Dubai: that sinking feeling

The usual clichés about castles in the sand have been trotted out once more following last week’s request to its creditors by the state-owned conglomerate Dubai World that the repayment of its debts be deferred for six months.

The magnitude of the problem was illustrated by the manner in which stock markets right across the developed world dipped sharply at the prospect of Dubai defaulting on its loans, prompting fears that global capitalism’s current crisis could intensify after several months of gradual recovery.

Given that Dubai has long been run virtually as a corporate entity, comparisons between the Gulf emirate and the now deceased American investment bank Lehman Brothers are not entirely facetious. There was some surprise when the US government decided not to rescue Lehman Brothers after it declared bankruptcy last year. In Dubai’s case, it seems the role of potential saviour falls to Abu Dhabi, the dominant constituent of the United Arab Emirates (UAE) and the only one to boast substantial oil wealth.

The global financial crunch hadn’t thus far been particularly unkind to Abu Dhabi, whose streets and car parks are reportedly filled with vehicles sporting Dubai number plates: it has become a source of jobs for many of those who lost theirs in the neighbouring emirate. However, although it has extended some valuable help, most recently in the shape of guarantees of extended liquidity for banks operating in the UAE, Abu Dhabi is clearly unwilling to take on all of Dubai’s liabilities.

This isn’t altogether surprising, given the level of Dubai’s debt: officially in the region of $80bn (of which nearly three-fourths is owed by Dubai World), but anecdotally at least twice as much. Dubai’s reputation as a prime 21st-century boom town was based, in other words, on borrowed funds. It has lavishly been spending money it didn’t have, and the level of imprudence effectively means it has been living on borrowed time.

Its relations with Abu Dhabi, meanwhile, have long been subliminally fraught, notwithstanding overt displays of fraternal warmth. Historically, Dubai split from Abu Dhabi in the early 19th century and the two emirates clashed periodically until the 1940s. Since the UAE was founded 38 years ago, the federation’s two largest components have shared power, albeit unequally.

The country’s constitution implied that the ruler (that is, the head of the dominant clan, rather than the 12-inch variety) of each of its seven emirates would be federal president by turn. However, the post has never been held by anyone other than the ruler of Abu Dhabi, with his Dubai counterpart filling the prime ministerial slot. Marital ties between the Al Nahyans of Abu Dhabi and Dubai’s Al Maktoums have ostensibly brought them closer, but a not altogether friendly rivalry has consistently simmered beneath the surface.

Not surprisingly, therefore, at least some of the schadenfreude occasioned by Dubai’s discomfiture probably originates in Abu Dhabi. But a candid reminder that Abu Dhabi’s reputation is closely linked to Dubai’s fortunes came when UAE markets reopened on Monday after the Eid holiday, and Abu Dhabi stocks took a bigger dive than Dubai’s.

It’s conceivable that some sort of gesture will be made today in the context of the UAE’s national day celebrations, but the near-consensus is that if Abu Dhabi does belatedly opt to save Dubai from the ignominy of bankruptcy, it will demand its pound of flesh, possibly in the shape of a particularly coveted asset such as Emirates, Dubai’s ‘national’ airline.

Chances are it was speculation along such lines that prompted Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum to explode last month at a conference convened by an American bank. ‘I tell those who speak about Abu Dhabi and Dubai as two separate states or emirates running in two different directions to shut up their mouth and not speak of something that is against the reality completely,’ he declared, switching to English for the purposes of the uncharacteristic outburst.

The sheikh is rattled because it’s primarily his own vision — his apparent inability to distinguish between success and excess — that has come undone. The horse-lover who gained an entry decades ago in The Guinness Book of World Records as the groom in the most expensive wedding ever staged has consistently shown signs of vaulting ambition.

This vision has sometimes resembled competitiveness of the ‘mine’s bigger than yours’ variety: the world’s tallest building, the largest airport, the most extravagant artificial islands off the coast of Jumeirah, so on and so forth.

Dubai has little oil and its riches have always been based on its status as an entrepôt. The sheikh decided to throw to the winds the caution exercised by his father and elder brother, and pulled out all stops in positing the emirate as a highly desirable piece of real estate and a luxury tourist destination to boot. The gamble initially seemed to pay off but turned into a bad bet on a colossal scale.

Over the decades, Dubai’s reputation as a relatively liberal Middle Eastern oasis has been marred by the extraordinary degree to which manual labourers from South Asia have been exploited in the pursuit of greed. Unfortunately, the comeuppance entailed by Dubai’s embrace of the crassest form of capitalism isn’t exactly poetic justice, given that those who suffered most in facilitating the boom have also borne the brunt of the bust.

The consequences of hubris of Dubaian dimensions was highlighted long ago by Percy Bysshe Shelley in a sonnet titled Ozymandias, in which all that remains of a once mighty Middle Eastern kingdom is a fallen statue whose pedestal bears the words: ‘Look on my works, ye mighty, and despair!’ The poet continues: ‘Nothing beside remains. Round the decay/ Of that colossal wreck, boundless and bare/ The lone and level sands stretch far away.’

It may not come to that for Dubai, but there are thus far no signs of contrition, let alone the realisation that, as the old truism has it, the higher the top the longer the drop.

