Impact from the DW issue

I treat this blog not only as somewhere where I can express my own opinions but also as a place for conversation. I start the conversation by posting something, people join in by leaving comments, I and others respond and so the conversation goes on.

This post is an example, I'm continuing a conversation by responding to questions left on my last post about the Dubai World debt issue and the PR surrounding it. I started to answer in the comments box but it was really too long as a comment so I decided to turn it into a new post.

The question was: How do you think this will impact Dubai in the next 3 months and also, if this has just come out now, what other stories do you think will start to 'appear' that have remained hidden so far?


First a disclaimer: Predicting the future is nothing more than a guess. Whoever does it, however expert they are, it's just making a personal guess as to what may happen.

I've been asked what I think, I could be right or I could be wrong, it's only a guess, but here goes:

Impact over the next three months? Three months is a very short period. My thoughts are that we won't see much impact down here at street level in that time. Unless you work for one of the DW companies, that is. If you do then you can expect even more changes than you've experienced over the past year. But for the rest of us, no.

There is currently bad publicity internationally for Dubai on a massive scale and I'm sure that will continue, but it relates to business so I don't see it affecting, for example, tourist arrivals.

As for the financial world, after the initial and inevitable panic, and when eventually the information vacuum is filled by official, meaningful, believable statements from the authorities here, things will settle down. It will take a long, long time for confidence to be restored but it will be eventually.

In the real economy, as a result of the global downturn we, like many other places, already have economic slowdown, redundancies, companies closing, invoices not being paid resulting in huge cashflow problems, a property price slump, tighter credit conditions, less spending. I don't see the DW issue making any difference to that in the short term.

The Feds are in damage control mode, taking action to limit impact on the economy in general.

There's been the entirely expected run on the local share markets this morning, when they re-opened after the Eid holiday. Dubai’s lost 7.2% late morning, the biggest drop since November 2008, and Abu Dhabi’s index was down 8.2%, the most since May 2006.

Big drops, but we've seen it before. They'll bounce back.

The Feds have announced support for the banks, the companies most at risk from the Dubai World problem, having set up a special liquidity facility for local and foreign banks operating in the UAE. They've also stated that they will support selected Dubai companies, without naming them. I assume it will depend on which ones they think are viable.

There are obviously high-level meetings going on between Federal and Dubai government officials so I expect more measures will be announced if they're felt necessary as the Feds get to the facts.

Put into perspective, ignoring the terrible handling of the issue in Dubai over the last year culminating in the new PR disaster, the root of the issue is that a company is planning to restructure its debt. That's normal business practice and if it had been handled competently we wouldn't have the problem we now have.

So in the next three months, which was the question, I don't think we'll experience any impact specifically from this Dubai World issue.


To carry on the thought, over the longer term I think the impact will be positive.

What I expect to see is a stop to the overdevelopment, especially of farcical projects which were simply not viable and were nothing to do with commerce, the lifeblood of Dubai. They're what caused the problem in the first place.

The companies in DW group will be reorganised now by someone who knows how to do it, and who according to the reports will be given the authority to carry out whatever's necessary. I assume there'll be payment of overdue invoices, a restructuring of debt and the companies left in the group will be commercially viable.

In a more general sense I think that instead of focusing on property and the speculation that goes with it the focus will go back to Dubai's tradition of trading based on its location, plus the new tourism industry. That should have been the focus for Dubai's latest development boom; they should have built the airport, the commercial cluster 'cities' and at least parts of Dubailand but not Palm Deira, Palm Jebel Ali/Waterfront, The World, the Arabian Canal for example. They didn't, they got carried away and lost focus but I'm sure it will now get back to those basics.

Politically, I think there'll also be far less independence in future for Dubai, and the other emirates, with a much stronger federal government.

On that subject it'd be interesting to know whether the complete lack of comment from Dubai authorities is voluntary head-in-the-sand or whether the Feds have said 'keep quiet and leave it to us'.



The other question was: Any other hidden stories? The normal way of dealing with bad events in this region is to do it behind closed doors, sort out the problem without letting anyone know there even was a problem. Maybe there have been others, will be others, which will be dealt with in that traditional way.

But I can't see another similar problem to this Dubai World debt thing appearing.

It's the big one. It involves the biggest companies, government related or owned, responsible for the biggest, most-publicised projects.

For months the authorities have been saying there would be no problem with meeting the commitments, the markets have been led to believe that governments were underwriting the debts. Then an out-0f-the-blue announcement that there was problem. And of course the realisation that the government had never actually said that it would guarantee company debts.

I don't think there's another one to spring on us.