Dubai’s Economic Slump

What started as a subprime crisis in the US, evolved into a credit crisis and has now transformed into a worldwide financial crisis of epic proportions, affecting trade nations across the globe. The current financial slowdown will see the worlds GDP contract by a forecasted 0.5 percent in 2009. With the United States in possession of the dollar fiat currency, hence controlling the printing presses of the world (most currencies are pegged or indirectly benchmarked against the dollar), it stands to inflate its way out of debt liabilities with massive government stimulus efforts to boost US economic activity. US GDP is forecasted to contract 1.6 percent in 2009 showing it to be the least affected compared to Europe.
Europe (est. 2.0 percent decline in 2009) is facing an additional crisis as the economic block does not have a single powered government where stimulus efforts are being managed. Each individual country manages its own deficits and stimulus efforts. The misalignment of political support for a structured approach to this crisis may one day lead to a collapse of the Euro currency. Milton Friedman once said that the Euro shall collapse in about ten years time. The EU second lustrum tea party is not quite cheered upon with so much problems ahead.
The Gulf region is taking its share of economic downturn with declining foreign investments and project developers postponing larger new developments plus the imminent lay-offs that follow. Economic activity in Dubai, in some ways referred to as Monaco of the Middle East, is facing the worst of problems. Sheikh Mohammed Bin Rashid Al Maktoum's emirate was in the news lately for its $10 billion bridge loan from Abu Dhabi to cover Dubai's maturing debt liabilities on the brink of default. More on this later on.

Unemployment
The Dutch dredger company Van Oord, responsible for creating Palm Jumeirah, Dubai World and their latest awarded project Palm Deira, is feeling the crunch also. The $3.2 billion Palm Deira project is the largest project ever in the company's portfolio. Van Oord already commissioned a large part of the project, but the remaining work is being delayed by government due to lack of funding. The fourth quarter of 2008 was showing steep declines in some projects continuity according to voices from the involved Dutch expat community. Van Oord had to lay-off numerous skilled local employees that had become redundant lately.

The Dutch expat community (in relation to your writer's home interest) is not facing panic yet. Approximately 6000 to 7000 Dutchmen work in Dubai and its surrounding emirates. Due to the nature of the jobs (most jobs involve highly specialized labor), the intensity of work is decreasing and workers are therefore being sent to other Gulf region states or neighboring emirates like Abu Dhabi. Abu Dhabi's growth seems more stable at the moment as it is simply able to manage the financial storm due to its vast foreign currency reserves from its large dependence on oil exports.

So far, tens of thousands of workers are laid off and 'deported' back to their home countries as the Dubai government does not allow workers to remain on its soil without a proper income. Therefore, unemployment in Dubai is of relative meaning. Large groups of an estimated 20.000 mainly Indian and Pakistani construction workers have recently lost their jobs and are sent home in government entity chartered airplanes. Some media reports out there say this controlled departure is due to possible unrest, preventing riots as such.

However, it is not only low skilled workers that are leaving the emirate. Highly skilled employees are reported to leave their possessions behind due to lack of work and frozen bank accounts. In Dubai, employers are obliged to report unemployment to the labor department and local banks. If a worker does not find new work in three months time, his visa will be cancelled and an imminent retreat back home is the only option left. Life in Dubai is hard without work. The result of these government regulations is visible at Dubai's International airport. Luxury cars are left behind, some with an apology tagged behind the windscreen. A new set of visa rules is in the works that limits this type of brain drain. Managers and professionals are able to stay in the future even when they are temporarily out of work. Possession of freehold property already supplies these individuals the legal right to obtain a permanent residence visa.

Smoke curtain
The real status of Dubai's decline is very hard to measure. The government does not appear to be truly open about its issues like for instance; debt liabilities, bankruptcies or unemployment. After increasing international pressure forced upon Dubai's government lately, one government official supposed to have said that Dubai is facing a debt burden of approximately $80 billion in relation to a total asset balance of $1300 billion. Again, without government disclosure the actual numbers are impossible to measure accurately so the real risk of default may well be higher. Over the month December, Dubai-controlled entities have repaid more than $1 billion of debt. And, as a final resort, Abu Dhabi has recently shown its support to Dubai since its ruling Al Nahyan dynasty is tied by blood to Dubai's Al Maktoum family. The earlier mentioned $10 billion credit facility is an official confirmation of this support.

Dubai may yet weather the storm. It remains the most business-friendly enclave in the Gulf for foreigners. Recently the rumors came in the form of Abu Dhabi taking stakes in Dubai's largest companies such as Emirates Airline, Nakheel property developer and even a direct financial bailout. But any rescue would come at a price. It could mean reigning in Dubai's Westernized style and economic openness. The downturn has coincided with dozens of Dubai executives arrested without charge and alleged Australian CEO's money laundering scheme(s) being the latest example. The Washington Post reported that the day-to-day running of the emirate is returning to the sheik's Diwan, or royal court. Previously, Sheik Mohammed had handed over responsibilities to lieutenants outside his family and tribal inner-circle. Any signs of the emirate becoming a less-transparent place to do business may only make it harder to rebuild the Dubai dream.

After the downturn

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