SKYSCRAPER REPEATEDLY HIT BY LIGHTNING
DUBAI WORLD REQUESTS JUBILEE
Dubai World Seeks Debt Standstill
BY Chip Cummins / 11.26.2009
This debt-laden city-state said Wednesday it would restructure its largest corporate entity, Dubai World, a conglomerate spanning real estate and ports, and announced a six-month standstill on the group’s debt. The surprise move quickly sapped investor confidence in Dubai ‘s ability to pay down its large debt load, sharply increasing the price of insuring against a default. It also represents the most significant fallout so far in the city-state’s yearlong economic crisis, triggered by a collapse in its once-booming real-estate sector late last year.
In response to the news, both Moody’s Investors Service and Standard & Poor’s heavily downgraded the debt of various Dubai government-related entities with interests in property, utilities, commercial operations and commodities trading. In Moody’s case, the downgrade meant that the affected agencies lost their investment grade status. The government of Dubai said it appointed Deloitte LLP to spearhead the restructuring effort, naming an executive at the consultancy as the group’s “chief restructuring officer.” The move appeared to sideline, at least for the time being, the company’s current management team, which had launched an internal corporate restructuring earlier this year.
Government officials, company executives and company representatives weren’t available for comment Wednesday. Sultan Ahmed bin Sulayem, Dubai World’s longtime chairman and a top lieutenant to Dubai’s hereditary ruler, Sheikh Mohammed bin Rashid Al Maktoum, didn’t respond to an email request for comment.
A spokeswoman for the Dubai government’s Department of Finance, which issued the statement, said Sulayem and the rest of the current management team would remain in place and would be working with Deloitte. Dubai World executives have “actually been trying to restructure themselves for awhile, and the Dubai government decided it needed to take a more proactive role,” the spokeswoman said late Wednesday.
The government said its Financial Support Fund, a fund set up to manage Dubai’s debt earlier this year, would start to assess and evaluate the extent of the restructuring required. As part of that assessment, it said officials intend to ask lenders for a debt “standstill” and request they extend debt maturities until at least May 30. Dubai said the corporation’s portfolio includes “strategically important businesses” and said “the restructuring will be designed to address financial obligations and improve business efficiency for the future.”
Most immediately, the standstill will affect a $3.5 billion bond that Dubai World’s real-estate subsidiary, Nakheel, was scheduled to repay next month. The bond was seen as a crucial test of Dubai ‘s ability to pay its debts, amid a real-estate market crash that has ricocheted across the emirate’s once-booming economy. Dubai World this spring signaled a restructuring of the bond was an option, but hasn’t provided details since. The spokeswoman for the Dubai Department of Finance said company officials were currently discussing options with lenders, but didn’t give details.
The cost of insuring Dubai debt, which had fallen sharply amid signs of a global economic recovery, shot higher after the announcement, rising by more than a third by late Wednesday, to $429,700 to insure a $10 million loan for five years, according to CMA, a credit-information specialist. The announcement came just hours after Dubai said separately that it raised $5 billion from two local banks, the second installment of what officials had said would be a $20 billion borrowing program. The bond program was unveiled in February, with the federal government of the United Arab Emirates snapping up the entire first tranche.
The bonds were effectively a federal bailout by the U.A.E., led by oil-rich Abu Dhabi, the country’s capital. Abu Dhabi and Dubai are the biggest of seven semiautonomous emirates that make up the U.A.E. Since then, Dubai officials have suggested they would seek international investors to fund the remaining $10 billion. Dubai says it is using the funds to pay down international debt and unpaid bills to contractors.
Wednesday’s $5 billion funding announcement initially cheered analysts and investors. While the issue’s two lenders were both Abu Dhabi-controlled banks, the deal suggested to many that Dubai was able to go to sources besides the federal government for cash. An earlier, unrelated debt issue by Dubai in October was also oversubscribed. The Dubai World announcement raised fresh questions over the federal government’s willingness to help Dubai out. It also appeared to contradict signals from Dubai’s government that it was willing to fully support its corporate entities. In its statement about Dubai World, Dubai officials said the $5 billion bond issue wasn’t linked to the Dubai World restructuring. “It opens more questions than it gives answers,” said Philipp Lotter, an analyst with Moody’s Investors Service in Dubai. “Is this (standstill) voluntary or involuntary? If it’s voluntary, fine, it makes perfect sense. If it’s not, it’s a default.”
In an October report, Standard & Poor’s estimated Dubai World could be responsible for as much as 50% of Dubai’s total government- and corporate-debt load of some $80 billion to $90 billion. Dubai World was long the crown jewel of Dubai’s economy, operating a globe-spanning ports and transportation group and spearheading ambitious real-estate and infrastructure projects at home and abroad. Nakheel built Dubai’s iconic palm-tree-shaped island, packed with luxury villas and hotels, many still under construction.
It was caught in a political maelstrom in Washington in 2006 after its core ports division, now called DP World, proposed to buy a competitor, which at the time owned a handful of U.S. ports. Political opposition on Capitol Hill blocked the acquisition, forcing Dubai World to shed the U.S. assets before completing the deal.
In recent years, Dubai World launched a debt-fueled international buying binge, diversifying far beyond its core ports business. In 2007, it joined up with in the $8.5 billion CityCenter project in Las Vegas. An MGM Mirage (MGM) spokesman said Wednesday that Dubai World had already fulfilled all of its commitments to funding the project, totaling some $4.65 billion. The same year, Dubai World’s investment outfit Istithmar bought high-end retailer Barneys New York for just under $1 billion.
David Jackson, chief executive of Istithmar, didn’t immediately return an email message sent Wednesday. A Barneys New York spokeswoman declined to comment. As previously reported, Istithmar is exploring a possible Barneys restructuring, with the retailer tapping investment bank Perella Weinberg Partners to advise it.
Some of Dubai World’s U.S. investments, made at the height of the market, have dropped substantially in value. Dubai World agreed to purchase half of MGM Mirage’s CityCenter mixed-use casino project in August 2007 when the real estate market in Las Vegas had reached its peak. At that point CityCenter was only partially complete and the project’s assets were valued at $5.4 billion. A little more than two years later, MGM Mirage said it was writing down around $2.34 billion in value for the project, which devalued Dubai World’s stake in CityCenter by around $1.17 billion to $2.44 billion.
Cost of Insuring Dubai’s Debt Continues to Soar
BY Ainsley Thomson / 11.30.2009
The cost of insuring Dubai’s sovereign debt against default surged for the third day in a row as the fallout from Dubai World’s restructuring announcement continues to fuel a flight from risk. It now costs $664,000 to insure $10 million of Dubai sovereign debt against default for five years, up from $541,000 at Thursday’s New York close, according to data provider CMA. The cost of insuring the emirate’s sovereign debt has now more than doubled since Dubai World’s announcement Wednesday that it was seeking a six-month “standstill” on its debts with all lenders.
