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Tech's next watering hole

The weather's sunny and the office parks are home to U.S. companies. Is Dubai set to become a tech powerhouse? asks's Michael Kanellos.

The next tech powerhouse, if Ghazi Benothman is correct, is about the size of Rhode Island.

Dubai, part of the United Arab Emirates, is laying the groundwork to become a development center for advanced semiconductors, decompression algorithms and other high-end products, said Benothman, a founding partner in Minah Ventures, a venture firm specializing in companies from the Middle East, North Africa and Central Asia.

Dubai's office parks and free-trade zones have already attracted Microsoft, Hewlett-Packard, Daewoo and General Motors, among others, and it has one of the fastest-growing airports in the world. Some of the recent projects in Dubai include building what aim to be the world's tallest hotel and the world's largest artificial island. Minah, meanwhile, is in the midst of raising a $100 million fund, a substantial portion of which will likely come from government agencies.

"The next market to emerge behind India and China is the Middle East," Benothman said.

The plans forged by Minah and Dubai essentially call for Middle Eastern tech folks to follow the trail blazed by Israeli entrepreneurs. Silicon Valley has become home for many of the top technical graduates out of schools like Sharif University of Technology in Iran and the American University of Beirut.

The Middle East is benefiting from a blend of oil money and U.S. higher education.

Entrepreneurs such as chip executive Atiq Raza and eBay's Pierre Omidyar can also trace their roots back to the Middle East. Minah hopes to connect investors with recent graduates there to form start-ups in the region. Right now, a lot of these graduates get stuck in dead-end engineering jobs for the government in Egypt or Jordan or can't find jobs at all.

"When you look at them as individual countries, it adds up to nothing. But in the region, there are 100,000 college graduates a year. Half are in engineering, and the other half are in medicine," Benothman said.

The Middle East is also benefiting from a blend of oil money and U.S. higher education. Carnegie Mellon University, Texas A&M University, Virginia Commonwealth University and the Weill Medical College of Cornell University have all set up campuses in Doha, the capital of Qatar, which has similar goals to Dubai. All 41 students in CMU's first academic class finished their first school year a few days ago. Nine made Dean's list for the spring semester. These students will graduate in 2008. (Georgetown University plans to open its Doha campus in August.)

Political instability and corruption, unfortunately, remain common facets of life in many Middle Eastern nations, which is where Dubai comes in. Although a monarchy controlled almost entirely by the Maktoum family, the 2,000-square-mile city state is quite modern. The population has grown from about 100,000 in the 1960s to about 1 million today. The majority of the country's current residents come from outside the Emirates.

Eastern promise
Rather than start companies in Jordan or Lebanon, Minah's idea is for local entrepreneurs to put the headquarters in one of Dubai's industrial parks, keep the developers in their home country, and then open sales offices in the U.S. and Europe.

In the Middle East, government regulations do not promote or protect capital investment. "Dubai is an exception," said Pirooz Hojabri, co-founder of Plato Networks, a Silicon Valley-based networking chip company. "I believe the first wave of investments will be in semiconductors by Taiwan/China and Middle Eastern VCs."

The incentives in Dubai generally rival or exceed the global standard. Where China and Mexico offer multinational companies tax holidays that go up to 10 years, Dubai offers a 50-year holiday to corporations, and individuals pay no income tax. Creative leasing laws effectively allow foreigners to own buildings, a stark contrast to elsewhere in the region.

Expenses are a challenge. Labor and the cost of living aren't nearly as cheap as in India and China: New college graduates who earn $6,000 in India might command $30,000 in Dubai. As a result, Middle Eastern start-ups probably won't be able to specialize in providing help desk support or other basic services.

Dubai offers a 50-year holiday to corporations, and individuals pay no income tax.

Instead, these companies will have to come up with difficult-to-replicate intellectual property to form companies around. Israel became a fixture in technology through security software and semiconductor design. Israel, however, came of age when most other countries were focused on cranking out PCs and packaged software: Now the U.S., Europe, Japan and even the inexpensive tech havens like India have become fixated on the intellectual property model. For the Middle East, carving out areas of expertise in this environment will be a big, big challenge.

Still, it could turn out cheaper than setting up in the United States. Running a company in Dubai costs about half as much as in Silicon Valley, Benothman said.

It's also an easier place than India or China to transfer U.S. employees, Benothman asserted, because there's almost no poverty, nearly everyone speaks English and the buildings are all about 20 minutes old. Dubai also is one of the few places in the region where you can get a drink.

"You get off the plane and think, 'This is Vegas,'" he said.