INDICATIONS are emerging that the Dubai financial crisis will lead to a significant change in the emirate’s make-up. The Dubai government has let it be known that the debts of Dubai World, which sought a deferment of loan payments last week, is not guaranteed by the emirate’s government.
The Dubai government’s distancing itself from what was once thought to be a state-owned company indicates that it will let the company go to the wall as long as the government’s backside is saved.
Not that there has been no inkling of this – in October, the government issued a prospectus to interest investors in a $2.5 billion Islamic bond. Few who read the prospectus noticed this: “The Dubai government is under no obligation to extend support to any government-related entity”.
That little bit of prose now assumes great significance after the announcement last Wednesday by Dubai World, which is carrying around $60 billion of debt, that it would be seeking a six-month break in repayments. This came hours after the government of Sheikh Mohammed bin Rashid Al Maktoum had raised something like $5 billion from two banks to cover its own debts.
Abu Dhabi, which has 92 percent of the UAE’s oil reserves, and is the capital of the United Arab Emirates, can easily bail out Dubai. But, given the tribal nature of society in the UAE, it is unlikely that any money will change hands unless Abu Dhabi can extract a price – possibly control of Emirates airline, the Dubai Ports Corporation or the Jebel Ali Free Trade Zone.
Sheikh Mohammed visited Abu Dhabi on November 27, the customary trip to greet the president of the UAE, Sheikh Khalifa bin Zayed, on the occasion of Eid Al Adha (the Muslim feast of sacrifice). It is unlikely that their exchanges were limited to Eid greetings.
Dubai has always been the upstart of the federation, having sufficient finances to thumb its nose at Abu Dhabi and having a much higher profile than any of the other emirates. The other five emirates have all been dependent on Abu Dhabu for handouts; the capital provides 90 percent of the country’s budget.
The other sheikhs – Al Qasimis of Sharjah and Ras Al Khaimah, Al Sharqis of Fujairah and Al Muallas of Umm Al Quwain – would be extremely happy to see Dubai taken down a peg or two. Despite much talk of Islamic unity and Muslim brotherhood, at heart they all still remain feuding desert tribes who delight in the art of one-upmanship.
Sheikh Mohammed is the third ruler of Dubai since 1958; his father, Sheikh Rashid ruled from 1958 till his death in 1990, and his elder brother, Maktoum, ruled from 1990 until he died in 2006. But Mohammed has always been the leader since his father died, and all the grandiose ideas come from him. Maktoum was a simple man; another elder brother, Hamdan, is a canny one with money and is the country’s finance minister. The youngest of the brothers, Ahmed, is something of a playboy.
It is not only in Dubai that things seem to be unravelling for Sheikh Mohammed. In London in October, Istithmar World, the investment arm of Dubai World, sold two properties, which it had bought for £90 million, at the knockdown price of £10 million. Marcol House in Regent Street and an office building in Newman Street were sold when Istithmar was unable to pay interest on a loan.
Additionally, Dubai World’s ports branch has been reviewing its £1.5 billion London Gateway Port project. A loan of £300 million was taken in November from the European Investment Bank to rescue the project.
Perhaps people should have sat up and taken notice three years ago when it became known that several of the projects proposed for Dubailand, a $5 billion project announced by Sheikh Mohammed in 2003, had been scaled down or knocked back altogether.
The arrogance evident in the announcement can be gauged from this bit of his speech: “I would like to tell capitalists that Dubai does not need investors, investors need Dubai and I tell you that the risk lies not in using your money but in letting it pile up.”
Probably that is why Dubai finds itself in the spot it is in right now.