Dubai is one of the seven emirates that make up the United Arab Emirates. The state-controlled conglomerate is the largest corporate entity in Dubai, with interests in real-estate and ports. The news also continues to affect other countries in the Middle East, in particular neighboring Abu Dhabi, which has also seen the cost of insuring its sovereign debt shoot up. It now costs $183,000 to insure $10 million of Abu Dhabi’s sovereign debt against default for five years, up from $160,000 at Thursday’s New York close.
“The credibility of the region and the way business is conducted there [has] been shattered, and the view that “the Ruler will always pay up”–that state-owned enterprises are effectively guaranteed by their sovereign paymasters–will no longer be taken as a given,” said Suki Mann, deputy head of credit research at Societe Generale SA. It is important that the situation is clarified rapidly, and it is likely to get worse before it gets better, Mr. Mann said.
Dubai World real-estate unit Nakheel’s $3.5 billion sukuk, or Islamic bond, continued to plunge in value and was Friday trading at 50%-55% of its face value, a trader said. The price of the bond, which is due to be repaid Dec. 14, has more than halved since Wednesday’s announcement. The bondholders are considering a lawsuit against Nakheel, which developed the emirate’s iconic palm tree-shaped islands, and are looking at seizing some assets from Dubai World.
The five-year credit default swaps for Dubai-based port operator DP World also continued to rise. The level hit 810 basis points Friday, more than 200 basis points wider than Thursday’s close of 608 basis points, CMA said. Dubai World owns 77% of DP World, which is the fourth largest ports operator in the world. The port operator will be excluded from its parent’s debt standstill talks and restructuring. Fitch Ratings Friday downgraded the ratings of three U.A.E. banks as a result of the Dubai World restructuring news.
Dubai Bank was downgraded two notches to BBB- from BBB+, with a negative outlook; Tamweel PJSC, the U.A.E.’s largest provider of real-estate finance, was downgraded three notches to BB from BBB; and Bahrain-based TAIB Bank was downgraded two notches to BB from BBB-, with a negative outlook. All three institutions’ core shareholder is Dubai Holding, which is ultimately owned by the ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum.
Fitch said U.A.E. banks with close links to the Dubai government will look to it for support. “The request for a standstill agreement in respect of Dubai World and its property development subsidiary, Nakheel PJSC, and possibly other subsidiaries, implies a further weakening of the government of Dubai’s ability to provide such support,” the ratings agency said.
Fitch’s move comes after Standard & Poor’s Corp. Thursday placed four large Dubai banks on credit watch–the A-long-term rating of Emirates Bank International PJSC, National Bank of Dubai and Mashreqbank PSC and the Dubai Islamic Bank PJSC. At the same time, S&P affirmed its A-2 short-term ratings on Emirates Bank International, National Bank of Dubai and Mashreqbank. “The rating actions reflect the large exposure these banks have to Dubai World and Nakheel and more generally to Dubai-based government-related entities and the risks that the standstill agreement would pose to these banks,” S&P credit analyst Mohamed Damak said.
CDS are tradable, over-the-counter derivatives that function like a default insurance contract. If a borrower defaults, the protection buyer is paid compensation by the protection seller. Wider spreads show the cost of default insurance is going up, suggesting investors are less confident in a borrower’s ability to repay debts.
A bad omen in Dubai
BY Sebastian Mallaby / December 4, 2009
No other country built a ski resort in a desert. No other country constructed an archipelago of 300 artificial islands, complete with a man-made reef colonized by parrot fish. But even if Dubai is a gaudy outlier — a sort of Donald Trump of a nation — the bankruptcy of its flagship investment company, Dubai World, holds a warning for others. The nonchalance with which global financial markets have reacted is not reassuring in the least. The lack of alarm is alarming.
Start with the size of the Dubai bankruptcy. Most analysts reckon the emirate will end up defaulting on more than $30 billion. That’s up from the $26 billion advertised at Dubai World but perhaps less than half of the city-state’s accumulated $80 billion debt. Dubai’s bust will be larger than South Korea’s 1998 debt restructuring, which involved $22 billion worth of loans, and not much smaller than Russia’s default that year (which affected loans worth $40 billion). The South Korean and Russian traumas spread panic around the world. Nowadays, investors yawn at losses that don’t run into the hundreds of billions. This is a touch complacent.
Dubai’s bust also signals that other leveraged commercial real estate players may be in deep trouble. Dubai World borrowed to buy ventures such as the former Knickerbocker Hotel in Times Square, the Fontainebleau Hotel in Miami and (more shades of Trump) a stake in a Las Vegas casino. Its debts have finally caught up with it. Meanwhile, J.P. Morgan estimates that U.S. commercial real estate prices will keep falling until late next year, raising the risk of more defaults and undermining the collateral that secures a large slice of banks’ loan books. The banks will continue to bleed money, curtailing their ability to extend fresh loans to other businesses.
Then there is the broader message in Dubai’s bankruptcy: Governments are tired of playing fireman. The past year may have accustomed us to governments rescuing banks, insurers, money-market funds and carmakers, but history is full of crises in which governments were the source of the trouble — it was they that defaulted. In February, the rulers of next-door Abu Dhabi rescued Dubai with a loan of $10 billion. This time Abu Dhabi refused, so Dubai’s government has told lenders not to count on their next payment.
Because of the global financial crisis, plenty of other governments have overextended themselves so much that they threaten financial trouble. Greece, for example, has debt equivalent to 99 percent of its gross domestic product and is borrowing a further 8 percent of GDP this year to finance its budget deficit. The normal response to this predicament is to devalue the currency and inflate the debt away. But Greece is shackled to the euro, so the risk of default is rising.
Meanwhile, governments that are not hopelessly indebted may also quit providing safety nets. Russia, for example, is sitting atop $450 billion in foreign currency reserves. Yet it has refused to honor debts of Finance Leasing Co., a state-owned company — never mind that investors who bought the company’s bonds thought they were buying a quasi-sovereign credit. The Russian attitude seems to be that if you can walk away from your creditors — hey, why not? But even governments with more respect for their lenders may stop playing rescuer. In the worst months of the credit crisis, authorities in the rich democracies felt that they had no choice but to backstop private firms; the failure to do so in the case of Lehman Brothers proved disastrous. But now that things have calmed down, governments may be approaching the point at which they allow investors to take losses.
