(photo credit: Joi)
The meltdown followed world markets which crashed on Thursday when Dubai requested a debt standstill. The government’s investment arm, Dubai World, asked investors for more time to make debt payments. “Dubai’s flag bearer in global investments” is now $60bn in debt and has sought a six-month moratorium on repayments. This is greater than Dubai’s GDP meaning the Gulf emirate is now officially bust. The construction boom that turned Dubai into an international business powerhouse has fallen in a heap.
The Dubai news sent shockwaves through world markets. The emirate borrowed $80 billion to fuel the boom and in the global recession investors are deserting Dubai in droves as it becomes “toxic”. Profits have declined and assets are worth a fraction of boom prices. 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 doesn’t like criticism. Sheik Mohammed 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 which had a double-page spread illustration showing Al Maktoum sinking in a sea of debt. An executive of the paper in Dubai said The National Media Council ordered it blocked by distributors without 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 said his government will bail out his debt-laden neighbour. Later this week, the Emirates Government will underwrite payment of a $4 billion bond for Nakheel, Dubai World’s real estate developer, a bond which matures in two weeks.
Abu Dhabi will 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 impose stricter Islamic standards on acceptable public behaviour. Abu Dhabi always looked askance at Dubai’s ostentatious wealth and brash culture of borrowing and exploitation of cheap labour. Without Abu Dhabi’s oil, Dubai launched an ambitious strategy of economic growth which turned a sleepy Arab fishing village into a global trading metropolis in 30 years.
Its government lured construction workers from India, Pakistan and China with promises of big wages. They arrived in hundreds of thousands to find they were indentured, had their passports confiscated, hit with huge “fees” for their travel and accommodation and attacked by police if they dared strike for better conditions. They were also forced to live in slum conditions hidden away from the city it was building. As Johann Hari in the Huffington Post wrote, Dubai is “a dictatorship based on slaves”. Abu Dhabi may bail its sister city out, but as Hari says “there is no Bank of Morality that could provide a bailout for this sinister mirage in the desert.”