End of a mirage
With a debt that is 100 per cent of its GDP, Dubai will now pay for its excesses.
Is the Dubai dream as the El Dorado of the Middle East over? Despite the shock waves caused by the emirate’s announcement that it was seeking a freeze on repaying billions of dollars in debt, there was no apparent change in the rhythm of the city. Traffic was light but that was because of almost everyone taking advantage of a string of holidays combining Eid with National Day festivities by leaving for trips abroad.
Bankers and businessmen huddled together behind closed doors to do their sums and they did not add up. Dubai World and its realty subsidiary Nakheel are iconic landmarks, the creator of such extravagances as The Palms, islands built on reclaimed land in the shape of the hardy tree holding luxury villas and condominiums favoured by film and football celebrities. These projects, including a manmade ski slope in a mall and the world’s tallest building under construction, were funded by borrowed money.
Dubai’s debt is $ 80 billion, 100 per cent of its GDP, and as the world economic meltdown began with the downfall of Lehman Brothers, Dubai felt its tremors with the rest of the world. But the Abu Dhabi emirate, by far the richest of the seven emirates that make up the United Arab Emirates, bailed Dubai out with tranches of $20 billion, $10 billion snapped up immediately and two Abu Dhabi banks recently chipping in with $ 5 billion. The decision to ask for a six-month moratorium on repayment of a few billion dollars under the Islamic banking system came as a bolt from the blue.
The universal assumption of bankers and other lenders was that Abu Dhabi, with its deep pockets, would bail Dubai out yet again. The announcement on the freeze was made just before the long break with markets opening only on Monday. Sheikh Mohammed bin Rashid Al Makhtoum, the ruler of Dubai and prime minister of the Federation and the creator of the modern city, immediately left on an official visit to Britain. The federal government in Abu Dhabi seemed to have been taken by surprise and gave no public reaction for days.
Unlike oil-rich Abu Dhabi, Dubai has little oil and has been diversifying its economy. Its attempt has been to attract tourists Las Vegas style, creating marvels in the desert, make the city with its superb infrastructure attractive to the expatriate by offering a lifestyle he could not enjoy at home, tempt celebrities and the super rich to buy expensive property and invite foreign capital.
Dubai’s ambitions grew as it smelled success, with more and more extravagant projects leaving the drawing board for the construction site. But then Lehman Brother went bust and each country fended for itself. Property prices in Dubai fell by half. The Central Bank governor, Sultan Nasser Ahmed Al Suwaidi, confessed in Abu Dhabi before Dubai sprang its surprise that the UAE had invested excessively in the real estate sector.
Dubai has also invested in real estate and companies abroad and must now count the costs of its profligacy. It is assumed that at the end of the day Abu Dhabi will give Dubai a helping hand to overcome its present crisis. The question is what it will demand in return
because the emirates function with a wide autonomy and usually shoulder the costs of their mistakes.
The question for the large expatriate population and tourists arriving to gawk at the slightly wacky marvels is whether the flavour of Dubai will change. Many new extravagant projects have been scrapped, rows upon rows of newly built apartment blocks remain empty and buyers saddled with expensive investments are waiting for a fair breeze to arrive. The never-say-die motto has been born out of compulsion as much as hope.
Dubai’s Sheikh Mohammed is a determined leader and is setting about reorganising his iconic brands and reassessing the growth model. Few doubt that the city will surmount the present crisis with a moratorium imposed on expensive eye-catching projects simply because the kind of money needed is not available. The city’s dilemma is that a less glitzy version might not prove appealing to the hordes of tourists who flock to its perennial sales, its gold souk, its seemingly endless marvels.
Expatriates are not leaving, except for those made redundant by the consequences of the world economic crisis. For the upper strata, life is good, with plush golf courses, imported entertainment groups and no personal income tax. But they are beginning to wonder whether Dubai’s brash glitzy persona can remain unchanged.
Along with Oscar Wilde, Dubai has always believed in the adage that nothing succeeds like excess. Minus the excess, will Dubai remain Dubai?
Bankers and businessmen huddled together behind closed doors to do their sums and they did not add up. Dubai World and its realty subsidiary Nakheel are iconic landmarks, the creator of such extravagances as The Palms, islands built on reclaimed land in the shape of the hardy tree holding luxury villas and condominiums favoured by film and football celebrities. These projects, including a manmade ski slope in a mall and the world’s tallest building under construction, were funded by borrowed money.
Dubai’s debt is $ 80 billion, 100 per cent of its GDP, and as the world economic meltdown began with the downfall of Lehman Brothers, Dubai felt its tremors with the rest of the world. But the Abu Dhabi emirate, by far the richest of the seven emirates that make up the United Arab Emirates, bailed Dubai out with tranches of $20 billion, $10 billion snapped up immediately and two Abu Dhabi banks recently chipping in with $ 5 billion. The decision to ask for a six-month moratorium on repayment of a few billion dollars under the Islamic banking system came as a bolt from the blue.
The universal assumption of bankers and other lenders was that Abu Dhabi, with its deep pockets, would bail Dubai out yet again. The announcement on the freeze was made just before the long break with markets opening only on Monday. Sheikh Mohammed bin Rashid Al Makhtoum, the ruler of Dubai and prime minister of the Federation and the creator of the modern city, immediately left on an official visit to Britain. The federal government in Abu Dhabi seemed to have been taken by surprise and gave no public reaction for days.
Unlike oil-rich Abu Dhabi, Dubai has little oil and has been diversifying its economy. Its attempt has been to attract tourists Las Vegas style, creating marvels in the desert, make the city with its superb infrastructure attractive to the expatriate by offering a lifestyle he could not enjoy at home, tempt celebrities and the super rich to buy expensive property and invite foreign capital.
Dubai’s ambitions grew as it smelled success, with more and more extravagant projects leaving the drawing board for the construction site. But then Lehman Brother went bust and each country fended for itself. Property prices in Dubai fell by half. The Central Bank governor, Sultan Nasser Ahmed Al Suwaidi, confessed in Abu Dhabi before Dubai sprang its surprise that the UAE had invested excessively in the real estate sector.
Dubai has also invested in real estate and companies abroad and must now count the costs of its profligacy. It is assumed that at the end of the day Abu Dhabi will give Dubai a helping hand to overcome its present crisis. The question is what it will demand in return
because the emirates function with a wide autonomy and usually shoulder the costs of their mistakes.
The question for the large expatriate population and tourists arriving to gawk at the slightly wacky marvels is whether the flavour of Dubai will change. Many new extravagant projects have been scrapped, rows upon rows of newly built apartment blocks remain empty and buyers saddled with expensive investments are waiting for a fair breeze to arrive. The never-say-die motto has been born out of compulsion as much as hope.
Dubai’s Sheikh Mohammed is a determined leader and is setting about reorganising his iconic brands and reassessing the growth model. Few doubt that the city will surmount the present crisis with a moratorium imposed on expensive eye-catching projects simply because the kind of money needed is not available. The city’s dilemma is that a less glitzy version might not prove appealing to the hordes of tourists who flock to its perennial sales, its gold souk, its seemingly endless marvels.
Expatriates are not leaving, except for those made redundant by the consequences of the world economic crisis. For the upper strata, life is good, with plush golf courses, imported entertainment groups and no personal income tax. But they are beginning to wonder whether Dubai’s brash glitzy persona can remain unchanged.
Along with Oscar Wilde, Dubai has always believed in the adage that nothing succeeds like excess. Minus the excess, will Dubai remain Dubai?