The threat of sovereign defaults, disowned state-company debts and continuing commercial real estate troubles comes amid a recovery that is extraordinarily precarious. It is based on fiscal stimulus from governments, but government debt ensures that this game has to stop at some point. It is based on the printing of money by central banks, but a combination of political backlash and inflation fears will eventually close down this game also. To rescue the global economy, governments have exacerbated the flaws responsible for making the system weak. China has too much export capacity; it is building more. China has an undervalued currency; it is weakening further. Meanwhile, the United States has a low national savings rate and is home to financial behemoths that are “too big to fail.” But the U.S. government has been forced to add to the public debt and broker consolidation in the banking business.
Given these troubles, Dubai should have been a wake-up call. Instead, global stock markets have risen since last weekend. We are witnessing the sort of rally that chart-watching traders know well: the kind where investors shrug off most bad news, so you might as well jump on the bandwagon. When this mentality sets in, prices inevitably rise too far. At the end of the trend there is usually a bubble.
DUBAI SKIPS (cont.)
INSTANT RUINS? [VIDEO]
PRICKING DUBAI’S BUBBLE [ATLANTIS FIREWORKS VIDEO]
With no oil to back it up, desert economy is built on shifting sand
BY Carl Mortished / February 5, 2009
Dubai’s boom was always a mirage made up of fast money, mass immigration, low taxation and gentle regulation. Unlike its neighbour, Abu Dhabi, Dubai has almost no oil but cleverly decided to boost its economy as a financial and leisure centre for neighbouring cash-rich but service-poor Gulf economies. It became a magnet for Saudis and Iranians seeking a liberal environment in which to play global financial markets and work off personal stress. A vast community of expatriates arrived to service their whims and their business needs – bankers and lawyers from the West, builders, cleaners and general factotums from the East. Their numbers represent 80 per cent of Dubai but their commitment is only as solid as their pay cheque. As one banker said: “If I default on my mortgage and go back to Pakistan, what is HSBC going to do about it?”
The pricking of Dubai’s bubble became official in November, a day after the Las Vegas-style opening of the enormous Atlantis hotel. Abu Dhabi agreed to stand behind the financial obligations of its flighty kid sister in an attempt to restore confidence. No one knows the extent of the guarantee but it is assumed to relate to the corporate ventures of the Emir and his family. Two struggling mortgage banks were then bailed out and shuffled into a new state-owned entity. Yesterday the Government of Abu Dhabi was forced to inject a further $4 billion (£3 billion) into three of its banks. Confidence is not restored. Landmark Advisory, a local real estate company, expects house prices at least to halve this year and rents to fall by a fifth. For Abu Dhabi, there is always the oil and gas but for its wayward sibling the future is no more solid than the shifting sands of the surrounding desert.
ABANDONED MERCEDES AUCTIONS
Driven down by debt, Dubai expats give new meaning to long-stay car park
BY Sonia Verma / February 5, 2009
For many expatriate workers in Dubai it was the ultimate symbol of their tax-free wealth: a luxurious car that few could have afforded on the money they earned at home. Now, faced with crippling debts as a result of their high living and Dubai’s fading fortunes, many expatriates are abandoning their cars at the airport and fleeing home rather than risk jail for defaulting on loans. Police have found more than 3,000 cars outside Dubai’s international airport in recent months. Most of the cars – four-wheel drives, saloons and “a few” Mercedes – had keys left in the ignition.
Some had used-to-the-limit credit cards in the glove box. Others had notes of apology attached to the windscreen. “Every day we find more and more cars,” said one senior airport security official, who did not want to be named. “Christmas was the worst – we found more than two dozen on a single day.” When the market collapsed and the emirate’s once-booming economy started to slow down, many expatriates were left owning several homes and unable to pay the mortgages without credit. “There were a lot of people living the high life, investing in real estate and a lifestyle they couldn’t afford,” one senior banker said.
Under Sharia, which prevails in Dubai, the punishment for defaulting on a debt is severe. Bouncing a check, for example, is punishable with jail. Those who flee the emirate are known as skips. The abandoned cars underscore a worrying trend. Five years ago the Emir, Sheikh Mohammed bin Rashid Al Maktoum, embarked on an ambitious plan to transform Dubai into a hub for business and tourism. A building boom fuelled double-digit growth, with thousands of Westerners arriving every day, eager to cash in on the emirate’s promise of easy living and wealth.
Many Westerners invested in Dubai’s skyrocketing real estate market, buying and reselling homes before building was even complete. But, as the recession took effect, property and financial companies made thousands of workers redundant and banks tightened lending. Construction companies have delayed or cancelled projects and tourism is slowing. There are increasing signs that the foreigners who once flocked to Dubai are leaving. “There is no way of tracking actual numbers, but the anecdotal evidence is overwhelming. Dubai is emptying out,” said a Western diplomat.
International schools are having to be flexible on fees as expatriate parents run out of cash. Louise, a single mother from Britain, said that her son’s school had allowed her to pay a partial fee until she found a new job after her redundancy in December. “According to the headmaster, a lot of people had come into the school saying they had lost their jobs so the school was trying to be a bit more flexible,” she said. Most of the emirate’s banks are not affiliated with British financial institutions, so those who flee do not have to worry about creditors. Their abandoned cars are eventually sold off by the banks at weekly auctions. Those recently advertised include BMWs, Porsches and Mercedes.
Simon Goldsmith, a spokesman for the British Embassy in Dubai, said that that there were approximately 100,000 Britons living in Dubai last year. However, the embassy has no way of tracking how many have fled back to the UK. “We’ve heard stories, but when somebody makes that kind of decision, they generally keep it to themselves,” he said. Police have issued warrants against owners of the deserted cars. Those who return risk arrest at the airport.
3.62 million expatriates in Dubai
8% population decline predicted this year, as expatriates leave
1,500 visas cancelled every day in Dubai
62% of homes occupied by expatriates 60% fall in property values predicted
50% slump in the price of luxury apartments on Palm Jumeirah
25% reduction in luxury spending among UAE expatriates
“Short of opening a Radio Shack in an Amish town, Dubai is the world’s worst business idea, and there isn’t even any oil. Imagine proposing to build Vegas in a place where sex and drugs and rock and roll are an anathema. This is effectively the proposition that created Dubai – it was a stupid idea before the crash, and now it is dangerous. Dubai threatens to become an instant ruin, an emblematic hybrid of the worst of both the West and the Middle-East and a dangerous totem for those who would mistakenly interpret this as the de facto product of a secular driven culture. The opening shot of this clip shows 200 skyscrapers that were built in the last 5 years. It looks like Manhattan except that it isn’t the place that made Mingus or Van Allen or Kerouac or Wolfe or Warhol or Reed or Bernstein or any one of the 1001 other cultural icons from Bob Dylan to Dylan Thomas that form the core spirit of what is needed, in the absence of extreme toleration of vice, to infuse such edifices with purpose and create a self-sustaining culture that will prevent them crumbling into the empty desert that surrounds them.
