Dubai’s largest state corporation with $60 billion in debt announced on November 24 that it was unable to meet its financial commitments.
Just a fortnight before, the resplendently named General His Highness Sheikh Mohammed Bin Rashid Al-Maktoum, ruler of this mini-me fiefdom, had berated his critics, ordering them to “shut up”.
How did the Big-is-Best Dubai, that Aladdin’s cave of endless wealth, turn into Big-is-Bust?
In Dubai: The Story of the World’s Fastest City, Jim Krane writes, “Dubai has been through recessions before. This one was unstoppable.” No, it was entirely preventable; that is the tragedy. However, what makes this book a cracking read is Krane’s grasp of Dubai’s history, his easy prose style and fund of gossipy anecdotes.
Dubai has always been a haven for dodgy people. The Maktoums, the ruling dynasty since 1833, were no exception. They were rulers (under Britain’s watchful eye), but their livelihood came from trade and sharp practices; pearls and smuggling. For decades, Dubai just about survived. Then the pearl market crashed in the1930s, triggering famine. People survived on lizards and locusts.
Dubai needed leadership, a talent its ruler Sheikh Saeed lacked. The population grew restive. Saeed’s cousins plotted to kill him. Saeed’s son, Rashid, solved the problem; he put the rebels to death and assumed power himself.
Rashid took over a village nation mired in the Middle Ages. Even in 1960, there was no electricity, no roads, no bridges, no running water, no telephones. “Dubai was an empty palette. He was going to start painting”.
The discovery of oil in 1966 transformed Dubai’s fortunes. But Rashid was a visionary, looking ahead to a time when the oil ran dry. He invested massively in infrastructure projects, playing to Dubai’s one strength — its geographical position as a hub between Europe and Asia. Rashid built ports. He commissioned Dubai Aluminium, now the world’s largest smelter. He built a world-class airport. “The more Sheikh Rashid poured into ports, industry and airports, the faster the economy grew. State spending triggered a larger torrent of private investment.” Smuggling of gold, weaponry and drugs was elevated to an art form; Dubai’s “whole economic function was aimed at evading the rules and regulations of other countries in the region”. This twin strategy worked in spades. By Rashid’s death in 1990, Dubai was the region’s pre-eminent City-State.
But while Rashid focused on infrastructure, his son Mohammed, who took over after a brief interregnum, embarked on an orgy of vanity building. Rashid encouraged participation; Mohammed appeared to run Dubai as a sole proprietorship. Krane’s account of the building of the Burj Al-Arab, the world’s first 7-star hotel, is revealing. Mohammed wanted the ultimate statement hotel. The architects obliged with a fantastical concept. Mohammed took one look at it, “Build it,” he ordered.
Mohammed wanted more: the world’s tallest building, the biggest shopping mall, the largest man-made island, the biggest indoor skiing facility. Name the most grotesque architectural fantasy, Dubai has it.
The world flocked to Dubai. In 1985, Dubai attracted 400,000 tourists. By 2008, 7.3 million came, more than to Australia or India. The resident population also exploded, targeted to reach 2.5 million by 2010. And why not? In the heart of Muslim Arabia, Dubai is awash with luxury hotels, liquor, prostitutes, beaches and cheap labour.
Never mind that the Emiratis became a tiny minority within their own country. They get rich pickings; pesky expatriates are rapidly deported. Who cares if the Indian labourers who built Dubai, “the lever that has raised Dubai from the sands”, live in conditions of medieval squalor? “Dubai hides them from view”.
And Dubai Inc kept spending, embarking on a bacchanalian feast of investments abroad, from MGM to the London Eye, Antwerp Port to the Nasdaq. All these assets required financing. As its oil ran out, Dubai gorged on debt to finance them.
Krane is even-handed in his approach, but ultimately he is admiring Dubai’s raw energy and is optimistic about its future. There is, however, another argument. The problem with autocracies is that they are prey to the mercy of an individual. Dubai was one man’s (Rashid’s) triumph and seemingly, the victim of another man’s (Mohammed’s) folie de grandeur.
For years without pause, Dubai defied the laws of nature, building islands in the ocean, golf courses in the desert. But it couldn’t defy the laws of economics. Its boom was built on unsustainable debt. When the global recession struck, the boom went bust. Ultimately, Dubai’s bankers will rally around. They have to. The full extent of what Dubai owes them is opaque, but gigantic. Big brother Abu Dhabi will chortle at their humiliation. It will cherry-pick Dubai’s assets, then rescue them. It has to, or Dubai will continue dragging the UAE’s reputation through the gutter. Dubai will survive, but without the swagger. It is a cautionary tale.
DUBAI: THE STORY OF THE WORLD’S FASTEST CITY