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Dubai Lessons

What has Dubai really learned from the financial crisis? A question investors are likely to ask Dubai’s government or corporate decision-makers deep into 2010 as they attempt to work off the excesses of the past.

The US$10bn lifeline in December from Abu Dhabi will go some way to help Dubai’s footing into the new year, although it is, in essence, an admission that something went seriously wrong in the UAE’s once irrepressible second city.

But Dubai, in that sense, is no different to governments around the world who will endure the lasting scars of the recession, including years of repair work on their budgets.

It must also be added that the risk from defaults in Dubai is not systemically important on a global level, and, in fact, Dubai World’s financial woes are relatively small given global credit losses.

Resist temptation
You may want to build it, but should you? Real estate developer Nakheel is surely the protagonist in Dubai’s cautionary tale, having overextended itself to the point of defaulting on a US$4.1bn sukuk just when confidence in Islamic financial products was gaining ground.

Its flamboyant palm island development formed the centrepiece of Fortune magazine’s recent “Dumbest moments in business 2009”. Man-made islands were developed in the Persian Gulf “at a time when global wealth had taken a depressionary drubbing”, it says.

Dubai was joined on Fortune’s list by Goldman Sachs CEO, Lloyd Blankfein, who, during a public relations campaign to shore up his firm’s battered image, got a bit carried away in an interview with The Times of London and said he was just a banker “doing God’s work.” All for a cool US$43m a year, his shareholders would be happy to hear.

Timing is everything
Dubai’s habit of announcing serious market-moving news on a Thursday – thus eliminating any momentum the story could pick up during the working week – has also come under fire.

Critics point to Emaar’s decision to cancel its merger with Dubai Holding’s real estate units Dubai Properties, Sama Dubai and Tatweer, which came late on a Thursday.

And Dubai World’s debt “standstill” statement, the most explosive announcement last year, was conveniently made the day before the lengthy Eid holiday.

In a veiled admission shortly after, Dubai’s finance chief Abdul Rahman Al Saleh said: “In Dubai we are not good in publicising what we are doing as much as we are in doing it.”

As Dubai found to its detriment, when public relations are badly managed, investors panic through lack of information. Many will hope that rectifying this flaw will find its way onto the emirate’s to-do list in 2010.

Be careful. Be thrifty.
Dubai’s other lessons from the financial crisis were clearly hidden in plain sight during the Dubai World debacle. The moral being that the global downturn is still an open wound going through the healing process, so don’t do anything to rupture it.

As the economist Nouriel Roubini, who’s known fondly by economy watchers as Dr Doom, said recently: “Although Dubai World’s financing issues are not a surprise and are relatively small given global credit losses, they are a reminder that the vulnerabilities and imbalances that contributed to the credit crunch have not disappeared.”

Therefore, Dubai would do well to remember that because all is not yet well in the global financial system, it should proceed with caution. Some say that the Abu Dhabi bail out will duly clip its wings as far as unsustainable flashy projects are concerned.