Gekko greed no longer good

As stationery shops across Dubai run low on brown envelopes, what has been the real impact of the latest crop of financial scandals on the reputation of the emirate and the companies domiciled there?

Strange though it may seem, it's probably ultimately good. The significance of the recent allegations being made against executives of high-profile corporations in the emirate, including Nakheel, Tamweel and Deyaar is not that they occurred, but rather that they have been acknowledged by public prosecutors and confirmed by at least some of the companies named.

The dirty linen is being washed in public for the first time. Dubai's ‘zero tolerance' policy towards corruption appears to be a coordinated attempt to smoke out the swindlers that goes beyond mere spin.

The revelation that people may be skimming from the top in the midst of an oil-fuelled regional building boom where billions in surplus petrodollars are being generated everyday, is hardly a man bites dog story. But the public handling of the scandals is a break from the past.

It's also significant that most of the ongoing investigations relate to the real estate industry, fast becoming a petri dish of the ‘get rich quick' culture.

The Gordon Gekko creed of ‘greed is good' has been fed by the real estate boom. Now it needs to be nipped in the bud before things get out of hand.

Between the black and white ends of the spectrum of legality and illegality, there are many shades of grey. High-profile corporate corruption scandals are at one end. The abuse of off-plan property buying by Joe Public is at the other.

Many people have got rich quick by placing multiple and simultaneous deposits on properties with no intention of occupying them. This has fuelled unsustainable property price hikes and created the need for controls to be placed on off-plan buying that we are now seeing emerge.

Banks have been complicit in their own deception. They have chosen to overlook the flagrant abuse of their lending parameters by savvy mortgage customers, because of the obscene margins that some of them have been happy to make. But this all comes at a cost.

It all has a very clear and identifiable financial impact on investor sentiment. Look no further than how the publicly traded real estate companies of the UAE have fared in the last week. The top five saw their share prices slump by an average of 8 percent in the week to Aug 26.

Retired American oil executives interviewed in this week's issue who worked on the early Sabic projects in Saudi Arabia in the 1970s, attribute much of the subsequent success of that company in entering foreign partnerships with its reputation for plain dealing, and the processes it put in place to limit the potential for kickbacks when construction contracts worth billions of dollars were being awarded. The reputation endured and, say the retired American oilmen, has been instrumental in the company's subsequent success in doing business abroad.

It's a lesson the real estate industry should pay heed to.

Sean Cronin is the editor-in-chief of Arabian Business English.

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