Sunday, December 6, 2009

Dubai in Denial over debt problems - how unusual

No local news of real note as we all struggle to clear our inboxes after the 9 day public holiday.

I was disappointed that Essa, in his typically insightful and hard-hitting anti-Zionist-state opinion piece in the Times of Oman this week, failed to even mention the meeting Omani Officials had with the Israeli Foreign Ministry chaps (well publicised by the Israelis). Ah well. Our guys were probably just being polite.

But Dubai continues to play out in the news cycle. Those committed to Dubai, not surprisingly, are whining about how unfair the world/western media are portraying their situation.

I thought the article in The New Yorker summed it up quite nicely.

The rejection of the criticism, and the style of the reaction and rejection, is typical of the regional attitude to criticism. First response is abject denial, followed by defensive attacks that it's all someone else's fault (typically USA, "The West", Israel, UK, et al), and that it's all anyhow a great thing and that it's much worse somewhere - anywhere - else.


For the record:
- yes, Dubai has some core businesses that are real [Jebel Ali, Shipping, Emirates, tourism, regional logistics, and misc other stuff] and unfortunately their real value is no-where near enough to cover or even service the debt.
- Dubai is still better than most places in the region as a place to live if you have a bit of cash and skills & ambition. Especially if your only other options are Mumbai, Tehran, or Cairo.
- Abu Dhabi has more than enough cash (even now) to bail out Dubai 5 times over.
- The rest of the Dubai economy is mostly hype and foolishness: creating islands of sand in a place full of sand and empty land; Building an artificial winter ski resort in the desert; importing all your consumables (food, clothes, cars, whiteware, electronics, gas...), importing everything else too (money, talent, real workers) and desalinating all your water; the whole Ponzi scheme of the real estate boom, and the huge inverted pyramid that was based upon it - all the real estate sellers, marketers, bumpf publishers, shwag makers, and the restaurants and bars and schools and shopping centres they all spent their money in.
- and it was all based on limitless underpaid workers, willing to come to Dubai to scrape a living 24/7 slaving for the Emirati because even that hell was 1000% better than what they had or were ever going to get in India/Pakistan/Afganistan/Bangladesh...

As we now know, that money was (and still is) pretty much all borrowed, borrowed in the hope that by the time the bust came (if ever) everything would have reached a self fulfilling virtuous circle and enough real value creation and loose money attraction would have been accomplished to pay the interest rates.

And I have precious little sympathy for those who lent it to them. They should have known better. And while it flowed (for the money was not really theirs either, but borrowed from depositors) they too got their commissions and business class and expenses and big bonuses.

And when the vast river of cheap borrowed cash was flowing, everybody else stuck an oar in too, from the ruling family on down. The graft was (and is) everywhere. After all, there was enough money for everybody! Yeehah! Party!!! (hey maybe everyone was just snorting coke all the time...)

And stupid things got built, too many stupid things. A lot of the infrastructure and buildings are also not of the highest international standards, as it was pretty much all built by poor manual labour from the sub-continent. Slap-dash, no standards or enforcement, all bog-it and leg-it.

But I still love a lot of what is Dubai, just to visit: the Dubai 7s, the bars, the nice bits (if you have cash), the glamour, the girls, the pace, the pure self induced hedonistic hallucination of it all.

But talk about a bad case of denial.

Posted by Ian Parker
When I was in Reykjavik this time last year, Icelandic reaction to the the country’s economic disaster was mixed—grief, fury, a kind of giddiness—but nobody was pretending that nothing had happened. Last Wednesday, Dubai asked to be excused six months of payments on a debt of fifty-nine billion dollars owned by Dubai World, the state-backed conglomerate. Yesterday, Dubai’s stocks fell 7.3 per cent; today they fell another 5.6 per cent. And the Gulf News, an English-language Dubai newspaper, has reported this online with the headline: “UAE markets bounce back at the end of trading sessions.” Another story, quoting Sheikh Mohammad bin Rashid al-Maktoum, Dubai’s leader, is headed: “World lacks understanding of Dubai debt crisis.”

Only Icelanders were embarrassed by Iceland’s financial collapse. In Dubai, something more than national pride is at stake, and one wonders how far disappointment could stiffen into denial. (Yesterday, the Times quoted from an online forum in Dubai where someone had written: “Dubai is a victim of media distortion” and “All the Western countries have ganged up on Dubai. Why? Because it has succeeded.”) In the summer of 2005, while reporting a piece on development in Dubai, I met Sultan Ahmed bin Sulayem, chairman of Dubai World, in his office on the forty-seventh floor of the Emirates Office Tower, in a room whose carpet featured a recurring pattern of palm trees, a theme repeated in the fronds of artificial reefs, packed with villas, extending from the coastline below the window—one of his projects. He said,

Dubai broke a myth in the region. People say you cannot do this here. It can only happen in the Far East, it can only happen in Europe, it can happen in America. We cannot do it, it’s not something for the Middle East. But the way we broke that myth? We said, no, we can do anything we want. And now it gives a lot of courage to neighbors in the region, whereby they say, if Dubai can do it, we can do it.
Dubai’s reaction even to unpromising ideas, he said, was “to see how big we can make them.” At that time, one could detect a rumble of anxiety, as the city’s indoor ski-slope neared completion; you could hear a little “Glengarry” urgency in the pitches made by real estate agents in the malls. Today, Dubai may owe more than eighty billion dollars.