Dubai is a place for the shallow and fickle. Tabloid celebrities and worn out sports stars are sponsored by swollen faced, botox injected, perma-tanned European property developers to encourage the type of people who are impressed by fame itself, rather than what originated it, to inhabit pastiche Mediterranean villas on fake islands. Its a grotesquely leveraged version of time-share where people are sold a life in the same way as being peddled a set of steak knives. Funny shaped towers smatter empty neighborhoods, based on designs with unsubtle, eye-catching envelopes but bland floor plans and churned out by the dozen by anonymous minions in brand name architects offices and signed by the boss, unseen, as they fly through the door. This architecture, a three dimensional solidified version of a synthesized musical jingle, consists of ever more preposterous gimmickry – an underwater, revolving, white leather fuck pad or a marina skyscraper with a product placement name that would normally only appeal to teenage boys, such as the preposterous Michael Schumacher World Champion Tower.
But if there is one problem with the shallow and the fickle, its that they are shallow and fickle, they won’t put down deep roots and they won’t remain loyal to Dubai. The people who appear in People magazine need to be told what is cool by Wallpaper magazine who in turn will discover something after the hipsters have moved on. The problem is that Dubai was never hipster-cool and is no longer Wallpaper-cool. This realization will have the same impact as suburbanite bachelorette party in a Wallpaper-cool nightclub. It will spread like the sighting of a floating turd in a public pool, flushing people to the exits with silent panic, unacknowledged for fear of embarrassment. As people scramble for the exits in Dubai, there is no ‘key mail’, like in America, where people can often mail back their house keys and walk away from a mortgage without the immediate threat of jail. People are literally fleeing this place, to date leaving 3000 cars stranded at the airport with keys still in the ignition. And the reason for this is that if you default on your Dubai mortgage, you can end up in a debtors prison. Perhaps Dubai will at least create a new Dickens?”
INDIAN WORKERS FLEE
Source: N. Raghu Raman – DNA / Jan 14 2009
It’s the great escape by Indians who’ve hit the dead-end in Dubai. Local police have found at least 3,000 automobiles — sedans, SUVs, regulars — abandoned outside Dubai International Airport in the last four months. Police say most of the vehicles had keys in the ignition, a clear sign they were left behind by owners in a hurry to take flight. The global economic crisis has brought Dubai’s economic progress, mirrored by its soaring towers and luxurious resorts, to a stuttering halt. Several people have been laid off in the past months after the realty boom started unraveling.
On the night of December 31, 2008 alone more than 80 vehicles were found at the airport. “Sixty cars were seized on the first day of this year,” director general of Airport Security, Mohammed Bin Thani, told DNA over the phone. On the same day, deputy director of traffic, colonel Saif Mohair Al Mazroui, said they seized 22 cars abandoned at a prohibited area in the airport. Faced with a cash crunch and a bleak future ahead, there were no goodbyes for the migrants — overwhelmingly South Asians, mostly Indians – just a quiet abandoning of the family car at the airport and other places.
While 2,500 vehicles have been found dumped in the past four months outside Terminal III, which caters to all global airlines, Terminal II, which is only used by Emirates Airlines, had 160 cars during the same period. “The construction and real estate industry has been hit following the global slowdown and the direct fallout is that professionals working in the realty industry are rapidly losing their jobs,” said a senior media professional, in-charge of a realty supplement in Dubai. “In fact, my weekly real estate supplement usually had 60% advertisement and ran into 300-odd pages. In the last seven weeks, it’s down to 80 pages and with fewer advertisments,” he added.
Mumbai resident D Nair (name changed) had been living in a plush highrise in Sharjah for the past four years. However, the script went horribly wrong when his contract was terminated. Nair used all his credit cards to their maximum limit, shopping for people back home. He then discarded his Honda Accord before returning to India for good. Nair, who stays in a rented apartment in Navi Mumbai today, has a Rs15 lakh loan with a Dubai bank.
Another such victim of the meltdown said he bid goodbye to his car in a small bylane near the airport and hailed a cab. “I was scared because a number of us were doing the same and did not want to be questioned by the police. There was no way I could afford to pay the EMI of 1100 Dhirams for my Ford Focus,” he told DNA on condition of anonymity.
When contacted, the dealer for Asgar Ali cars in Sharjah said, “We are helpless and do not know how to tackle this issue. A large number of such owners are from Indian, Sri Lanka, Bangladesh and other South Asian countries.”
UNEMPLOYED LOSE WORK VISAS
Laid-off foreigners flee as Dubai declines
BY Robert F. Worth / February 12, 2009
Sofia, a 34-year-old Frenchwoman, moved here a year ago to take a job in advertising, so confident about Dubai’s fast-growing economy that she bought an apartment for almost $300,000 with a 15-year mortgage. Now, like many of the foreign workers who make up 90 percent of the population here, she has been laid off and faces the prospect of being forced to leave this Gulf city or worse. “I’m really scared of what could happen, because I bought property here,” said Sofia, who asked that her last name be withheld because she is still hunting for a new job. “If I can’t pay it off, I was told I could end up in debtors’ prison.”
With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield. The government says the real number is much lower. But the stories contain at least a grain of truth: jobless people here lose their work visas and then must leave the country within a month. That in turn reduces spending, creates housing vacancies and lowers real estate prices, in a downward spiral that has left parts of Dubai once hailed as the economic superpower of the Middle East looking like a ghost town.
No one knows how bad things have become, though it is clear that tens of thousands have left, real estate prices have crashed and scores of Dubai’s major construction projects have been suspended or canceled. But with the government unwilling to provide data, rumors are bound to flourish, damaging confidence and further undermining the economy. Instead of moving toward greater transparency, the emirates seem to be moving in the other direction. A new draft media law would make it a crime to damage the country’s reputation or economy, punishable by fines of up to 1 million dirhams (about $272,000). Some say it is already having a chilling effect on reporting about the crisis.
Last month, local newspapers reported that Dubai was canceling 1,500 work visas every day, citing unnamed government officials. Asked about the number, Humaid bin Dimas, a spokesman for Dubai’s Labor Ministry, said he would not confirm or deny it and refused to comment further. Some say the true figure is much higher. “At the moment there is a readiness to believe the worst,” said Simon Williams, HSBC bank’s chief economist in Dubai. “And the limits on data make it difficult to counter the rumors.” Some things are clear: real estate prices, which rose dramatically during Dubai’s six-year boom, have dropped 30 percent or more over the past two or three months in some parts of the city. Last week, Moody’s Investor’s Service announced that it might downgrade its ratings on six of Dubai’s most prominent state-owned companies, citing a deterioration in the economic outlook. So many used luxury cars are for sale , they are sometimes sold for 40 percent less than the asking price two months ago, car dealers say. Dubai’s roads, usually thick with traffic at this time of year, are now mostly clear.
