NationStates Jolt Archive

Long a glimmering light in the desert of the middle east, Dubai is now in trouble.

As one of the few citystates to turn its oil riches into long term future investments, the emirate gained attention as they constantly grabbed headlines, building islands in the shape of a map, palm trees, etc., building massive towers, and one of their latest, Dubailand.

For those who have not heard about this, Dubailand is planned to be the largest collection of amusement/theme parks and other entertainment offerings (45 megaprojects with 200 smaller projects initially announced). The space would be twice the size of Walt Disney World in Florida, currently the largest single collection of theme parks. Planned parks currently include Warner Brothers, Six Flags, Legoland, Dreamworks, and Universal.
http://miceage.micechat.com/kevinyee/ky052708a.jpg

Now, Dubai is in financial trouble:
With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield.

The government says the real number is much lower. But the stories contain at least a grain of truth: jobless people here lose their work visas and then must leave the country within a month. That in turn reduces spending, creates housing vacancies and lowers real estate prices, in a downward spiral that has left parts of Dubai — once hailed as the economic superpower of the Middle East — looking like a ghost town.

Some things are clear: real estate prices, which rose dramatically during Dubai’s six-year boom, have dropped 30 percent or more over the past two or three months in some parts of the city. Last week, Moody’s Investor’s Service announced that it might downgrade its ratings on six of Dubai’s most prominent state-owned companies, citing a deterioration in the economic outlook. So many used luxury cars are for sale , they are sometimes sold for 40 percent less than the asking price two months ago, car dealers say. Dubai’s roads, usually thick with traffic at this time of year, are now mostly clear.

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. Now, many expatriates here talk about Dubai as though it were a con game all along. Lurid rumors spread quickly: the Palm Jumeira, an artificial island that is one of this city’s trademark developments, is said to be sinking, and when you turn the faucets in the hotels built atop it, only cockroaches come out.

Hamza Thiab, a 27-year-old Iraqi who moved here from Baghdad in 2005, lost his job with an engineering firm six weeks ago. He has until the end of February to find a job, or he must leave. “I’ve been looking for a new job for three months, and I’ve only had two interviews,” he said. “Before, you used to open up the papers here and see dozens of jobs. The minimum for a civil engineer with four years’ experience used to be 15,000 dirhams a month. Now, the maximum you’ll get is 8,000,” or about $2,000.
http://www.nytimes.com/2009/02/12/world/middleeast/12dubai.html?pagewanted=1&ref=business

What does this spell for the future of Dubailand, and Dubai in general? Already, the Dubai Snowdome, an indoor ski resort that was to be part of Dubailand, has been canceled. Six Flags is on the brink of bankruptcy and was listed as one of fifteen companies most likely to not survive the year. Legoland has always struggled to be as profitable as it should be. Dreamworks does not have experience in theme park operations yet, and may be wary of taking on such a risk. Warner Brothers and Universal may re-judge their risks as well.

What say you, NSG? Is the light of Dubai being extinguished? With reports of their current offerings (literally) sinking, can they continue? The city made its wealth on tourism and finance. At what point can they no longer function? If Dubailand can't open, or has to be severely cut back, will it damn much of the country? For reference, 22% of Dubai's economy comes from real estate and construction. If and when aspects of Dubailand get canceled or cut back, how will it hurt the economy? Will Dubai be able to recover?

References:
Dubai financial crisis, New York Times (http://www.nytimes.com/2009/02/12/world/middleeast/12dubai.html?pagewanted=1&ref=business)
Dubailand and its potential impact upon Walt Disney World, as well as some decent analysis of the project itself (http://miceage.micechat.com/kevinyee/ky052708a.htm)
Dubailand Wiki article (http://en.wikipedia.org/wiki/Dubailand)

its going to take some skillful management to keep them from being the worlds largest ghost town.

Bubbles hurt. While I think Dubai's model is a stellar example of a successful transition away from an oil-based economy, it also got ahead of itself economically thanks to the very commodity its policies were designed to move away from. Their economy rose along with oil prices, and when the commodities bubble (itself a part of a far bigger debt bubble) burst, it dragged down Dubai alongside it. I think this will be a valuable lesson to Dubai and hopefully to its neighbors that they need to always stay focused on achieving tangible progress in economic development and successfully transitioning away from long-term economic losers like fossil fuels to a more sustainable economic future.

I think this may be a watershed moment in the history of the Middle East. Ironically enough, rather than oil depletion being the cause of economic transition in the region it's the rapid fall in oil prices produced by economic deterioration worldwide that will likely be the catalyst for reform. Dubai will recover solidly over the next five years, but I think its long-term goals will be changed considerably from the policies of excess and waste it currently embraces towards something better suited to economic reality.

Bubbles hurt. While I think Dubai's model is a stellar example of a successful transition away from an oil-based economy, it also got ahead of itself economically thanks to the very commodity its policies were designed to move away from. Their economy rose along with oil prices, and when the commodities bubble (itself a part of a far bigger debt bubble) burst, it dragged down Dubai alongside it. I think this will be a valuable lesson to Dubai and hopefully to its neighbors that they need to always stay focused on achieving tangible progress in economic development and successfully transitioning away from long-term economic losers like fossil fuels to a more sustainable economic future.