The usual clichés about castles in the sand have been trotted out once more following last week’s request to its creditors by the state-owned conglomerate Dubai World that the repayment of its debts be deferred for six months.

The magnitude of the problem was illustrated by the manner in which stock markets right across the developed world dipped sharply at the prospect of Dubai defaulting on its loans, prompting fears that global capitalism’s current crisis could intensify after several months of gradual recovery.

Given that Dubai has long been run virtually as a corporate entity, comparisons between the Gulf emirate and the now deceased American investment bank Lehman Brothers are not entirely facetious. There was some surprise when the US government decided not to rescue Lehman Brothers after it declared bankruptcy last year. In Dubai’s case, it seems the role of potential saviour falls to Abu Dhabi, the dominant constituent of the United Arab Emirates (UAE) and the only one to boast substantial oil wealth.

The global financial crunch hadn’t thus far been particularly unkind to Abu Dhabi, whose streets and car parks are reportedly filled with vehicles sporting Dubai number plates: it has become a source of jobs for many of those who lost theirs in the neighbouring emirate. However, although it has extended some valuable help, most recently in the shape of guarantees of extended liquidity for banks operating in the UAE, Abu Dhabi is clearly unwilling to take on all of Dubai’s liabilities.

This isn’t altogether surprising, given the level of Dubai’s debt: officially in the region of $80bn (of which nearly three-fourths is owed by Dubai World), but anecdotally at least twice as much. Dubai’s reputation as a prime 21st-century boom town was based, in other words, on borrowed funds. It has lavishly been spending money it didn’t have, and the level of imprudence effectively means it has been living on borrowed time.

Its relations with Abu Dhabi, meanwhile, have long been subliminally fraught, notwithstanding overt displays of fraternal warmth. Historically, Dubai split from Abu Dhabi in the early 19th century and the two emirates clashed periodically until the 1940s. Since the UAE was founded 38 years ago, the federation’s two largest components have shared power, albeit unequally.

The country’s constitution implied that the ruler (that is, the head of the dominant clan, rather than the 12-inch variety) of each of its seven emirates would be federal president by turn. However, the post has never been held by anyone other than the ruler of Abu Dhabi, with his Dubai counterpart filling the prime ministerial slot. Marital ties between the Al Nahyans of Abu Dhabi and Dubai’s Al Maktoums have ostensibly brought them closer, but a not altogether friendly rivalry has consistently simmered beneath the surface.

Not surprisingly, therefore, at least some of the schadenfreude occasioned by Dubai’s discomfiture probably originates in Abu Dhabi. But a candid reminder that Abu Dhabi’s reputation is closely linked to Dubai’s fortunes came when UAE markets reopened on Monday after the Eid holiday, and Abu Dhabi stocks took a bigger dive than Dubai’s.

It’s conceivable that some sort of gesture will be made today in the context of the UAE’s national day celebrations, but the near-consensus is that if Abu Dhabi does belatedly opt to save Dubai from the ignominy of bankruptcy, it will demand its pound of flesh, possibly in the shape of a particularly coveted asset such as Emirates, Dubai’s ‘national’ airline.

Chances are it was speculation along such lines that prompted Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum to explode last month at a conference convened by an American bank. ‘I tell those who speak about Abu Dhabi and Dubai as two separate states or emirates running in two different directions to shut up their mouth and not speak of something that is against the reality completely,’ he declared, switching to English for the purposes of the uncharacteristic outburst.

The sheikh is rattled because it’s primarily his own vision — his apparent inability to distinguish between success and excess — that has come undone. The horse-lover who gained an entry decades ago in The Guinness Book of World Records as the groom in the most expensive wedding ever staged has consistently shown signs of vaulting ambition.

This vision has sometimes resembled competitiveness of the ‘mine’s bigger than yours’ variety: the world’s tallest building, the largest airport, the most extravagant artificial islands off the coast of Jumeirah, so on and so forth.

Dubai has little oil and its riches have always been based on its status as an entrepôt. The sheikh decided to throw to the winds the caution exercised by his father and elder brother, and pulled out all stops in positing the emirate as a highly desirable piece of real estate and a luxury tourist destination to boot. The gamble initially seemed to pay off but turned into a bad bet on a colossal scale.

Over the decades, Dubai’s reputation as a relatively liberal Middle Eastern oasis has been marred by the extraordinary degree to which manual labourers from South Asia have been exploited in the pursuit of greed. Unfortunately, the comeuppance entailed by Dubai’s embrace of the crassest form of capitalism isn’t exactly poetic justice, given that those who suffered most in facilitating the boom have also borne the brunt of the bust.

The consequences of hubris of Dubaian dimensions was highlighted long ago by Percy Bysshe Shelley in a sonnet titled Ozymandias, in which all that remains of a once mighty Middle Eastern kingdom is a fallen statue whose pedestal bears the words: ‘Look on my works, ye mighty, and despair!’ The poet continues: ‘Nothing beside remains. Round the decay/ Of that colossal wreck, boundless and bare/ The lone and level sands stretch far away.’

It may not come to that for Dubai, but there are thus far no signs of contrition, let alone the realisation that, as the old truism has it, the higher the top the longer the drop.