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Sun 29 Nov 2009 02:26 PM

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Dubai: A different perspective

Sulaiman Al Fahim on why concerns that Dubai’s debts could cause global problems are perhaps overdone.

Dubai: A different perspective

On November 26th, while Muslims started the three day Islamic Holiday of Eid Al Adha and Americans were celebrating Thanksgiving, the financial world was focusing on the announcement made a day earlier by Dubai World, the state-owned conglomerate.Dubai World is seeking a six-month standstill in debt payment of liabilities mounting to $59 billion, with the Dubai World property unit Nakheel PJSC facing an immediate delay in the payment of $3.52 billion on December 14th.  

The timing of the announcement has been heavily criticised despite the fact that Dubai has now finally concluded that some corporations need to be restructured and has hired Deloitte to help them, sidelining its current management. Instead of being praised for finally admitting the real situation, Dubai is still receiving criticism.  

Yes, Dubai might need to restructure its debt of between $60 to $80 billion (huge in the context of the emirate’s $75 billion GDP) but the number pales in comparison to the $2.3 trillion in write downs the IMF estimates US and European lenders will have made between 2007 and 2010, without discussing the trillions of dollars that have been used to bail out financial institutions at the expense of the taxpayers.  The claims that the debt restructuring will have a domino effect and cause systemic risk is perhaps overdone since the sums involved are small in the global scheme of things.  

The injection of trillions of dollars in financial institutions in the US and Europe have had its detractors, who claimed that those institutions or corporations that do not make financial sense should be allowed to fail.

Unlike the US or Europe, Dubai is setting an example by opening the door to a major reorganisation with the aim of achieving business efficiency. Those critics who claim that Abu Dhabi under the current circumstances should bail out Dubai whether or not the injection of funds will achieve a restructuring of the business plan to ensure its viability, should be reminded that "when it comes to cures, it would be far better to get the job done right than get the job done quickly".

Yes it is going to be painful, but if things are done right it will be a lot less painful than delaying the restructuring process by putting more good money over bad money. No institution should be too big to fail. In terms of what needs to be done, Dubai is helping set an example.In some of the recent articles, a statement was made about reckless spending but one should be aware that all investment decisions that were made during the boom were justified by fundamentals. At the time, Dubai population was growing and there was a real demand for spending and investment. Despite the need, there is no denial that there were speculators, as in every booming market or industry. However, that was not just happening in Dubai.

It was also the case on Wall Street, which praises itself for being so sophisticated and above the fray. Instead of just looking into what went wrong in Dubai, one should educate themselves and conduct proper due diligence and look for fundamentals.  

On Friday, one of the most respected investor managers, Mohamed El Erian, from Pimco, expressed his views on CNBC, claiming that "the Dubai fallout is a correction. Not another crisis and that this is a catalyst call that will create opportunities for markets to reprice." One should look for these opportunities. The extent of the effect of Dubai's announcement will be felt in the next few months but we should all ask ourselves how many times historically have countries such as the US or Germany or the UK defaulted before we come to conclusions.  If institutions are not being run properly, they should be allowed to fail or at the very least be forced to restructure.  If that is the case, the announcement of Dubai should be taken cautiously and as a positive step.  

A few days ago, I wrote an article pointing to all the reasons why Dubai will continue to be the hub of the region.  Those reasons are still in place.  Our modern infrastructure, diversification of the economy, tolerant lifestyle and our efforts to promote education and create a vibrant economy will continue to bear results.  We should remember that the father of our country, the great Sheikh Zayed, always gave us an example of unity and fraternity.  Today more than ever, United We Stand and support each other’s decisions. Sulaiman Al Fahim is chairman of Arab Union For Real Estate Development (AURD).

Arabian Business: why we're going behind a paywall

Shamma 10 years ago

i totally agree with Sulaiman that we in UAE are United and we will joint hand to see Dubai the way we know the best city in the world

Manish U 10 years ago

No man or institution or a region is an island, entire of itself; more so in the 21st century globalised world that we live in. Ever connected like never before in the history of the humankind, we stand together to share our common challenges and opportunities. The 2007-2009 global financial meltdown, whose immediate cause was the United States Housing Bubble led to an increase in money supply by the US Federal Reserve and Central Banks around the world. Large fiscal stimulus packages where introduced by various government and the US alone spent nearly USD 1 trillion in 2008-2009. A six month standstill in its debt payments sought by Dubai is trivial when compared with the tremendous and inherent opportunities the place offers for business, financial services, tourism and real estate. Located along the southern coast of the Persian Gulf on the Arabian Peninsula, Dubai- a ‘global city’- still holds significance because of its unique geographical and strategic location on the world map which makes it a lucrative business hub. Learning from global experiences in the past, and the introduction of remedial and restructuring measures by the government of Dubai shall indeed help the region adjust to and overcome the current challenge. It is indeed an opportunity for the international community to come together and join Dubai in its initiatives and efforts.

Samir 10 years ago

Fantastic article contains the facts supported by figures, and Dubai will remain a beacon of the world and purpose of the investors from all over the world, and Fahim, one of the sons of Dubai, and one of the most successful businessmen in the world.

Ali 10 years ago

The vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President of the UAE, the Prime Minister and Ruler of Dubai, capable of moving Dubai to safety, who is made Dubai a paradise on earth, I ask God to preserve Dubai from all evil.

Qubaisi 10 years ago

All investors must stand by Dubai rather than talk about negative things do not help now from hunger, because if anything harm Dubai, all the investors based in Dubai will also lose, Dubai is strong and we must not disgrace its reputation, if we must talk, its better to use the language of numbers and measure the size of achievements, as the writer of the article did.

