Dubai at Risk

Stars strolling down corridors of five-star hotels at last week’s 2009 Dubai film festival is usually a common sight in Dubai, known for its glitter and financial attractiveness. The impressive décor to which one is accustomed hides, however, one of the most ravaging financial crises of the 21st century. (Brunei fm world, 10/12/2009). The first signs of this financial plummeting first appeared when the decision was taken by Dubai World, one the four leading government-owned investment vehicle, to restructure its $26bn debt. (see Robin Wigglesworth and Dan Thomas, Financial Times, 09/12/2009).

Recent developments have spread a deep concern amongst some of the world’s biggest investors. Although Sheikh Mohammed bin Rashid Al Maktoum has suggested that foreign investors “do not understand anything” in reference to the restructuring of Dubai World’s debt, Dubai’s failure to stand up to its international obligations as a prosperous and central financial hub is leading to the rapid desertion of international investments which had previously been crucial for the city’s global prestige. (Sarah Arnott for The Independent, 02/12/2009). Consequently, one can witness fleeing financial investors counterbalanced by a growing tourist interest for a christmas vacation in a debt-ridden Dubai. (Libération, 11/12/2009).

Most recently, the crisis has overtaken the sole question of debt, placing at its heart the credibility of Dubai’s leadership and its ruler Sheikh Mohammed bin Rashid Al Maktoum. The Sheikh may sustain that the financial crisis “will not deter Dubai’s ambitions of implementing its development plans and … will not (keep) it from playing its role in the arena of the international economy”, but the bleak reality of Dubai’s economic situation clearly undermines prospects of a bright future and will increasingly raise questions concerning the ability of the Sheikh to extrapolate a solution to this lethal situation. (quoted in The Daily Tribune, 01/12/2009).

Simple borrowing and improved transparency will not be sufficient. As Jim Mclean underlines in Times Online, there is a growing “demand for a restructuring at the top”, starting by distinguishing the businesses which have propelled the Emirates at the forefront of the international financial scene from the country’s political elites and its Royal family. (05/12/2009).

Leaders of the UAE can blame international media for drawing an excessively bleak picture, thereby gaining support domestically, but one cannot question the plummeting of the international inclination to do business with Dubai. In effect, Jaime Sanz, a financial official at Fitch, comments that “the economic uncertainty in Dubai has soured our view of the sovereign capacity to meet its commitments”. (Robin Wigglesworth, Anousha Sakoui and Simeon Kerr for the Financial Times, 08/12/2009).

This crisis which is gradually flooding the streets of Dubai is a major concern of the international economy and will be the primary issue tackled by heads of Gulf States during the next Gulf Cooperation Council held next week in Kuwait. Meanwhile, this situation will be a real test for an Emirati leadership usually accustomed to another, more glittering, form of international attention. Strong words by the Sheikh may demonstrate determination, but foreign investors will need much more convincing that the recovery of this Emirati “fruit-bearing tree” is on its way. (Sheikh Mohammed bin Rashid Al Maktoum quoted by Sarah Arnott for The Independent, 02/12/2009).

Andrew Bower