Telling someone that one is based in Dubai, or the UAE, these days is tantamount to admitting that one is under the strains of a financial system that is groaning under debt and piles of newspaper analysis, which range from brilliant to pure junk. While there is not doubt that the fall out from Lehman Brothers in the US in September 2008 took a while to be understood in UAE and the Gulf, especially in terms of its possible impact. This was certainly the case of most countries in the world who felt the US economic problems were isolated and their global impact would be marginal. How wrong we all were, as it was often said when the US economy sneezes the world economy catches a cold; in this case this is not a cold, this is full blown bronchitis.
Dubai perhaps was in a state of denial as to the impact that was seething below the surface, with prominent officials making upbeat statements right into the face of the storm that was approaching. But enough of the dissections of the situation. I believe that this situation has caused some benefits that might well be ignored by people. I believe these are the silver linings on the clouds that need to be seen and pondered upon. I list them in no particular order of preference.
1. Governance and transparency will become the watch words of the coming decade. The UAE as a whole, and Dubai in particular, has, reading between the lines, realized that the maverick ways of doing business will not just work from here onwards. Yes they have a wonderful vision but with that vision a sense of clarity and focus are to remain paramount. A greater adherence to critical reviews and financial planning will be the result of this. I believe, at a Federal level, the UAE will want to monitor how their financial system, and more importantly the quasi government entities conduct their business will be under more closer review and oversight.
2. Dubai will need to go back to the basics. Traditionally the soul of Dubai's economy was the commerce generated by the trading houses; it is this sector that was ignored in the rush to become a metropolis of high rise buildings. It has been the trading hub that Dubai gained its reputation on and this is where the superior infrastructure in terms of ports and facilities will come into play. As demand grows in the Sub Continent, Iran and Iraq the service ability of UAE and Dubai will become of paramount importance giving the traders the traditional advantage they have held for so long.
3. Dubai's underlying story has not been shattered, it has been ofcourse seriously dented, and the repair work is going to be on the back of a restructured financial position, focusing back to the enabling economy model that allows businesses to thrive and do well here. The financial hub, the technology hub and the trading hub status will come back into focus. While pundits predict that properties will remain subdued, I anticipate from 2010 a 5% annual rise in property prices, on average, through the next 6 years. While this may seem minuscule to the dizzy levels of a couple of years ago, so be it. Some smart Germans even announced they will proceed with their development on the World Islands, perhaps aware that when in 3 years time they complete construction they will be walking into a recovery.
4. The focus of a more Federally driven economy will be the key aspect to consider. This is indeed good and this crisis has brought focus back to one nation and one economy as a model for moving forward. This cannot be bad for the economy and its future, and I do feel all these statements about political compromises are really humbug. This new economic focus on a Federally driven economy will actually benefit Dubai in more ways that one, mostly by allowing the integration of the infrastructure covering areas of public transport, power generation and perhaps eventually ports management.
5. UAE position within the GCC as the most favored place to do business from has not been compromised in this crisis. On the contrary they have not gone an blamed the excesses of foreign property developers and indeed have held their words even against their own plans. Quite simply the floor fell of the real estate market and whether this was the reason the debt implosion happened or because of a world wide financial contagion will always remain open to debate.
6. Finally the business laws and financial management of the system will become more streamlined. This will be a welcome step for the business sector. It might be a teething process but it is clear the regulation and over sight support by a sound business judicial system can only mean well for all.
Indeed there will ups and downs in the process. The first and most pressing issues will be the restructuring of the balance of the debt of Dubai World, which the bankers and lenders eagerly await into the new year. I tabulated, from the public media, maturity profile of the debt in Dubai, and the UAE and it is interesting to note that if banks were to consider around $ 12 billion to restructured from a 2 year maturity profile to a 5 year maturity profile then indeed the pressures what seem so immediate will be released. At the end of the day this breathing space is needed for the positive economic fundamentals to come into play. The service sector remains strong and indeed the tourism industry has actually performed remarkably better than expected. These are the silver linings we are missing, and while pulling out the check books and putting money into real estate may not be the first thing that comes to mind there is no doubt that not being a player in this economy is not the right thing to do.
Yes Dubai, especially, must cut back on its long term project plans and make them fit the needs that they realistically assess, and side by side phase the development from here on. They must also realize that a fair amount of the splurging of the past years was indeed wasteful and even at times questionable. This is why the return to basis is so vital at this stage to be emphasized by all and sundry.