Monday, March 16, 2009

So how bad is it?

The Times revealed yesterday that many expatriates are abandoning their cars outside Dubai's international airport and fleeing home rather than risk jail for defaulting on loans. Police have found more than 3,000 cars, mainly Mercedes and large 4x4s, at the airport in recent months.

When the market collapsed and the emirate’s once-booming economy started to slow down, many expatriates were left owning several homes and unable to pay the mortgages without credit.

"...the anecdotal evidence is overwhelming. Dubai is emptying out,” said a Western diplomat.

That's the thrust of many of the recent stories in the international media. And of course at dinner parties, with people competing to pass on the worst doom & gloom rumours.

I do think we need to get some balance into the picture.

Over the last month we've visited friends & family in Singapore and Australia, and we're in touch with others there and in other countries.

The story is much the same everywhere, worse in some countries than others. Unemployment is reaching record highs - in the US half a million workers are losing their jobs each month. Australia is doing better than most countries, but unemployment is reaching the worst in two decades.

In Singapore my sister-in-law is working reduced hours, and therefore receiving a reduced salary. In Australia my nephew, an electrician, is struggling to find work.

In countries which have expat labour a lot of them are leaving to go home, either because they've lost their job or by choice. Eastern Europeans are leaving the UK, Asian workers are leaving Singapore.

Surely no-one could have thought that Dubai would be any different. Of course people are losing their jobs, of course expats are leaving to go home. But that's very different from the economy collapsing, the city emptying out as all the expats flee.

In the UAE it's reported that US$582 billion of construction projects are on hold - but another US$698 are proceeding. That's a huge amount of construction work under way by any country's standards.

We know more than a few people who've lost their jobs, many of them unable to find another so they've left or are planning to. But give it a moment's thought and we know very many more who have not lost their jobs.

The roads are a bit quieter and probably a small contribution to that comes from there being less people about. But there's still an awful lot of traffic on the roads.

Tourist figures are down, but tourists are still coming. Retail spending is down, but the shops are still doing business.

So while there are people being fired, while there may be fewer cars on the roads, while spending may be down there are still plenty of people working, plenty of cars being driven, plenty of money changing hands.

It's a slowdown for sure, but not to the degree many of the reports would like us to believe.

Something that's particularly apparent to me is that if you've lost your job there's a recession. But if you're one of the eighty or ninety percent still working, there isn't.

In Singapore, in Sydney, in Aussie country towns, in Dubai along The Walk at JBR and at many of our five-star hotels, the restaurants are full. At weekends you struggle to get a table.

Reports from all over are that people are spending less, saving more - just in case. Rainy day money. That makes sense. But they haven't stopped spending entirely. Business is still being done. A lot of business.

Some balanced reporting would be nice. And even better would be some accurate figures, clearly explained and put in context.

But I'm not holding my breath.


The Spear said...

Good post.

It is the same here as everywhere else. However, unless the banks start lending soon, which they are not doing, things might actually reach those terror stories.

Media Junkie said...

it is a good post, and a rather pragmatic one.

PS: perhaps you should be in journalism, if you aren't in it already :)

The Wizard of D said...

I couldn't agree more.

This is a fundamental problem that has impacted all economies. And as The Spear has pointed out, the solution lies in the unclogging of the lending engine. The current lending problem had everyone running for cover and in turn has hit sentiment in a big way.

As FT pointed in a recent article, the core Dubai model remains intact. So long as we can manage cash flows for about 1 - 2 years (which in turn does impact spending) we should all be fine.

Cosmos Star Consultants said...

Wish you had supplemented your observations with more links Seabee, it would have driven the point home better for some of the pessimists out there!

I think Dubai has managed very well so far, especially in the face of what is happening in the US & UK. And anyway, those that dare to be different always are talked about more (it doesn't matter if it is positively or negatively done). - Edward

Dave said...

Good points, but is the worst yet to come for the UAE?

I think most observers believe this country over-extended itself (financially) more so than other economy's.

Seabee said...

MJ no, I'm not in journalism I just like to see a balanced view of things and to see things in context.

Edward, there are many references and links in my earlier posts on the subject, I just wanted two or three as a lead in to my current ramblings.

Dave, "I think most observers believe this country over-extended itself (financially) more so than other economy's."
I disagree that 'most observers' think this, and I disagree with the proposition anyway. There are very few countries which operate in credit, and debtor countries such as the US and UK which are pouring billions or trillions into propping up their economies don't have the money, they've had to go out and borrow it. It's a very, very different story here.

" the worst yet to come for the UAE?"
I think the worst is yet to come for the world, it hasn't bottomed out by any stretch of the imagination. I think the UAE will weather it better than many countries, both economically and politically.
Countries like the US, UK, many in Eastern Europe, parts of the Euro zone, Iceland still have to hit the wall economically. Countries such as China, Pakistan, probably India, Russia, maybe Brazil, will have huge political problems with social unrest from a disaffected workforce.

