12 February 2009

Like Singapore, Dubai is crashing

This article in the International Herald Tribune makes interesting reading: Laid-off foreigners flee as Dubai spirals down. Dubai, unlike neighbouring emirates, does not have oil, and has instead built an economy on finance, entrepot trade and glitzy tourism. In the last few years, as the bubble ballooned, it's been billed as a star performer, attracting loads of foreigners, building the world's tallest tower, and so on.

Now, parts of Dubai are "looking like a ghost town" as jobless foreigners are forced to leave. Property prices in some neighbourhoods have crashed more than 30 percent in the last 2 - 3 months, the airport parking lot is full of abandoned cars, and Dubai officials have dropped hints that they'd be willing to accept a bailout from oil-rich neighbours.

And there's no light at the end of the tunnel. People can't foresee how the good ol' days will return. Is there a lesson here for Singapore?


yuen said...

a common feature in the financial problems of the wall street firms and countries like Iceland and Dubai was high leverage: the expansions were mainly funded by cheap credit, which suddenly dried up; if it is any consolation, Singapore companies and government are generally low geared and less badly affected

I would be interested to see YB readers who have investment background, provide comments on why the companies involved, instead of taking on high debt, did not obtain some of the funds by selling equity instead, and why things were done differently here

Charles said...

Definitely. That's neoliberalism at work and Singapore's pursuance of such ideologies has already manifested itself in the form of becoming an unequal society. Singapore's gini coefficient is already comparable to that of Latin American countries.

HanSolo said...

"Dubai, unlike neighbouring emirates, does not have oil."

Hi, please check your facts.

Dubai kickstarted its economy with oil, and then diversified from there.

Anonymous said...

From the article:

"But Dubai, unlike Abu Dhabi or nearby Qatar and Saudi Arabia, does not have its own oil, and had built its reputation on real estate, finance and tourism."

I guess the International Herald Tribune should be the one doing their fact checking then. :)

Yawning Bread Sampler said...

Mea Culpa. "No oil" is definitely wrong. Although I took it from the IHT, I should have been more careful, especially since I do know that Dubai continues to produce oil, albeit in declining quantities.

Dubai is now a relatively small producer and is not a force any more in the global oil scene. In the UAE, Abu Dhabi stands head and shoulders above Dubai and other emirates both in terms of proven reserves and production. Abu Dhabi has over 92 billion barrels of reserves, while Dubai has only 4 billion. Abu Dhabi produces about 2.5 million barrels a day, while Dubai produces 250,000 barrels/day and falling.

(Compare: Brunei oil production about 200,000 barrels a day, also declining, with exhaustion in sight.)

It is the knowledge that Dubai will run out of oil in about 20 years that drove Dubai to diversify as aggressively into other sectors as it did. This diversification into massive construction, finance, tourism is what is causing the trouble now.

abhtg said...

For info, that article was actually from the New York Times – the NYT shares resources with the Tribune. Dubai does have oil, but only contributes a negligible portion to the 7 emirates' oil income.

Dubai had it coming. It was built almost specifically on the Singapore model and has an export-dependent economy. It also has a smaller population, which means that it is subject to the same economic pressures as Singapore, only worse.

Many economists advocate domestic spending to fix the economy during downturns, but Dubai has an even smaller population than Singapore does, so that is a hard ask. And that number includes expats with fluid nationalities, and understandably they leave during hard times.

I'm not sure if I catch YB's "lesson" here. Frankly Dubai hasn't had a lot of choice in its economic policies, and surely its woes are more of the "rich man's problems" type. What Dubai needs is, like Singapore, personality and cultural penetration, ie, more "stayers" and less "quitters". This week they shamefully denied the Israeli tennis player Shahar Peer a visa to play in the Barclays Dubai, and more episodes like this will spell the end of their billion-dollar "sports city" project, and others.