The meltdown followed the reaction of markets around the world which fell on Thursday after the Dubai government requested a debt standstill. The government’s investment arm, Dubai World, asked investors for extra time to make its debt payments. The conglomerate known as “Dubai’s flag bearer in global investments” is now $60bn in debt and has sought a six-month moratorium on repayments. This amount is greater than Dubai’s GDP meaning that the Gulf emirate is now officially bust and the construction boom economy that turned Dubai into an international business powerhouse has collapsed spectacularly.
The Dubai news sent shockwaves through world markets. The emirate was already in a bad way having borrowed $80 billion to fuel the boom. In the global recession investors are now deserting Dubai in droves as it becomes “toxic”. Profits have declined and assets are worth a fraction of the inflated boom prices paid. Dubai’s ruler Sheik Mohammed bin Rashid Al Maktoum has been feeling the pressure of the crisis. The Al Maktoum family has run the emirate since 1833 and brooks no criticism of its rule. He told journalists to “shut up” last week when they questioned him about tensions between Dubai and the other senior emirate partner Abu Dhabi.
There was more blatant media censorship yesterday. Authorities removed yesterday’s London Sunday Times from circulation featured a double-page spread graphic illustrating Al Maktoum sinking in a sea of debt. An executive of the paper in Dubai said The National Media Council ordered the paper blocked by distributors without providing a reason. UAE’s media code prohibits publications from criticising the emirs and local media slammed international press coverage of the debt crisis.
International markets were calmed after the UAE’s Central Bank offered to stand behind Dubai World’s debts. Abu Dhabi’s emir, Khalifa bin Zayed bin Sultan al-Nahyan, who is also president of the UAE, has said his government will bail out his debt-laden neighbour. Later this week, the Emirates Government will announce a rescue package. This will underwrite payment of a $4 billion bond for Nakheel, Dubai World’s real estate developer, which matures in two weeks.
However Abu Dhabi may extract a high price for bailing out Dubai. It could take over lucrative assets such as the Emirates airline, Dubai ports business and the International Financial Centre. It may also seek to impose stricter Islamic standards on acceptable public behaviour. Abu Dhabi always looked askance at Dubai’s ostentatious wealth which was based on a brash culture of borrowing and exploitation of cheap labour. Without Abu Dhabi’s oil, Dubai launched an ambitious strategy of economic growth which turned an Arab fishing village into a global trading metropolis in 30 years.
Meanwhile the government lured construction workers from India, Pakistan and China with promises of big wages. They arrived in their hundreds of thousands only to find they were indentured, had their passports confiscated on arrival, hit with huge “fees” for their travel and accommodation and attacked by police if they had the temerity to strike for better conditions. They were also forced to live in slum conditions hidden away from the ostentatious wealth of the city. As Johann Hari in the Huffington Post wrote, Dubai is “a dictatorship based on slaves”. Abu Dhabi may bail its sister city out now, but as Hari says “there is no Bank of Morality that could provide a bailout for this sinister mirage in the desert.”