And there's hardly any talk as yet about the unrest and poverty problems that will result from expat workers going back to to their labour-supply countries, and the reduction in critical remittances to those countries. That's something I was going to try to get my head around in a future post.

ghoonk said...

An excellent write-up! It's exactly what I've noticed -- there's still good business and life goes on for people who have not been rendered unemployed. A large number of people affected here in Dubai have come from the real estate and financial sectors, with peripheral sectors suffering some degree of spillover. People aren't spending as much as before, but many still spend, though not as indiscriminately as before.

As a matter of fact, now is a good time for people who have been saving up all these years to jump in on really good deals on cars and apartments.

Many people here (foreign media includes) act like this is the first recession in the history of mankind. I've been through 3 recessions so far, and it's been the same -- times are hard if you're in the the wrong place at the wrong time, but then things pick up and we move on.

Think of the recession as the economy doing a Ctrl-Alt-Del, and if you happen to be in the wrong job, then keep your chin up and get creative. If you're in the right job, keep your head down, focus on creating value (rather than just working late for the sake of looking like a hero), and you're setting the foundation for better things when times get better.

Anonymous said...

I'm curious, other than the recent real estate boom, and trade of course, what actually goes on in Dubai ? What are the rest of the population employed in ? I agree that this downturn is being blown out of proportion, Dubai was and always will be a major trading hub and no one expected the construction boom to go on forever. But what else is going on there ? And I mean white collar jobs, not cashiers/labour/etc..

Reality Check said...

@Anonymous. Dubai (the boom anyway) is/was built on construction, investment and speculation. When freehold properties were introduced, it was like the wild west (and still was until last year). When I arrived here 2 years ago from Vancouver, I sat in my corner office and thought "how long can this last"? Dubai is akin to a "Lego" project. You spend hours/days/weeks toiling at the construction, then when you are done, you play for five minutes and wonder what is next. What else happens? Lunch, endless meetings and brunch.

@Seabee. Most of my friends have lost their jobs. Things are pretty bad, not just in the R.E. sector, but all the spin-off professions. Due to the "adjustment", I lost my job, but it is more or less the 5th degree of separation when it comes to construction.(and I hated it anyway)

The facts as published are "truthy" at best. I firmly feel that many DXB companies will use the current climate to "trim the fat" and re-organize. fair enough.

Like Gordon Gekko said in "Wall Street"..."Greed is good". I think too many investors, both amateur and pro drank the kool-aid and hooped themselves. It is sad, yes, but many brought it on themselves.

The only folks I know that have "blinkers on" and have no concept of a downturn are those in the oil and gas field.

I should have followed the family business!

More wordy articles on my Dubai Reality Check blog, FWIW.

Seabee said...

Anon@10.47, you have to separate the real Dubai from from what's been happening the past five or six years. As Reality Check said, that period "is/was built on construction, investment and speculation. When freehold properties were introduced, it was like the wild west (and still was until last year)."

Dubai is a commercial centre with all the businesses you'd expect in a city and the white collar jobs that go with them.

Just a few examples - there's a thriving advertising industry, import/export, a big financial sector, big retail sector, tourism with hotels & tour operators, all the support industries like office supply & IT, huge gold trading. There's a big educational industry with places such as Dubai Academic City with its international universities, training companies in places such as Knowledge Village offering services from audio-visual to occupational health & safety, Health Care City with international hospitals & medical centres, Media City with ad agencies, publishing & printing companies, TV companies. There's Internet City with all the major IT companies located there, the International Cricket Council is based here, many international companies have their regional offices based in Dubai.

There's also manufacturing over a wide and growing range of products including one of the world's largest aluminium smelters, cement production, cable production, sugar and gold refining, shipbuilding & dry docks, food & soft drinks production, dairies etc etc etc.

The list goes on and on.

RC "I firmly feel that many DXB companies will use the current climate to "trim the fat" and re-organize. fair enough."
Of course they will/are. But again that's happening all around the world. My point was that Dubai is experiencing the same as the rest of the world but the headlines, which is not being written about other places experiencing the same or worse, say that it's collapsing, that the population is fleeing, that Dubai is finished.

All that's finished in fact is the excess of the past five or six years. Dubai will continue to be what it's always been, a thriving commercial and trading centre.

alexander... said...

Agree totally - Dubai's economy is way more diversified than media reports ("no oil, totally real estate based") have been giving it credit for.

But Dubai has not been communicating - anything - so it's hardly surprising that the news has expanded to fill the vacuum. That's actually one of the first laws of news...

Seabee said...

