Building expensive villas on man-made islands with little protection from erosion always seemed pretty bonkers to me. Brilliantly bonkers. Was Dubai’s economic miracle nothing more than a mirage? Or is an unfortunate victim of an unprecedented global financial crisis.
Dubai’s brash and ‘blinging’ approach has been pretty uncoordinated and in the past when I visited it I found it soulless. I wouldn’t want to live there.
Having said that it has certainly been a beacon for both Western and Eastern capitalism in the region and while its mineral-rich neighbours initially saw it as an upstart, they then copied many of its innovations – free trade zones, massive transport infrastructure upgrades, freehold property ownership, moderation towards other religious & cultural beliefs etc.
And it has a brighter future. Dubai may be overleveraged but it has plenty of assets still and some significant competitive advantages in the region. It also has friends in high places. Including some incredibly wealthy friends and family in the area (particularly in Abu Dhabi & Saudi Arabia) that will invariably support it. Its ‘friends’ will probably loot a few gems in the process, its Emirates airline for example, but they will stand by their neighbour and defend their own pride and western lenders will be able to breathe another cautious sigh of relief.
Currently it looks to me like the reverse leverage brinkmanship game that’s been played out between banks and borrowers throughout the West for 18months or so now. It’s just being played out middle-eastern style. Dubai has presided over an economic miracle and doesn’t want to give up control of its trophy asset (Emirates). Abu Dhabi has all the cards at present and is almost certain to get its way – in picking assets. However It will provide the necessary guarantees.
I’m sticking to my prediction that we won’t suffer a double-dip or a “W-shaped recession” however it’s clear the global recovery isn’t going to be a smooth one – Alan Greenspan’s forecast for a much more turbulent economic period continues to look very prescient.
From an entirely biased perspective (please excuse me) I hope it will encourage get-rich-quick speculators to focus on fundamentals like supply and demand and we’ll attract a bit more money back to relative safety in London.
For some great reading on the ‘Dubai Debacle’ check out these links:
- John Arlidge (The Sunday Times) – Just deserts
- Jennifer Hill (The Sunday Times, Money) – Dubai debacle stops bull run in its tracks
- James Ashton (The Sunday Times, Business) – Abu Dhabi rides in to save Dubai
- John Waples (The Sunday Times, Agenda) – Dubai’s debt crisis should be a lesson to us all
- Nick Mathiason (Guardian.co.uk) – UAE central bank guarantees Dubai banks’ debt to head off crash
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