DUBAI — The recent opening of an exhibition of contemporary art at Abu Dhabi’s Saadiyat Island arts and culture complex aptly captured the core issue related to the financial stress that sister emirate Dubai is experiencing. The exhibition is entitled “Disorientation II,” which is a good description of what is going on in Dubai these days as it struggles to regain investor confidence while delaying repayment of tens of billions of dollars of debt.
For the second time in a year, Dubai is clearly uncomfortable as the international media dissects three of its fundamental but still secretive driving forces: how the emirate is governed in terms of decision-making at the top levels, what is the full extent of its financial problems, and what is its strategy for pulling out of the current recession and investor doubts. Beyond its debt repayment difficulties, we know almost nothing about the deeper issues and trends, or the strategies to address them — and that is the real weakness of Dubai that has ballooned into a full crisis because cash flow is weak.
“Disorientation” — rather than panic, depression or collapse — is a good word to describe what is going on in Dubai. It is also not a peculiarly Dubaian problem, because the malaise of appearing immobilized and silent at the moment of greatest local stress and global interest is a widespread trait in the entire Arab world. In its moment of economic stress, Dubai is proving remarkably similar to the rest of the Arab world in terms of political governance.
Dubai faces a massive loss of investor confidence in a world it created that is built almost totally on investor confidence. What Dubai needs now — along with short-term cash advances — is to revive trust in its core competencies. The only way to do that — the only way, not the easiest way — is for the political and economic leadership team in the emirate to speak more openly and accurately about the extent of the current stresses, their underlying implications, and the strategy to address them. For if Dubai does not have investor and consumer confidence, it has little else.
Dubai registered phenomenal growth in the last two decades because local, Arab, and foreign investors were willing to keep building and buying real estate developments, go shopping, stay in funky hotels, and enjoy increasingly exotic but captivating forms of entertainment — like indoor ski slopes or sharks in large aquaria. It provided high quality services to the massive oil-fuelled regional Gulf market in fields like transport, advertising and public relations, entrepôt trade, aviation, leisure diversions, and others. Investors leveraged this core business competence into a wider web of real estate speculation that took on a life of its own.
The core business and service roles that Dubai plays in the region remain valid, giving it healthy future prospects if it focuses on its core tasks. Its cash-flow issues and over-leveraged investments reflect problems experienced by many leading global banks and companies recently. The difference is staggering, though, in how General Motors or Citibank responded to their business vulnerabilities with clarity, disclosure, restructuring, strategic refocusing, and new accountability mechanisms, and how Dubai is responding to its similar problems with none of these basic corporate good governance moves.
The leadership of Dubai — meaning Sheikh Mohammad bin Rashid Al Maktoum, primarily — was widely touted in the boom years for being “visionary.” The real quality of leadership test comes now, when Dubai faces the much more demanding task of restructuring, rationalizing and re-launching a more sustainable developmental strategy. I sense lingering disorientation when I keep hearing leading business and political figures speaking in public about how things are back on track, and growth is reviving. Refusing to address one’s core business model problems or design a hard-nosed strategy to fix them over time is a sign of poor management.
Dubai can learn much from others around the world. Now is the time for it to stop trying to be a global pioneer, but instead absorb lessons from others who have weathered the sorts of tests it is now facing for the first time. The most important lesson pertains to the entire Arab world, but is magnified in Dubai because of the extent and speed of its boom-and-bust cycle: Sustainable growth requires that absolute economic power be tempered by the twin forces of transparency and accountability.
Checks-and-balances to guide economic investments and protect people’s rights and interests comprise an explicitly political process. Someone in the Arab world has to seize the moment one day and dare to practice politics, by generating mechanisms that hold economic and security power accountable to the constituencies they serve, namely the citizenry; or where the citizenry is small, the investors. This is Dubai’s real opportunity. Cash-flow is a short-term problem that can be fixed.
Rami G. Khouri is Editor-at-large of The Daily Star, and Director of the Issam Fares Institute for Public Policy and International Affairs at the American University of Beirut, in Beirut, Lebanon.
Copyright © 2009 Rami G. Khouri – distributed by Agence Global
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Released: 02 December 2009
Word Count: 794
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