PProvided you have not been sleeping during the last few years, then you cannot have missed the prominence into which Dubai has been thrust for many right, and often wrong, reasons.
A city which, even from humble
beginnings, has always been entrepreneurial and a major trading player in the
region. From my earliest days of residence in the city in the 1960s Dubai was
the world's largest importer of watches and gold, per capita, by a long way.
Oh, it was also the largest exporter too but the departure of the goods out of
the Dubai creek or its ultimate destination, was not always faithfully and
accurately recorded for some reason!!
Fast forward to this decade
and to the various colourful descriptions Dubai has received - most comparing
it to some city or other, "on steroids". You watched in wonderment at
the breathtaking developments. The reclamation project creating residences on
an island in the sea shaped like a palm tree; the building of an indoor ski slope
in the desert; the drive to be an open and creative city available to everyone.
The goal of being a hub for the region, the aim of fulfilling in many ways the
"Field of Dreams" plans and projections created initially
through the wisdom and drive of HH The Ruler's father, Sheikh Rashid.
It has always had its
detractors. People who were perhaps jealous of the success, or who had never
seen such bold developments taking place without them being hampered by red
tape and bureaucracy. Negative thoughts from those who were uncomfortable with
the brash confidence exuded by the young people determined to mould a world to
their liking rather than being directed by pressures from elsewhere. To those
detractors, the onset of the current global financial crisis must have seemed
like the answer to their, so far, failed prophesies of a doomed economy.
Schadenfreude comes to mind. BUT...
Before I start on a theme I
spoke about in Dubai two weeks ago let me be clear. I like Dubai and wish it
well. It has as many emotional pulls for me as it has professional, so you may
be excused for believing there might be a sense of bias in my thinking. But
Dubai can, and does, speak for itself. I merely want to add my observations to
some reporting that has in my opinion had more eye on the impact for its
readers, than being totally objective.
The reality now is that any
hopes of economic immunity from the global meltdown, and any talk of decoupling
are now firmly consigned to the fantasy file. All economies are being
affected by the global downturn, and that includes Dubai.
Of course, the other reality
is that Dubai has some underlying strengths that have spawned its growth
to date. Underlying strengths that remain intact despite the current
economic environment. Underlying strengths such as an excellent, if
still incomplete, infrastructure a well regulated financial sector and an
inherent openness to people, companies and capital from elsewhere. All tied in
to solid macroeconomic fundamentals.
This last point is the basis
of a perception about Dubai that is worth noting. Namely the perception of
some rating agencies (and do they have much credibility these days?) that
Dubai lacks the “financial muscle to cover its debt.” And that
Dubai’s growth going forward will be difficult to finance due to a tight
credit environment.
The reality is that Dubai is
not built just on credit. Dubai’s growth in the past has been
largely equity-financed rather than debt-financed.
The reality is that the 100%
debt/GDP ratio for Dubai reported by some rating agencies is misleading. Indeed,
the equivalent would be for Germany, for example, to add up all the debt of
the government, of the Landesbanken, of Deutsche Telekom, of Deutsche Bank, and
more. The point is, it is important to distinguish sovereign debt from
corporate debt.
Dubai’s debt is very different
from the indebtedness seen in markets like the United States. Debt there
has gone to finance deficit spending and increased consumption. Debt
in Dubai has been largely channeled into financing infrastructure and
public utilities. Investments that will, ultimately, be self
re-paying. Investments that increase productive capacity and enhance
productivity growth.
The reality is Dubai has
already publicly declared it can cover repayments for the next seven quarters.
But the media have a hard time believing senior officials, and reports are
grudging in the extreme
But there is another reality.
Dubai is not alone. It has the backing of the rest of the UAE,
including Abu Dhabi which just happens to have the world’s largest sovereign
wealth fund (yes, still - unless you count the US Treasury as an SWF!) as
well as vast oil reserves. In other words, the reality is that, as at
least the Financial Times noted recently, concerns about Dubai’s debt are
overdone.
We do need to keep some
perspective on issues in this troubled global world, to look at events with a
degree of common sense. Of course with the US, UK and Japan in recession,
with some banks going under, with others being partly nationalised, with
global stock markets gyrating wildly, and with no firm bottom in sight –
it is perhaps natural for people to focus on the downside. it is only
natural to harbour pessimistic perceptions.
But for Dubai, it is my
personal belief that a pause in the property prices – while painful to some
speculators – may not necessarily be such a bad thing. The reality
is that the market was overheating. Likewise, it could be argued that such
correction is also a sign of a maturing economy.
I think we must acknowledge
that emerging markets like the Gulf will grow faster than developed
markets. As a result, some areas and some economies will recover quicker
than others. The Gulf should be one of these areas. After all, the
petro-dollar windfall to date has been large enough that governments in
the region can maintain current spending plans even with current oil
prices, and the recent announcement from OPEC will likely see those prices rise
again soon.
Dubai's lack of reliance on
oil - writing it out of the budget by 2010, indicates considerable foresight. A
foresight that has been a feature of this Emirate for many years.
Casting my mind back to the
famous predictions of the demise of Hong Kong
after 1997, which never happened, similarly I wouldn't write-off Dubai's
resilience, or its future.
Keep an eye on Dubai.
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