Ingrid 10 years ago

The writer excells at pointing that Dubai is setting an example as to how business enterprises should function. Financial expert's opinion as that of Mohamed El Erian, whose comments are alwasy based on objective judgement and deep research, are what we need to concentrate on. It is great to know that in a globalized world as the one we have today, we all understand how interconnected our economies are. I look forward to continuing to see Dubai shining once the storm of the announcement settles and we see the results of the restructuring. I strongly believe the government will always take the right decisions for its people and be fair.

JK 10 years ago

The local media needs to support the emirate strongly with facts and figures to withstand the unhealthy criticizms floating through international medial. Spreading the positive outlook is very important for Dubai at a time like this. And when it comes to matters like this that are overblown, it is high time that we react strongly to such unhealthy comments from the international media. If the US and Europe are considered to be stonger economies than Dubai, why did bankruptcy and bailouts pop up in those economies in the recent past? if they had such good systems and strategies in place, why did they go through a phase which shook the whole world for reasons unknown to them/ unfolded one after the other? So please leave alone Dubai to restructure and recover. Dubai will be back in style and strength in no time.

M. Bible 10 years ago

The financial crisis did not start in Dubai and will not end in Dubai. Dubai World’s recent announcement should not come as a shock. Essentially, the recent announcement is not saying to the world the UAE’s financial status or structure is weak relative to the world market, rather the announcement is only indicative of what is happening all over the world. The financial crisis is an international problem, and the recent announcement is merely stating Dubai does not possess some miraculous immunity to the current financial trends. Even if Dubai World had the greatest infrastructure and market indicators in place, it would still feel the trickle down of the rest of the worlds banking problems. The UAE like all nations, is forced to bear it’s percentage of the world’s financial burden whether it started within it’s borders or not. The recent announcement by Dubai World, is not positive; but those who are immensely bothered by it, should be asking themselves, “why they are bothered?” Do you have a problem with the fact the underlying miracle land of Dubai exists only as a good investment and not the get rich quick miracle you once thought? Or Do you take issue with the manner in which the company decided to deal with the burden they now find themselves bearing, ie. a moratorium on interest? If your issue is the prior, you should be confident that Dubai STILL offers great, secure investment opportunities with good returns. Any diminished hope one had in miracle returns maybe a result of one’s lack of due diligence. If your issue is with the moratorium, then perhaps you should offer the company your quick alternative solution. There are worse options the company could have chosen. It was an internal policy decision; one cannot fault until more information is known as to the internal factors taken under consideration. Summarily, no one can say they were elated to hear the announcement. However, the announcement does not negate the fact Dubai and development within the UAE still remains a great place for investment and good haven for ones income. Leaders within the real estate development world, such as Sulaiman Al-fahim, will still remain available as a fountain of expertise to assist in assuring that truth remains true today and 6 months from today. For the aforementioned reasons, no one should lose confidence in Dubai development as an avenue for investment. Rather we should look at the recent announcement as additional information to be considered in how one invests. Relative to the rest of the world, Dubai World’s announcement should not come as a shock, and all should be assured confidence in the potential of the UAE and Dubai is far from dwindling.

Jahangir Lufullah 10 years ago

In my opinion the rulers of Dubai have taken the right step by not funding organizations which need financial and organizational re structuring , this direction should have been applauded rather then being a cause for sell offs .The Global equity markets have gone up too fast and too much and many inventors like to unwind their positions before holidays so news of a possible of re structuring of debt of Dubai World gave the traders the perfect opportunity to off load in heavily bought markets . The news of Dubai World's request for a possible restructuring of its outstanding was read like a Sovereign default , the print / verbal reactions to this news have been overly exaggerated not reflecting ground realities. I have a few questions for critics of these actions , first how can the lenders be so naive to lend blindly if the borrowers were not credit worthy and didn't or couldn't pay handsome premiums for the credit facilities ? There have been asset markdowns and deteriorating of asset quality Globally so why should Dubai come in for an exceptional treatment . Transparency or lack of it is not restricted to these companies in Dubai but the entire GCC and South East Asia infact most of Asia as it is the way that business has been conducted since centuries and it is in these same markets that everyone has made Billions so why only now transparency is an issue . The miss reading of what has happened in Dubai is unfortunate and unjustified , the infra structure that Dubai posses is second to none and Dubai has an edge of a minimum of 10 years over the other Hydro carbon based Economies based in the GCC . Restructuring is not bankruptcy and there are thousands of examples in front of us , Century old institutions engaged in manufacturing or services in the U.S and Western Europe being saved since last year not only by cash injections worth hundreds of Billion of Dollars but also by demonstrating confidence in them . Past excesses can not be rolled back because they were in context to the market dynamics , market dynamics have changed and we have to change with them if we are to live and grow. Dubai's infrastructure is complete and I feel that Dubai will insha Allah come out stronger and on a firmer footing after this unnecessary hype dies out , the upturn in local equities and real estate will take a bit longer to bounce back but the bounce back will be from a much firmer base .Dubai is still the greatest .

Susan Clarkson 10 years ago

I think, all that has been published through print media, over the internet blogs etc. is trulu out of proportion. Dubai has always, been an active business hub for the region & the current situation is a ''correcting phase''. The measures that, will be decided &taken in the restructuring phase wil certainly prove very beneficial . there has to, be a lot of caution in executing the best panning & action These good / bad times are part of, any global econmoy .Dubai will be even more sucessful in the future .... God bless Dubai