Is Dubai too big to fail?

There is an element of truth in the Newsweek article that talks of potential of Dubai failing. It's not that Dubai is too big to fail. It is that Dubai is too important to fail. Too important to the Rulers, too important to the UAE, too important to the region and too important to the Eastern world that has looked at Dubai as a haven to channel goods and cash, to invest when the West said no to their money.

Whether Abu Dhabi has bankrolled Dubai's growth is not clear. A betting man would say that the FDI associated with the growth in Dubai is not all from shores or a distant land. The AbuDhabians with their oil cash have made strategic investments in places where there are returns to be made. This is both in the UAE and beyond. Dubai has been the Emirate seen to be achieving those investments on a global scale, but what we will see going forward is a further cementing of ties through troubled times. Abu Dhabi will support its neighbour - and the favour will be repaid through a sharing of skill and know how - as well as offering preferential treatment in investments guaranteed to bring in hefty returns.

There is no doubt that there will be troubled times ahead, more so in the over exposed emirate of Dubai, but talk of failure is embellishment too far. Failure is a big big word. In the eyes of some, success has already been achieved. To recount the transformation that has already been undertaken, one can see that Dubai has fast tracked itself onto the world stage. But its ambition of unprecedented growth will need to be curtailed. Dubai wont necessarily hit a recession. Dubai will hit slow down its growth. In a period of severe economic hardship, low single digit growth is impressive.

What we will see over the coming months is phasing and prioritising. Projects will come to fruition later and some projects wont be undertaken at all - but that is smart business practice, and whether you are a country or a company, that is how one should be operating at present. It's time to lose the weight and travel to the next juncture a little lighter.

Too Big to Fail

Job Cuts in Dubai - what does it mean?

The effect if this global recession is wide and deep, but some key pieces of data are important to examine whether places such as Dubai are affected.

Firstly, one must look at asset prices. The stock markets have halved over the last few months. For a company that has floated half their stock, that's nearly a quarter of its asset price gone. That is significant in any market place.

Secondly, you can look at any amount of data, GDP rates etc that demonstrate the full effect of what is going on in the economy.

But there are also some other bits in the news that demonstrate the depth of the situation - redundancies and job cuts. For global companies to cut jobs in Dubai or in cities where they have a presence is one thing - this is scaling back to even out exposure and aiming to focus on their core business. But when companies such as Emaar and Damac, companies local to the area start announcing that they are making wholescale cuts with plans to scale back, that is the point where you know that the region is affected in a big way.

We have already seen significant property asset value reduction in Dubai, and rental returns are not what they were. And now consolidation will occur. Companies will need to come together to survive this storm. The very fact that there is a discussion going on between Emirates Airline and Etihad is significant whether or not anything happens.

The worrying thing for Dubai is that its debt is larger than its GDP and its over reliance on FDI has left it over exposed. But no worry, next door is Abu Dhabi. Despite the Oil price reducing over the previous weeks, Abu Dhabi has coffers of cash to start to stand tall in this downturn - the question is how they will strategically make their power count.

Dubai and the global financial crisis

Discussion of keeping the Gulf Dream Alive.

Ugly Dubai?

The Times visits Dubai and is pleasantly surprised that Dubai doesn't meet the hype of its gaudiness:



It should be ugly but isn’t. Put up enough cranes and there’s beauty in the optimism. From the rooftop bar of the One & Only Royal Mirage – another meltingly Moorish hotel – the glimmering towers in the ribbon of lit-up darkness remind me of all that is left of the New York skyline poking up through the apocalyptic sands in the closing scene of Planet of the Apes. The difference being that Dubai is a beginning, not an end... always provided that the sky and roads do not run out. I rock with the giddiness of the view.

Like every city, Dubai does have some ugly parts, but like every city, there are some shining examples of beauty - whether or not this is a city whose current depiction is as a very recent thing.

Is beauty in the eye of the beholder or of the builder?

Dubai: it should be ugly but it isn't