RC " Most of my friends have lost their jobs."
Do you really mean 'most'? Even if that's accurate, you know many, many more people (not friends but colleagues, other companies' employees, neighbours, people you interact with every day in shops, bars, taxis, petrol stations, banks, cafes etc etc) who have not lost their jobs. A number of my friends have lost theirs, but for every one who has I meet dozens daily who haven't.

Agreed Alex. There's a complete lack of understanding of PR, or the need for it, in the entire region (think about the absolutely brilliant Israel PR against the Arab side's for example).

Brand Dubai has relied totally on companies such as Emirates with its sponsorships and the 'world's biggest/tallest/most expensive' stories written by journos treated to three day stays.

Getting out the real story, the real brand building, simply hasn't been given any thought.

Reality Check said...

@Seabee. As far as "most of my friends". Amongst my circle...more people have lost their jobs than still have them (many were in property and construction, but other sectors as well). You are right about clerks, servos, etc. But there is a knock-on affect.

Both of my immediate neighbors are lawyers returning to the UK. Another is back to Germany after the school year. We all use the same gardener, so now HE will lose 75% of his business just on my street. There are other streets and other gardeners, etc. If the villas don't get occupied, the landscape companies send people packing. I have seen this with one such company. They just sent 24 workers home. (one less bus, one less set of tools, etc.)

Fewer people, fewer servo guys, fewer clerks, fewer service industry people. I think we will see this happen swiftly when the Academic year is up.

Rose in Dubai said...

I have to say I prefer your version but my street doesn't tell that story. Empty villas, lots of them, some for more than 6 months, and removals vans coming almost every day. Still, when you phone the numbers on the empty villas they are still wanting 280k for them... small 3 bed villas, and maximum three checks. And they wonder why they are empty.....

Seabee said...

RC I agree totally with your knock-on effect comment. It's something I go on about almost daily, the ripple effect I call it, which applies to just about anything and everything we do. Before you commit to something, think about the ripple effect it will have.

Naturally it's part of a recession and redundancies.

I made two points: The effect is on a minority of the population - even in the Great Depression when 25% of the workforce lost their jobs, three quarters of the workforce was still employed.
Dubai is having the same problems as the rest of the world, it's not an isolated or extreme case as so much of the media would like us to believe.

Anonymous said...

well see it as they are getting it back for all the careless irresponsible advertising and bullshit PR that dubai has done over the years to market all these junk. when it was predicted dubai might burst, the whole of dubai had apoplexy denying it and rejecting any such thought for the next 100 years. so it si only natural at the first sign of it, those who have been waiting to be proven right jumps on it. what you serve is what you get back! big deal if the world sees dubai through coloured prism. that is exactly how dubai often falsely projected itself to the rest of the world.

Anonymous said...

Sorry about from someone in the know, the advertising / media industry has taken a big hit. Mainly because of the property / real eastate clients stopping 99% of ad spend. The big outdoor sites are empty, so are the building wrap along SZ road.

The cars of the freighters are stacking up in Jebel Ali. Dealerships are not taking on any more as they have a backlog as it is.

Hotels are 40% full and airline seats from the core tourist areas are well down.

Yes things are embellished in Dubai and the rest of the world is hurting to...but they are admitting their shortcomings. Dubai just denies it all...

Anonymous said...

somebody please drink some wake up juice.
Dubai has a long way to go (down). It's saving grace is as the true international city serving the Arab world. Even this is under threat with increasing pressure being exerted (e.g. dubai code of conduct)in the form of new or now inforced laws restricting freedom and making it a less attractive place for expats. The cycle is easily apparent the expats are the scape goats, the next lot will be drafted in in about 6 months time when the local population realise they are unable to run large international businesses without expat labour.

Reality said...

Just from looking at the straight numbers, Dubai is in trouble. Dubai's economy is roughly $40B. Yet, as this article suggests, they have over $1T in building projects... Who's funding them? Who's going to actually fill the properties? Finally to quote off of wikipedia "As of February 2009 Dubai's foreign debt is estimated at apprx. USD 100 billion, leaving each of the emirate's 250,000 UAE nationals responsible for 400,000 USD in foreign debt each."

I think you are kidding yourself if you are proclaiming Dubai is doing "ok".

Seabee said...

Reality, you make the same mistake as so many badly informed commentators in not understanding where the money has come from: "Yet, as this article suggests, they have over $1T in building projects... Who's funding them?"

It's not Dubai's money that's providing the funding other than for infrastructure. Hundreds of billions of dollars have poured in from all over the world from investors large and small. They are companies and individuals who've invested in projects from whole developments or buildings to buyers of single studio apartments.

Anonymous said...

I spent a year in Dubai. It is the most artificial man made hell on earth. No natural beauty all coming from sick mind of a dictator. UAE is the most abusive and violator of the human rights. They will go to the bottom of hell.