Dubai Debt Default by Dr Mohammad Manzoor Alam (DECEMBER 14, 2009)
Don’t write this cosmopolitan city state off, “not so swiftly, at least”, writes Dr Mohammad Manzoor Alam.
Till November 25 this year, Dubai was the Middle East’s most glitzy and glittering city, attracting the world’s high-profile investors, film and sports stars, holidayers and shoppers.
Celebrities like MF Hussein, Brad Pit-Angelina Jolie and Asif Zardari-Benazir Bhutto lent their charm to this sparkling adrenaline-pumping joy-ride of a city that prided itself as the Singapore of the Middle East.
Big names in business and finance, entertainment and media were building or acquiring their second, third or umpteenth home in the exclusive Palm Beach Jumairah, a man-made palm-shaped island. It was the dream-come-true for marketing professionals imagining ever-newer ways of enhancing the experience of high living.
Somehow, since November, much of the hype and hooplah surrounding Dubai has dissipated. The airport car parking is full of cars with their ignition keys still there. The dust-gathering cars had been left there by their owners months ago while fleeing the country. Those people, because of the economic troubles, no longer able to repay loans on their property, slipped away to their countries. Dubai has still as many foreigners as nationals.
The second wave of panick hit when Dubai World, a ports and property conglomerate, failed to repay its debt and postponed repayment to next year. That move shook international investor confidence. The debt is said to be equal to Dubai’s GDP. Dubai World is owned by the government, which has refused to bail it out. That has hurt investor confidence further.
Abu Dhabi, its richer partner in the United Arab Emirates (UAE), has come up with $ 15 billion to the rescue, but that may not be enough. Overcapacity and hype had inflated the Dubai bubble much before November 25. Today many buildings and posh homes are unoccupied, projects have been either scaled down, stalled or scrapped.
This is a difficult situation, but far unlike the US home markets crash as this has not hurt the world economy, nor has it affected the relatively fast global recovery. Indian workers’ remittances per year from Dubai are a whopping $ 27 billion. Indians are major players in Dubai’s business. The Indian government has however said the Dubai default has not really affected the Indian economy.
It is mainly a local problem, well-contained within that city state. It is part of a larger pattern in the Middle East: In the 50s and 60s Cairo, Damascus and Baghdad glittered. Then came the turn of Beirut. After its ruin came Dubai and Bahrain. Now, for a while Dubai is eclipsed. That may not be the end of the story.
My hunch is that it is too early for anyone to write Dubai off, not so swiftly, at least. Its recovery, howsoever painful, is still possible.