The financial health of Dubai appeared to have weathered the economic depression which enveloped the world 2 years ago, but events in the last few days showed that the financial capital of the Middle-East seemed to have an exacerbation of the economic disease, much like a slow-growing cancer invading into nearby blood vessels..will Dubai bleed to death?
Yesterday, Dubai World, flagship of the state corporation, announced that they were deferring payment of all interests of loans (mainly as Islamic bonds,sukuk) by 6 months. By doing so, it raised the possibility of a second global economic meltdown as well as questioning the integrity of the desert city as the new financial centre of the world.
Dubai’s rise from a desert town to a megapolis has been breathtaking, fuelled by low-cost ready money and cheap foreign labour. But the recent economic crunch that has resulted in the downfall of many financial institutions (Lehman’s) as well as nations (Iceland -from fishing nation to financial powerhouse and back) is probably going to finally bite into Dubai. I had written about this possibility in February here.
For a long time, EMIRATES stood for English-managed, Indian-run, Arabs taking enormous salaries.
Now, the world holds with bated breath whether the same fate will befall Dubai and its creditors. In particular, it is estimated that half of the USD 80 billion are borrowed from banks like HSBC,RBS and Barclays. IF you need to see where some of the money went to, take a look below:
Over the past year, there have been signs that the disease had spread: property prices have slid by 40-50% from the highs of 2007, unemployed Indian workers have left for home, and expensive cars abandoned by retrenched expatriates at the airport
It has been reported that the ongoing construction of Palm Jumeirah, the world’s largest reclamation project that boasts of buyers like David Beckham and Angelina Jolie, delayed since 2005, has now been placed in ICU with a very poor prognosis that may be beyond resuscitation..
Last words to David Buik, senior partner at BGC Partners, who said: “You can’t just say to the world: ‘I don’t want to pay my debts’. There is no income coming in from any of these properties. I think this is shocking PR.”
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