Dubai may have taken a harder knock from the global economic crisis than many expected, but it remains a vital hub for a region whose infrastructure and spirit of innovation will lead the Gulf forward into recovery, executives and officials attending the World Economic Forum on the Middle East said.
Falling global trade and receding international credit have put Dubai's open, trade-dependent economy in a vice, squeezing demand for its once booming property market and with it the construction industry that is the UAE's largest employer and source of economic growth. Property prices since the peak of Dubai's property boom in September last year have fallen by roughly a third, while syndicated lending in the first quarter dropped by 85 per cent, forcing Dubai's Government to run its first fiscal deficit and borrow US$10 billion (Dh36.71bn) from the Central Bank to supply developers and contractors with enough cash to survive.
Reports of Dubai's demise, however, had been much exaggerated, officials said. The metropolis that Dubai has built is not sinking back into the Gulf: on the contrary, said the global HR consultancy Mercer, which has an office in the emirate, Dubai now possesses the region's most advanced infrastructure and will maintain its status as a regional magnet for talent and commerce. "Dubai is a hub for a region and has built an infrastructure that is second to none," said Jean-Marie Péan, the chairman of the consulting firm Bain and Co in the Middle East. "Once the crisis is over, Dubai will still be there, with the best infrastructure in the region. The region needs Dubai."
Nasser al Shaikh, the director general of Dubai's Department of Finance, said the emirate had begun assessing the impact of the crisis in the summer of last year. "Back then we thought the effects would be limited," he said. But the meltdown in global capital markets that followed the collapse of the American investment bank Lehman Brothers in September presented Dubai, as it did the rest of the world, with unexpected challenges. "That incident really redefined the state that we live in. All of a sudden, the effect became more apparent."
The crisis confronted the Federal Government with perhaps its biggest challenge in its 38-year existence, Mr al Shaikh said. Its solution, he said, brought officials from Dubai and the Federal Government closer together than ever. The result was the Central Bank's purchase of the first $10bn of Dubai's planned $20bn bond issue. Mr al Shaikh said that roughly half of that money had already been disbursed to government-linked companies.
He declined to say how much had been given to whom, but he said that more was on the way and that the Government was assessing the need to borrow the remaining $10bn. Mr al Shaikh has previously said that money might be borrowed from public investors, rather than the Central Bank. He also declined to respond to questions about how government-owned companies were using the money, or whether they would sell shares or ask creditors to restructure their debt, saying each company was assessing its own response.
While Dubai faced immediate challenges, the emirate was sure to bounce back because of the ongoing co-operation and consultation between the Government and the private sector, observers said. "The beautiful thing about Dubai is that the Government is not stubborn on any issues," said Sheikh Khaled bin Zayed, the chairman of the Bin Zayed Group. "They listen to all the stakeholders." Mr Péan said Dubai's ability to innovate would enable it to emerge in a stronger position than it was in when the crisis began.
The key, he said, would be for Dubai to behave like any company during a recession, focusing on its core competencies, such as transport and logistics, and withdrawing from businesses where it has less of a competitive advantage, such as manufacturing. Dubai's sceptics were probably in for a surprise, experts said. Just as many developing economies around the world had looked to Dubai for lessons before the crisis, so many should watch how Dubai navigates its way through the present turmoil.
"What Dubai's going to be learning from these challenges might be truly valuable to pay attention to," said Mark Fuller, the chairman and chief executive of the Monitor Group, the strategy consulting firm, which has 30 offices worldwide. warnold@thenational.ae smaayeh@thenational.ae