Dubai, a city built upon the illusion of oil wealth, has fallen into decline and fear. Is Dubai in economic trouble? Some say yes!
Dubai, with a dream of building a new city/state based upon oil wealth, now seems like a city/state built upon hype. It has hyped it's location and connections to oil, and sometimes has convinced the world's wealthy to bring money to Dubai. Like the hotel built on "artificial fill" that has been sinking, Dubai is sinking economically. The symptoms are obvious. Just a few months ago Dubai was considered one of the destination points for western investors. It was thought to be a source of capital and support for new projects throughout the world.
But times have changed in Dubai, and it appears that investors are trying to get out while they can, and are facing falling markets, unhappy bankers, and projects that on the basis of pure economics have no fundamental viability.
The "bait" is proximity to oil wealth. But there are huge losses in Dubai now. Arabian Business reported that the CEO of Deutsche Bank for the MENA region has said he expects the loss of assets of Gulf sovereign funds to reach $450 billion. 'This loss is equivalent to the region's oil income for a whole year,' said Henry Azzam in an interview with CNBC's Arabiya Fil Omoq programme. One of the region's most respected economists and chief executives announced that he thought that the region's sovereign funds may not perform well in 2009 after poor 2008 results. Azzam also spoke about his vision and expectations for the real estate market in the UAE. "If multinational companies and banks in Dubai keep reducing their workforce, as well as the exit of the professionals who buy and rent real estate, then the correction process in the market might take longer time, or won't end in 2009," said Azzam. Commenting on the affects of the current economic climate on the banking sector, Azzam added: 'Investment banks are facing problems today, and a possible solution for those banks which have some capital is to acquire weaker commercial banks. With that we'll create more trade and investment banks.'
If the "Bait" is proximity to oil wealth, then the "switch" is to convince the targets to bring Western money to Dubai. Dubai may be the best organized "Ponzi" scheme in the world. Luring people from throughout the world with the "dangle" that it has all the wealth of oil to invest, while systematically convincing the world's wealthy to instead put their money in Dubai. Dubai, it is being learned, has grown partially because of oil, but mainly from OPM. OPM means "Other People's Money".
It takes a lot of moxie to convince wealthy investors to buy a condo in a city that has choking pollution, temperatures that often exceed 110 degrees, horrendous traffic, a climate so bad that even flowers, trees and shrubs have to be imported, planted and replaced regularly, a controlling and monitored internet and communications system, a culture that officially does not allow drinking, holding hands, kissing, or taking your woman without covering her from head to toe.
Dubai, is like a warped Disneyland, for the Islamic world, as full of contradictions and conflicts as a mental institution. It is like the American Indians of the west, trying to get even with the west for buying their oil. Dubai is an economic venus fly trap, that lures western money, and then consumes it with acid.
So much trouble that it's officials are putting out public statements to prove that it is not in trouble. That is the best sign of real trouble in Dubai. When they begin to deny it, louder with...