I think this may be a watershed moment in the history of the Middle East. Ironically enough, rather than oil depletion being the cause of economic transition in the region it's the rapid fall in oil prices produced by economic deterioration worldwide that will likely be the catalyst for reform. Dubai will recover solidly over the next five years, but I think its long-term goals will be changed considerably from the policies of excess and waste it currently embraces towards something better suited to economic reality.

The NYT article makes a point that Abu Dhabi could easily bail out its neighboring emirate, but chooses not to. The cynical commentator suspects it could be an attempt to centralize power in the nation under their influence...I have the feeling that is very possible (if not intentional), and could really hurt Dubai's recovery. Particularly if the reports of cockroaches and sinking are true...that would be very costly to fix, and very damaging to their reputation as THE new millionaires getaway

The NYT article makes a point that Abu Dhabi could easily bail out its neighboring emirate, but chooses not to. The cynical commentator suspects it could be an attempt to centralize power in the nation under their influence...I have the feeling that is very possible (if not intentional), and could really hurt Dubai's recovery. Particularly if the reports of cockroaches and sinking are true...that would be very costly to fix, and very damaging to their reputation as THE new millionaires getaway

Of course, on the contrary they may be letting Dubai sink (no pun intended) in order to wring out the excesses and restore the emirate to economic stability through a hard correction. In the long run, this may be the better course of action; by making it clear that Dubai is on its own, they may be more conservative and more responsible with their funds and less likely to allow such a ridiculous degree of speculative excess to build up. Bailing out the emirate might do nothing but continue to encourage this kind of speculative behavior with further crashes down the road.

I mean, I've known for a couple years that Dubai was going down hard...the signs are all too clear, and I think the truth is that most people involved in these projects knew it and continued developing them anyways thinking someone else would be holding the keys once the bubble burst. Of course, that's precisely how bubbles form in the first place...

There's a reason why God made the climate there suck. It was a hint. :p

I feel as though this is very bad for the middle east. In general the western world is very distrustful of the area, especially the U.S. One of the things that Dubai was hoping to accomplish was to change the stereotype of the middle east from a zelously religious backwards terrorist harboring area (these are not my feelings), to a place where all westerners can feel welcome. If Dubai fails, then sadly the current stereotypes that each region has for one another will persist for many years to come.

I feel as though this is very bad for the middle east. In general the western world is very distrustful of the area, especially the U.S. One of the things that Dubai was hoping to accomplish was to change the stereotype of the middle east from a zelously religious backwards terrorist harboring area (these are not my feelings), to a place where all westerners can feel welcome. If Dubai fails, then sadly the current stereotypes that each region has for one another will persist for many years to come.

To be fair, Dubai is still prety zealously religious and somewhat backwards in many ways. They just happen to make cool looking buildings and islands.

Well if house prices are down 30%, buying one might be a possible future investment for a big profit.

However, I only see that working on paper. Maybe thats why all good inventions came off a drawing board instead.

Well if house prices are down 30%, buying one might be a possible future investment for a big profit.

However, I only see that working on paper. Maybe thats why all good inventions came off a drawing board instead.

That's assuming the market rebounds. They're 30% down from a bubble peak. If they recover, it likely won't be back to anywhere near the peak.

Dubai's economy last year was made up accordingly: Construction (22.6%), Trade (16%), entrepôt (15%) and financial services (11%).
You notice construction and trade. This was likely due to the construction boom(trade was large importation of raw materials for the buildings). You don't see tourism in list, to be completely honest I don't think their construction boom was ever sustainable. I really didn't see people really wanting to go to the land of you made out go to jail.
Enterpot was i suspect largely based off of reselling Iranian oil to the Americans.
to be perfectly honest it looks like their economy just shrank between 30-50 %.

Dubai's economy last year was made up accordingly: Construction (22.6%), Trade (16%), entrepôt (15%) and financial services (11%).
You notice construction and trade. This was likely due to the construction boom(trade was large importation of raw materials for the buildings). You don't see tourism in list, to be completely honest I don't think their construction boom was ever sustainable. I really didn't see people really wanting to go to the land of you made out go to jail.
Enterpot was i suspect largely based off of reselling Iranian oil to the Americans.
to be perfectly honest it looks like their economy just shrank between 30-50 %.

Much of that construction was on things designed to attract tourism. While it is not currently, the government made it pretty explicit that a goal was to become a tourism center.

And trade can't just be the importation. While that does provide jobs, it doesn't drive 16% of an economy. There's something more to the trade picture which I am unsure of

Much of that construction was on things designed to attract tourism. While it is not currently, the government made it pretty explicit that a goal was to become a tourism center.

And trade can't just be the importation. While that does provide jobs, it doesn't drive 16% of an economy. There's something more to the trade picture which I am unsure of

that's nice they are building things to attract tourism.
But in a country where the temperatures for half the year tend to be over 40 degrees C and they arrest people for making out on the beach and arrest people for microscopic flakes of marijuana on the bottom of their shoe.
You can have all the facilities in the world you want, people are not going to come. too hot half the year and too likely to be arrested on ridiculous charges. half the stuff has already been built and the tourist still are not coming. Vegas did not start with 2,000 Casinos the government's goals were completely unrealistic in this case.
that and when 30% of your economy is in construction a large part of trade will be importing stuff to build.

Didn't they rename one of their towers ... that popular one with the tennis courts on it ... after too many understandable comparisons were made to Babel?