Don’t wave Dubai bye yet

December 24, 2009

una_galaniDubai’s reputation has ended the year in tatters, but there’s no need to wave Dubai-bye quite yet. Abu Dhabi, the capital of the United Arab Emirates and the source of rescue loans for its neighbor, has good reasons to keep Dubai on life-support.

The bailout has already been costly for Abu Dhabi. Over the course of 2009, institutions based there have committed $25 billion to Dubai in subordinated loans which yield only 4 percent. Of course, Abu Dhabi, which has a sovereign wealth fund widely thought to be worth $600 billion, can easily find the money.

Still, many investors assume that Dubai will ultimately have to pay much more in return for support from its richer fellow emirate. One common theory doing the rounds in the Gulf is that Abu Dhabi will wind up with Dubai’s crown jewels, such as the Emirates airline.

But such aggression would not serve Abu Dhabi well. An asset grab might fracture the UAE, creating economically damaging political instability. Harsh moves might also scare foreigners. They will be needed to make Abu Dhabi’s own international financial center, under construction and due to be completed in 2013, a success.

Abu Dhabi has a clear desire to ultimately supplant Dubai as the financial capital of the UAE if not the Gulf, and eventually take a leading role in the region. But for now it lacks the basic infrastructure. It would be self-destructive for Abu Dhabi to take Dubai off life support before it can offer a plausible alternative.

While waiting, Abu Dhabi will want to maintain some sort of financial order in Dubai. That consideration partly helps explain the decision to keep Dubai developer Nakheel from defaulting to one set of bondholders, even though a real estate recovery next year is improbable.

The delicate inter-emirate politics should keep selected financial support flowing to Dubai through 2010. Other creditors to troubled government-related entities could get all their money back, or at least manage to extract a sovereign guarantee for commercial debts from the UAE as part of a negotiated restructuring process. Ensuring Dubai stays on it feet will be vital for Abu Dhabi to achieve its long-term ambition.

Comments

Hi Una G,It is so nice to read your view.I have been in many locations of Dubai and lived there last 6years.It is a world class city with all modern facilities at a affordable price for a normal working class man,even the government jobs pay the highest standard of living in UAE anywhere.The property assets are so huge National Investment than any city in this Asia,Pacific, Africa region in teh alst 10 years development.Next decade won’t even have this rise anywhere except UAE.It has been achieved by wise vision and personal interest and care given by it’s Ruler Sheikh Mohammed bin Rashid Al Maktoum and His all family members.The airlines all over the world is having less profit time,so by acquiring any airlines won’t help any way.AbuDhabi develops Masdar city the milestone in world class developments and Mubadala investments surpasses any world class developments in this region.In such a situation Dubai gains more and more than what ever the media mugals are dressing up or smart comments.The Metro of Dubai new developments of world class Meydan race course are the next to the Dubai Jumeriah Palm and Burj Dubai.The tallest tower in the world is situated in Dubai and DIFC and no way any business men will blink to invest in Dubai,UAE.It is the jackpot for Dubai and will win the world class achievements prior to our calculations.any how I will wait and watch as you said for the blessings of God upon Dubai.Thank you,Tim

Posted by TimiriV | Report as abusive
 

Dear Writer,
Your article on this subjects is somewhat soul searching to Arab and some foreign investors.
As per my knowledge goes to this subjects, i have not seen much hue and cry from any Dubai returned people for vacation trips to India.
Many ,my well known persons and relatives are still in these oil rich countries.
For any news media,Dubai!s latest financial mess has become hot news to future investors in Arabian nations.
My comment on Bye,Bye to Dubai is short lived,and neighboring Arab nations will rescue Duabi!s sudden debt problems at the earliest has become true.
These are all common ups and downs in world economy scenario.

Posted by mdspatsy | Report as abusive
 

For all investment bankers, Dubai provides international facility to manage investments with no capitl gains tax, no dividends tax, infact no income tax or property tax or Vat. Which place on earth does provide this facility on top of free convertibility. It is enormously disadvantegeous to run an office in USA/UK and face headwinds of taxes( of all types that can perhaps be imagined),racial discriminations,baseless allegations of insider trading, high brokerage commissions etc. So no bye bye to Dubai. There are always mis-match of fund flows. Did people say good-bye to USA/UK when 130 banks went in to liquidations, including names like Leyman Bros/AIG etc.etc. involving embezzlements of almost a TRILLION US $. Here we talk of postponement of some 4Billion only, and such a hue and cry by the media. Have a HEART. Please allow a nation to grow. Mr.akhtoom’s dream DUBAI shall survive. I ,as an Investment Banker of 45 years behind me, am confident about this and happy to go on record.

Posted by SWARN | Report as abusive
 

I think the previous people posting comments are correct. Dubai is not going anywhere. It is merely experiencing development and growing pains. It is probably better in the long run that his has happened now and not later. Dubai will only come out stronger in the long run. Remember that the Arabs have always been very clever traders. Dubai is a bastion of free trade.

Posted by michaelmoore | Report as abusive
 

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