Some analysts say the crisis is likely to have long-lasting effects on the seven-member emirates federation, where Dubai has long played rebellious younger brother to oil-rich and more conservative Abu Dhabi. Dubai officials, swallowing their pride, have made clear that they would be open to a bailout, but so far Abu Dhabi has offered assistance only to its own banks. “Why is Abu Dhabi allowing its neighbor to have its international reputation trashed, when it could bail out Dubai’s banks and restore confidence?” said Christopher Davidson, who predicted the current crisis in “Dubai: The Vulnerability of Success,” a book published last year. “Perhaps the plan is to centralize the U.A.E.” under Abu Dhabi’s control, he mused, in a move that would sharply curtail Dubai’s independence and perhaps change its signature freewheeling style.
For many foreigners, Dubai had seemed at first to be a refuge, relatively insulated from the panic that began hitting the rest of the world last autumn. The Gulf is cushioned by vast oil and gas wealth, and some who lost jobs in New York and London began applying here. But Dubai, unlike Abu Dhabi or nearby Qatar and Saudi Arabia, does not have its own oil, and had built its reputation on real estate, finance and tourism. Now, many expatriates here talk about Dubai as though it were a con game all along. Lurid rumors spread quickly: the Palm Jumeira, an artificial island that is one of this city’s trademark developments, is said to be sinking, and when you turn the faucets in the hotels built atop it, only cockroaches come out. “Is it going to get better? They tell you that, but I don’t know what to believe anymore,” said Sofia, who still hopes to find a job before her time runs out. “People are really panicking quickly.”
Hamza Thiab, a 27-year-old Iraqi who moved here from Baghdad in 2005, lost his job with an engineering firm six weeks ago. He has until the end of February to find a job, or he must leave. “I’ve been looking for a new job for three months, and I’ve only had two interviews,” he said. “Before, you used to open up the papers here and see dozens of jobs. The minimum for a civil engineer with four years’ experience used to be 15,000 dirhams a month. Now, the maximum you’ll get is 8,000,” or about $2,000. Thiab was sitting in a Costa Coffee Shop in the Ibn Battuta mall, where most of the customers seemed to be single men sitting alone, dolefully drinking coffee at midday. If he fails to find a job, he will have to go to Jordan, where he has family members Iraq is still too dangerous, he says though the situation is no better there. Before that, he will have to borrow money from his father to pay off the more than $12,000 he still owes on a bank loan for his Honda Civic. Iraqi friends bought fancier cars and are now, with no job, struggling to sell them. “Before, so many of us were living a good life here,” Thiab said. “Now we cannot pay our loans. We are all just sleeping, smoking, drinking coffee and having headaches because of the situation.”
“Only 11 cars abandoned at airport in past year”
BY Siham Al Najami / February 06, 2009
Lieutenant-General Dhahi Khalfan Tamim, Chief of Dubai Police, has strongly denied a rumour that many people are abandoning their cars at Dubai International Airport amid the global economic crisis. The report was published in the Arabic electronic newspaper Elaph.com. During an urgent press conference in Dubai, Lieutant-General Dhahi denied the report published on Thursday, which based its information on The Times of London which claimed there were 3,000 abandoned cars at Dubai International Airport. “I swear by the Lord that Benyamin [writer of the article] lied even as he based his report on The Times article,” Lieutant-General Dhahi said at the beginning of the press conference.
The reporter contributed to spreading a rumour that many people are greedy, envious and resentful about the economic growth of Dubai, he said. “A reporter should always verify the facts of a report. Did the reporter come back to us or request a comment and we said ‘No’ to him?! Credibility, objectivity and accountability are essential in journalism and this report lacked credibility. “Be assured that if we had at least 50 or 25 or 15 cars abandoned at the airport, I would have told you about it. There have only been 11 cars left at the airport since January 1, 2008, which is before the global economic crisis,” he said. “False statements on the market collapsing, as stated in the article, are nothing but incorrect rumours. If there is any disruption we will inform the media about it,” said Lieutant-General Dhahi. “It is not even worth a story to write about the abandoning of 11 cars in a 6,000 car parking lot,” he stated.
“We are not denying the presence of the global financial crisis, but what’s been attributed to Dubai is completely false whether it is locally or internationally published. There is a fierce campaign against the reputation of the blooming city of Dubai. I have clear and direct instructions from His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, to be completely honest with the media. The country is still witnessing a smooth flow in its economy. The title of the article creates an atmosphere of fear, mistrust, and contributes to spreading a rumour of a rumour. We have to put a limit to this, we are aware of the reports published on this but now it has gotten out of proportion,” he said.
‘PURELY FINANCIAL DECISIONS’
Sun, sea and sewage in the playground of the rich in Dubai
BY Sonia Verma / January 29, 2009
A noxious tide of toilet paper, raw sewage and chemical waste has transformed Dubai’s most prestigious stretch of shoreline into a foul-smelling health hazard. A stretch of the exclusive Jumeirah Beach — a magnet for Western tourists and home to a string of hotels — has been closed. “It’s a cesspool. Our tests show too many E. coli to count. It’s like swimming in a toilet,” said Keith Mutch, the manager of the Offshore Sailing Club, which has posted warnings and been forced to cancel regattas.
The pollution is a blow to Dubai’s reputation as an international holiday destination offering almost guaranteed sunshine and clear seas. The debate over who is to blame is also turning toxic, pitting the city’s wealthy expatriates against local authorities, who have been criticised for failing to stop lorry drivers dumping human and industrial waste into the ocean. The row also illustrates how Dubai’s rapid development threatens to outpace the Emirates’ ability to enforce environmental standards, angering the foreigners that the boom town seeks to attract. Mr Mutch first detected trouble during a walk on the beach last summer. “The stench was unbearable and the water was a muddy brown. There was toilet paper in the sand,” he recalled.
He traced the sludge to a storm drain, buried behind a pile of rocks near the dock. It was spewing effluent into the sea. He followed the drain several kilometres inland to the Al Quoz industrial area, which houses the cement, paint and furniture factories that have helped to fuel the city’s rapid growth. There he discovered that dozens of sewage lorries carrying human waste from Dubai’s 1.3 million inhabitants emptied their tanks into storm drains such as the one leading to the sailing club. The drains, all connected, were built to carry excess water that falls during Dubai’s short rainy season.
