The personal income tax rate is 0%. Most types of companies don’t pay any taxes either. The only tax you directly incur is the VAT of 5%.

> Will this be an ideal egalitarian society?

In the future, it’ll probably transform more and more into a sort of hyper-capitalistic and highly-successful country like Switzerland.

[dcolkitt]

I mostly agree with this post, but have to point out that the UAE is not a unitary polity. It's a loose confederacy of seven related Sheikdoms, with a wide range of policy and level of development.

Almost all of that wealth is concentrated in the sovereign wealth fund of the emirate of Abu Dhabi, because Abu Dhabi has by far the largest oil reserves. Next is Dubai, which has much less accumulated in its sovereign wealth fund, because it's nearly run out of oil. However it's done a lot to diversity its economy into finance, services, and tourism.

But as for the other five emirates, the picture is much more bleak. Nor is it like the US, where finances or taxation are co-mingled on the federal level to any serious degree. If California generates a lot of wealth relative to Alabama, you'd expect a lot to be redistributed. But Abu Dhabi will not be sending any of its enormous wealth holdings to Sharjah by any means.

[arjun-menon]

You’re partly right, but there are actually a fairly significant amount of lateral transfers to other emirates (through the federal budget, which is mostly funded by Abu Dhabi). Things like the electricity and water system are run federally (by FEWA - the Federal Water & Electricity Authority) in 4 northern-most emirates. Many other benefit systems are also mostly funded by Abu Dhabi, and primarily for the benefit of the citizens of other emirates — one example might being the Sheikh Zayed Housing Programme. Abu Dhabi actually does help the nationals in all the emirates.

[dcolkitt]

Thanks for pointing this out! I wasn't aware of that.

[znpy]

> Even if with investment returns as low as 4%

That line of reasoning always make me smile.

That's like assuming that once you get a certain threshold of wealth, you can automatically assume you'll be fine forever.

And by the way, that "as low as 4%"... Most people throw percentages all around the table, easy like that... Seems funny.

Call me stupid, but the idea of a whole country being able to piggyback off all other countries seems unlikely to say the least.

[arjun-menon]

Do you realize most 401(k) and IRA accounts in the US are all invested securities (like equities and bonds)? Similarly, most wealthy people invest their money in general?

Also, I didn’t pull the 4% out of a hat. It’s actually the “Safe Withdrawal Rate[a]” recommended by Mr. Money Mustache. See his blog posts on it: https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-nee...

Also, see: https://www.mrmoneymustache.com/2018/11/29/how-to-retire-for...

[a] Bogleheads article on Safe withdrawal rates: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

[mariuolo]

> the UAE will never become poor

But their land might become uninhabitable in a few decades.

[WanderPanda]

It is already almost uninhabitable and has been for a long time. Nevertheless ~10M people live there. Technology is solving this, either the root cause or the symptoms

[Red_Leaves_Flyy]

Air conditioning the outside is almost assuredly not sustainable.

[arjun-menon]

Not sure what you mean “the outside”. Only indoors are air-conditioned (using electricity). And in the UAE, right now, electricity generation is slowly being switched over solar energy (away from natural gas), which is clean / renewable / sustainable. (https://www.greentechmedia.com/articles/read/worlds-largest-...)

[Red_Leaves_Flyy]

It was Qatar that I was thinking of.

https://www.washingtonpost.com/graphics/2019/world/climate-e...

[jnxx]

They do have in fact one neighbor, Iran, in which in some places temperatures rise above 50°C, with high humidity, which is close to uninhabitable. And this is due to climate change, so it is going to get worse. I think it is possible this has ripple effects.

[fakedang]

Rashid bin Saeed al Maktoum actually, his son. And yeah, member of the Dubai royal family.