  1. I might have another issue which I should post on the previous one, but mentioning Israel as always unfortunately the Arab nations in my and many others opinions THEY are all budgeting on the Palestinian issue.

    So, for any reporter that you think he/she is really having the journalistic ethics which is hardly exist today.

    I would like you to read this article from last month:

    It is at the under: Kuwait calls for elimination of racism, discrimination
    If you read the last two paragraphs, for God sake why they have to shift the subject from their own (the Kuwaiti) slavery and human rights to Israel and the Palestinians.

    Today Palestinians have legitimate government that speaks for them. Besides, I like the world to know when Kuwait was applauded for supporting the Palestinians, in some way yes but they deserved such for their efforts’ in building Kuwait system since the 1939-40 when they have their water transported on the donkeys.

    And in the 1960-70 were enforced deduction of 10 or 15 or 25% from each Palestinian salary to support the education for their kids. You can imagine in one house hold of four people two educators, two engineers about the least KD 75-100 wasn’t bad money 35 years ago.

    Kuwait and the Gulf never cared for Palestinians as much used their intelligence as they are smart and loyal. Each nation in the Arab world took advantage of such.
    I prefer that Israel rules the regions in the light of stopping any one killing of an innocent child.

    Well, before I get some illiterate angry people, Islam says everyone should get to have its turn. We had ours to Spain once.I’m not defending Zionist as much as I’m showing that the Gulf regions are not that better and might be all the money lost here and there in Israeli banks - the untouchable.

    By the way UD, did you notice this which it is interesting? When you try to find the article you mentioned.

    “here is a problem in displaying the selected Page. This has been reported to the site administrator. Please visit later. ... “

    After opening the link:
    In red:
    There is a problem in displaying the selected Page. This has been reported to the site administrator. Please visit later...

    And Oman is open to free journalism…..I like best of your comments:
    "But talk about a bad case of denial." I will add CASES.

  2. Denial.. hmm, no wonder! "But the Arab man does not accept taking any roles but the heroic ones." Majda Al-Roomi says in her song "Be my Friend."

    Not being sentimental, but... poor Dubai! I just hope things get better there!!

  3. By the way, I still like the Gulf as you said, I like it because the exposure to many cultures, languages, faiths, and mostly how people behave differently than their own culture which is the most interesting lessons that you never learn in colleges.

    Even in New York, San Francisco or United Nation itself as people there are different class of people to socialize with all as in the Gulf with the richest to the poorest, highly educated to illiterate. Interesting world.

  4. We all saw (or at least could see) this coming. What goes up, must come down. The reactions in this region, especially from Dubai, are indeed very typical for this part of the world. Complete rejection of any critisism, combined with blind denial, and of course the usual blaming of everybody and everything else. Well, I guess we could all see that coming too. Same goes for all those big banks, contractors, investors, companies, etc. which are now complaining and protesting because they might never get their money (back). No use blaming Dubai, as it is all simply caused by their own poor judgement / management and, mainly, by pure greed. Love makes blind. Greed apparently too.


  6. I think everybody is missing the point about Dubai. The crash (or at least the unfettered buildup that preceded it) was intentional. The Maktoums want to build a large, modern city full of expat workers and businesses for the Dubai Emiratis to live off. They have succeeded. Their aim was never to provide a cushion of perpetual stability to foreign was to buy their services at the best possible rate in order to build their city as quickly as possible. Which they did. There may be a dip over the next few years, but the infrastructure is built, the accommodation is there, prices will come down (relative to the rest of the world) and business will continue. Indeed, Dubai's future marketability as a business destination hinged on the quantity of city built during the boom years. Those who laugh at Dubai for losing 70% of their property values just don't get it - the property values can only go down if they have risen high in the first place, and cheap property means low business costs. The islands of The World will be used for housing or hotels, no matter what the fortunes of Nakheel - they're there now, and no matter what numbers are written on pieces of paper that anyone waves about,they're not about to go away. Someone will use them.

    AFAICS the only real fly in Mr Dubaian's soup is probably building standards. The city may not last as long as they hope....literally...

  7. And in news closer to home-

    Oman Banks Dubai World Exposure Reaches $77 Million
    ABC News
    By Rania Oteify and Jason Benham DUBAI (Reuters) - Oman's top banks said on
    Sunday they had a total exposure of $77 million to troubled conglomerate
    Dubai ...


    Oman sees no need for bank provisions over Dubai
    Reuters India
    DUBAI (Reuters) - Oman's central bank governor said on Sunday there was no
    need to require local banks to book provisions for exposure to Dubai World
    debt ...

    = DENIAL

  8. It seems there will be more tremors from Dubai.
    After Dubai World, is it Dubai Holding’s turn next?
    London: Dec 5, Press Trust of India:

    The emirate’s ruler’s personal investment vehicle Dubai Holding might be the next state-owned Dubai company after Dubai World to default, media report says.

  9. As Abdulla said the tremors will be felt in Oman as well.
    Banks’ exposure
    Oman’s two leading lenders — Bank Muscat and National Bank of Oman —on Sunday said they have a total exposure of over$ 72 million to the Dubai World group.

    In separate regulatory filings Bank Muscat and National Bank of Oman said they have an exposure of RO 19.25 million ($ 50 million) and RO 8.7 million ($22.59 million) to Dubai World Group as part of a syndicated loan.

  10. UD,
    Since when your blog has become and ad site for ponzis?

  11. JC

    Apologies. Missed it. Hard to stop them... impressive rates of return though! Maybe Dubai World should give them a look - default might not have to happen afterall!!!


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