According to some truckers — mostly poor workers from southern Asia – illegal dumping of waste is a purely financial decision. In interviews, several said that they were paid by the truckload to collect waste from the city’s septic tanks and transport it to the only sewage treatment plant in the area. This involved a long drive into the desert with lengthy queues at the end — so they opted to dump their loads in the storm drains.“We are paid so poorly, we have no other choice,” said one driver, who insisted on remaining anonymous.
Mr Mutch spent several nights documenting the illegal dumping. He sent letters and photographs to the municipality and departments of tourism, health and environment.“ At first I was ignored,” he said — but when the local press took up the story the city took action, imposing fines of up to $25,000 and threatening to confiscate tankers and deport drivers. City authorities have since promised to build another sewage pit as a “medium-term solution”, while insisting that the latest test results show water samples to be within safe standards.
Mr Mutch, however, disagrees, citing independent tests commissioned by the sailing club showing that the water is still badly contaminated with bacteria, human faeces and chemicals. “The water is still not safe. It’s a bleak situation and we don’t know what else we can do,” he said. “Because rain storms are so infrequent, the drains will remain contaminated for many months to come,” said expat Thomas Aldredge. “Considering the hot weather, there are many diseases that could begin to flourish, including cholera. It is shocking that Dubai does not seem to have the will to address this most fundamental of problems.”
ON THE PLUS SIDE : ALL THE GOOD NYC CRANE OPERATORS FINALLY BACK HOME
Dubai contractors face bankruptcy as cash dries up
BY Jason Benham / Feb 3, 2009
Several Dubai-based contractors say they are owed millions of dirhams by state-linked developers and some may face bankruptcy as credit dries up and major projects are cancelled or scaled back in the former Gulf Arab boom town. “There has been a marked increase in the number of contractors asking for help to obtain payment, including payments certified months ago on some of Dubai’s largest projects,” Michael Grose, a partner at legal firm Clyde & Co LLP, in the Middle East Projects and Construction Group, told Reuters. “Whilst there is definitely an upswing in restructuring advice, no construction businesses are coming through the door wanting to put themselves into liquidation. Yet.”
As the global financial crisis began to hit the seaside emirate late in 2008, major government-linked developers behind some of Dubai’s high profile projects have put work on hold and cut jobs. Around $75 billion worth of projects in the United Arab Emirates have been suspended or cancelled altogether according to an HSBC report issued in January. “We have had to let go half of our staff and cut wages and it is not because we have no work, it is because we are not being paid for the work that we have completed,” a Dubai-based contractor told Reuters under the condition of anonymity. “Contracts are not worth the paper they are written on. They don’t understand that the work gets done and you have to pay for it. There is a sense among the big developers that because they are linked to the government, they can do what they want.”
In response to a Reuters query, government-linked developer Emaar Properties EMAR.DU, the largest listed Arab developer, said payments were based on a credit cycle and other conditions and that those that qualified would be paid. “All payments that meet the criteria have been honoured and will continue to be honoured and will continue to be cleared, in line with contractual agreements,” a spokesman said. Government-owned Meraas said in statement sent to Reuters that payments and payment schedules in the company are an internal matter and therefore details are confidential between the company and its contractors.
One deputy chief executive with a consulting firm, who had a contract terminated by a major developer, said his firm was owed several million dirhams, now overdue, and did not know when he would be paid. “Will the government bail the industry out? Well, has the government got the money?” he said. Dubai — home to palm-shaped islands, an indoor ski slope and the world’s tallest building — has lured investors in droves over the past few years, but is now being hit hard by the global financial crisis. Cranes that operated day and night before the crisis now stand motionless and many of the building sites are deserted as thousands of construction workers have been ordered to down their tools. “Established developers or developers who have projects near completion will be in a better position than others (to make payments),” said Abeer Gouda, senior financial analyst at Global Investment House in Kuwait. “It will depend on the developer’s track record and the project itself, if it is near completion and on the location.”
State-owned Nakheel, developer of Dubai’s palm-tree shaped islands, said last month it would halt work on a 1-kilometre tall building for one year. That decision followed the suspension of work on Trump Tower, a $789.5 million project on one the palm-shaped islands, in December. The developer cut 500 jobs in November. Meraas in December said it would review its $95 billion Jumeirah Gardens project launched at a Dubai property exhibition. “Payments have always been a problem here, but now the problem is a bit bigger. I reckon the Dubai government would honour their payments but you might have to wait longer than usual,” said the regional director of a construction group. “Dubai cannot afford not to honour its debt to contractors.”
How Wall Street’s Bust Threatens Dubai’s Boom
By Scott MacLeod / Oct. 19, 2008
Saif Ahmed began living the Dubai dream five years ago. The University of Toronto business school grad moved to the Gulf city-state and quickly co-founded property developer Universal Canlink Inc. By 2006, the firm was turning over $15 million a year as its brochures lured foreign investors with tales of “meteoric” growth in the Dubai real estate market. Now, as the global credit crisis spirals from Wall Street to the Middle East, Ahmed is coming back down to earth. There’s still interest, he explains, but the buying frenzy in Dubai is gone. “Before, people were buying blindly without asking much about the details,” says Ahmed, a Canadian. “Now such risk takers have disappeared from the market.”
Among the harbingers of the changing mood: Nakheel, the developer of Dubai’s proposed kilometer-high skyscraper near Jebel Ali airport, recently announced that it is reassessing its overall staffing needs in line with “predictions of a downturn in the global economy.” Boardrooms and coffee shops alike are buzzing with talk about the coming fall. The Cairo-based investment bank EFG-Hermes recently predicted that Dubai property values could tumble as much as 20% in the next three years. Share prices of Emaar, a public Dubai company that has become one of the biggest real estate developers in the world, have fallen by two-thirds since January.
To be sure, nobody’s calling it a bust — not yet anyway. Midsized builders like Ahmed are still open for business. And a record 70,000 visitors attended Dubai’s annual Cityscape property show this month, where mega-projects worth a total of some $180 billion were unveiled. Yet Dubai and its real estate market are vulnerable to an international economic downturn, especially compared with many of its Gulf neighbors. As the region’s premier business, transportation and tourism hub, it is by definition more entwined with the global economy. And in tight times, Dubai lacks the windfall oil profits that have enabled sister emirate Abu Dhabi, for example, to amass a financial cushion in sovereign wealth funds totaling hundreds of billions of dollars.
But Dubai’s biggest risk is its daring reliance on debt to drive its breathtaking building boom. Last week, Moody’s estimated that in 2006, the most recent year for figures, Dubai’s government and public-sector company debt was at least $47 billion, a staggering 103% of GDP. The investment-rating agency said it expected Dubai’s debt to continue outpacing GDP for another five years, exposing Dubai to pronounced financing and geopolitical risks.
Dubai officials insist that they can meet their debt obligations for the next two years. Analysts point out, however, that the credit squeeze compounds a growing challenge to Dubai’s revenue streams. The most obvious is the halving of the price of oil from $147 per bbl. to $70 per bbl. since July, sending Middle East stocks tumbling and rendering regional investors increasingly cautious. Likewise, a global recession is likely to tighten the belts of the international investors and holiday makers that Dubai relies on for its real estate and tourism developments. Even before the global crunch, banks in the United Arab Emirates (UAE) were being hit this year by an outrunning stampede of billions of UAE dirhams — so-called hot money that one report valued at $55 billion — led by speculators giving up on hopes that the country would de-peg its currency from the U.S. dollar.
All is not doom and gloom, however. The UAE government has funneled $33 billion into the country’s banking system to calm the nerves of depositors and investors, promising coverage to foreign as well as local institutions. If the credit crunch shakes out speculators, known as “flippers,” from Dubai’s real estate market, that could help stabilize wildly inflationary conditions. “I am not necessarily thinking we are in a crash scenario,” EFG-Hermes managing director Hashem Montasser tells TIME. “There is still genuine demand. Economies here are still growing. Overall, the economic situation is still very sound. We will see a deceleration of prices, and it’s probably a good thing, as long as it’s done in an orderly way and doesn’t turn into a panic. The market has gone to where it is too quickly.”
An underlying reason for the relative lack of panic so far is that Dubai real estate remains a financial haven for wealthy individuals from riskier nearby countries like Iran and Pakistan. What’s more, Dubai’s real estate sector is dominated by a handful of major companies — collectively dubbed “Dubai Inc.” — that are directly or indirectly owned and controlled by the government. This means, analysts say, that Dubai authorities could effectively stave off a bubble burst by keeping finished projects off-line until market conditions improved. In the event of a systemic threat, Dubai can probably rely on super-rich Abu Dhabi for a bailout. “We consider it highly likely that the authorities will step in at some level to support entities that are strategically important for the economy,” Moody’s analyst Tristan Cooper tells TIME.
That kind of reassurance is what keeps Dubai property builders like Saif Ahmed plugging away. Believing that foreign interest in Dubai is alive, he’s planning a major sales exhibition in Los Angeles in December. He acknowledges, however, that the days of the easy sell may be over. “People are more educated and calculated about their investments,” Ahmed explains. “Now they are asking for a more detailed sales pitch. They want to know about the developer’s track record.” As it faces the most serious financial challenge in its history, Dubai Inc.’s reputation is now on the line too.
United Arab Emirates: The Financial Crisis and Abu Dhabi-Dubai Relations / February 19, 2009
Due its exposure to the international credit system, the emirate of Dubai is the Middle Eastern economy hit hardest by the global financial crisis. The effects are such that Dubai will need help from the more powerful, oil-rich emirate of Abu Dhabi. While it will struggle to limit the extent to which it has to accept financial assistance from Abu Dhabi, it is unlikely that Dubai can altogether avoid the dependency. As a result, there will be a further tilt in the balance of power toward Abu Dhabi, which will assume a more dominant position in the seven-emirate federation of the United Arab Emirates.
Sultan Ahmed bin Sulayem, chairman of state-owned firm Dubai World, said Feb. 17 that the United Arab Emirates is preparing a plan to help domestic banks resume lending. In an interview with Bloomberg, Sulayem — who also sits on the committee examining the effects of the international credit crisis on Dubai’s economic health — explained that the UAE central bank and federal government were working on a plan to lend money to ailing state-owned enterprises and financial institutions. These comments follow Feb. 8 reports quoting Sheikh Mohammed bin Zayed al-Nahyan, chairman of the Abu Dhabi Council for Economic Development, as saying that Abu Dhabi should lead federal efforts to ease the economic slowdown across the seven-emirate federation. Four days before that, the government announced that Abu Dhabi’s top banks would receive a total of $4.4 billion from the government to buffer losses from the global credit contagion.
Abu Dhabi, with its massive oil wealth and the world’s largest sovereign wealth fund, is the major power in the United Arab Emirates. Dubai is in second place because of its status as the Persian Gulf’s financial hub; the five lesser emirates — Ajman, Umm al Qaywayn, Ras al Khaymah, Al Fujayrah and Sharjah — follow. Dubai’s financial clout (from its tourism, trade, real estate and financial services industries) historically has given it enough power that its ruling al-Maktoum family has held the UAE federal government positions of vice president, prime minister and defense minister. The al-Nahyans of Abu Dhabi have held the federation’s presidency since its inception in 1971 and retained control of it when the country’s first (and until then, only) president, Sheikh Zayed bin Sultan al-Nahyan, died in 2004.
The power-sharing arrangement between the al-Nahyans and the al-Maktoums has been the political foundation upon which the United Arab Emirates has not only maintained domestic stability, but also emerged as a major international economic and financial player, acquiring assets around the world. This was the case up until the global financial crisis began spreading throughout the world. Abu Dhabi has not been immune, as is evident from the need to inject cash into the emirate’s banking system. But Dubai has been hit the hardest because of its exposure to the international markets, and particularly because its real estate bubble crashed when global credit that had been used to fund enormous, fanciful construction projects became scarce. Due to the relative lack of transparency, the extent of the financial carnage in Dubai was not readily apparent.
But on Feb. 2, the international credit rating agency Moody’s announced that it would be downgrading the ratings of six of Dubai’s largest state-owned firms, including global port operator Dubai Ports World and Emaar Properties, the developer responsible for the partly-constructed world’s tallest building, located in the city’s center. Utility operator Dubai Electricity and Water Authority, conglomerate Dubai Holding Commercial Operations Group, industrial park and trade zone operator Jebel Ali Free Zone and Dubai International Financial Center Investments, a branch of Dubai’s 4-year-old international financial center, also are in line for downgrades.
Dubai reportedly has $90 billion in assets, but because of the opaque nature of its balance sheets it is unclear whether these assets are easily convertible to hard cash, which would allow the firms to raise short-term capital to meet their obligations. Its actual financial weakness notwithstanding, Dubai has been reluctant to seek assistance from the cash-flush Abu Dhabi, given the larger political challenges associated with doing so. Even though it is not raking in the billions it was collecting when oil prices were high in mid-2008, Abu Dhabi has been very financially prudent (in sharp contrast to Dubai). It still has enough of a cushion to bail out itself as well as Dubai, as its sovereign wealth fund was estimated at $328 billion at the end of 2008, according to a study by economists at the Council on Foreign Relations.
Dubai is unlikely to be able to avoid the need for financial assistance from Abu Dhabi, but it wants to be sure that accepting that assistance will not further empower Abu Dhabi. This is why the issue is being framed in the context of a national economic stimulus package. From Dubai’s point of view, the bailout should not be a matter between the two emirates, but a decision made by the national government, in which Dubai has considerable say.
There are two problems with this. First, Dubai is the one that needs most of the assistance, and Abu Dhabi is the only emirate in a position to extend help. Second, the structure of the United Arab Emirates is that of a loose federation, which means the ruler of each emirate has a great degree of autonomy. Together, these two structural factors make it very difficult for Dubai to prevent Abu Dhabi from gaining disproportionate influence, both in their bilateral relations and over the federation. And yet, no matter what Dubai tries to call it, it is very apparent that the emirate needs help and needs it fast.
Depending on the nature of the financial arrangement, Abu Dhabi could end up having a major stake in Dubai. But Abu Dhabi, in the interest of maintaining balance in the federation, does not want Dubai to feel threatened. Therefore, in the short term, this emerging imbalance of power is unlikely to create any serious ruptures. But depending upon the extent of the bailout and Dubai’s future financial position, there could be friction between the two emirates, which could have a negative impact on the United Arab Emirates’ stability.
DUBAI SHOPPING FESTIVAL (70% OFF)
Has Dubai’s Overblown Bubble Finally Burst?
BY Ahmed Shihab-Eldin / February 18, 2009
“People were buying anything” my cousin told me over dinner at an empty, but delectable, Lebanese restaurant at The Emirates Mall of Dubai. “It didn’t matter what it was or even if it was worth it. Everyone was buying whatever they could, even if they couldn’t afford it,” she said. This was about the fourth time I was having a variation of this very conversation since arriving a week earlier. Dubai, the desert emirate known for its rapid, maybe rabid, economic growth, which sent both prices and prospective purchasers’ blood pressures through the roof in recent years may be witnessing what many argued would be the inevitable burst of its ballsy building bubble. “A few months ago we camped outside the sales office of one of the newest properties,” one of the dinner guests reluctantly confessed.
Despite having never seen the property, or even the floor plan, they stood in line, among hundreds of others (many with briefcases packed with cash) hoping to be early enough to score a piece of property. “We knew if we wanted to have a chance to buy, we had to show up the night before,” she sheepishly said. “The line was ridiculous, people slept in their cars, but when the office opened, they told us all the properties had already been sold – it is all corrupt,” she said, referring to the shady and often staged real estate transactions made in Dubai.
As I digested the delicious dinner and jaw-dropping details of their story (which I learned ended with the police being summoned after fist fights broke out among potential buyers), I couldn’t help but notice the exceptionally cold draft coming from above me. “So do you think that the air from there (I pointed through the floor-to-ceiling glass windows separating us from Ski Dubai, the indoor ski slopes attached to the mall, equipped with chair lifts, artificial snow and yes, a snowmobile) somehow air conditions the entire mall too,” I asked. Everyone at the table reassured me it was highly unlikely, though we all agreed it would make for great PR. Regardless, there is no way around it, being in Dubai, even during the recession, or perhaps especially during it, is a surreal experience.
A couple months before the economic crisis hit, I decided to accept a job offer with Al Jazeera English in Doha, Qatar. When I told my friends and family, the response was mixed. But after Lehman Brothers filed for bankruptcy and the current financial crisis introduced itself to the world, those skeptical of my upcoming move warmed up to the idea on the general assumption that the oil-rich Middle East might survive “the brunt of the crisis.” Since then a few of them have even asked me to “keep my eyes out” for any possible jobs out here for them.
Before me, tens of thousands of Americans and other foreigners have come to the Persian Gulf to accept jobs with packages that guaranteed a tax-free income and unrivaled benefits (including housing, health care, paid school fees and a car) to revel in a region that boasts some of the world’s fastest growing economies. But since then, many of those who came, particularly those with jobs in finance or real estate, are out of a job and many swamped in debt. Foreigners, who make up 90 percent of Dubai’s population and were responsible for helping build the emirate from the ground up, are now unemployed and returning to their respective countries.
Despite the credit crisis and widespread deflation, some analysts had held on to the hope that the full effects of the global economic downturn would miss the wealthy Persian Gulf countries. Ironically, in Qatar’s case, the massive reserves of Liquid Nitrogen Gas may be enough to save them as they sign deals with neighbors like Kuwait to sell LNG at lucrative prices and are projected to lead GCC countries in terms of economic growth. But here in Dubai, an emirate that was once reported to have one third of the world’s cranes busy at work erecting a modern metropolis in the desert, the skyscrapers have stopped, deals have been scrapped and many of the hundreds of thousand expatriates are simply running away.
Stories in local papers, which have since been republished by The New York Times and other Western publications, have suggested that foreigners are fleeing from the financial crisis and their debts. The government has vehemently contested reports that up to 3,000 cars have been abandoned at the airport (with the keys in the ignition and apology letters taped to the dashboards). Instead they suggest the number is closer to a dozen. But the string of half-built towers, deeply discounted car auctions, and relatively empty shopping malls and hotels tell a different story.
The mood around dinner tables, at local school events, and at surprisingly vacant lavish beachfront sports clubs, such as the famous Jumeirah Beach Club, suggests that the crisis has in fact hit Dubai. Not only are some foreigners fleeing in hopes that by hopping on the first outbound flight they will dodge Dubai’s strict laws on defaulting on debt, punishable by serious jail time, but also the number of tourists frequenting the once booming emirate have tapered off too.
I won’t exaggerate. It isn’t a ghost town by any means. But it is nearly impossible to miss the nervous mood that has consumed the emirate recently. As one cab driver, who came to Dubai 30 years ago to work as a fisherman, told me, “Business is not good like before. Too many people are leaving,” he said. “Even when I drive home to Ajman (a neighboring emirate) there is little traffic. Little traffic and little business.” A short stroll from the beach into the main shopping strip near JBR confirmed the difficult realities facing Dubai. In the middle of the day, I walked around the new Saks Fifth Avenue store in the complex for 15 minutes without anyone else in there – it was like I was P.Diddy for a minute – on my own private shopping spree (with prices slashed up to 70%).
The 32-day Dubai Shopping Festival ended last week, and while the numbers have yet to be reported, the budget for this year’s festival was slashed by just over 10%. Whether or not the raffling off of luxury cars and deep discounts at many hotels will be enough to change the negative outlook for the emirate has yet to be seen. But it seems inevitable that as fewer people flock to Dubai, especially those who come to escape the cold European winters, the economy, like many others in the world, will continue to struggle.