Dubai in crisis

A SIX-YEAR boom that turned sand dunes into a glittering metropolis, creating the world’s tallest building, its biggest shopping mall and, some say, a shrine to unbridled capitalism, is grinding to a halt. Dubai, one of seven states that make up the United Arab Emirates, is in crisis. 

So too are the western expatriates. Many came here expecting to make millions in property, and to soak up a lavish lifestyle living alongside footballers, actors and supermodels. But the real estate bubble that propelled the frenetic expansion of Dubai on the back of borrowed cash and speculative investment has burst.

Many westerners are being made redundant, or absconding before the Sharia legal system catches up with them. Half of all the UAE’s construction projects, totalling $582bn, have either been put on hold or cancelled, leaving a trail of half-built towers on the outskirts of the city stretching into the desert. Among the casualties is the tower Donald Trump promised would be the ultimate in luxury, a $100bn resort complex by the beach, and four huge theme parks and an artificial island developed by the state company Nakheel.

It is not all bad news for Dubai: the building projects still in play are almost the equivalent of the US stimulus package. And the city remains a haven for superrich sheikhs, billionaire hedge fund managers and Russian oligarchs. But banks have stopped lending and the stock market has plunged 70 per cent. Scrape beneath the surface of the fashion parades and VIP parties, and the evidence of economic slowdown is obvious. Luxury hotels are three-quarters empty. 

Shopkeepers in newly built malls are reporting a drop in sales. In Dubai you expect to see a Ferrari parked beside a RollsRoyce. But not, as is the case now, with scruffy For Sale signs taped to the windows. Nowhere sums up the fortunes of expatriates in Dubai quite like Palm Jumeirah, an artificial island fanning out into the Persian Gulf, populated by residents including the likes of David Beckham, Michael Schumacher and even, it is said, Afghanistan’s president, Hamid Karzai. 

At the top of the island stands the Atlantis, a garish $1.5bn hotel complex with 1,539 rooms and a whale shark swimming in a million-litre fish tank. The Atlantis’s $20m inauguration celebration, where the world’s A-list celebrities were treated to 1.7 tonnes of lobster and 1,000 bottles of Veuve Clicquot, was promoted as the world’s biggest party. For Palm residents, it was followed by an equally impressive hangover. The value of their villas and apart ments on the Palm fell by as much as 60 per cent in just a few months. 

The exact number of unemployed is not known. The Dubai government does not release figures, and prevents the press from running stories that damage the economy, such as articles about mass redundancies. But there were sacked expatriates — bankers, lawyers and architects — in all but one of the hotel bars visited in Dubai this week. 

Employees who lose work in the UAE automatically have their visa rescinded, generally giving them 30 days to leave. Under Dubai’s strict legal code defaulting on debt or bouncing a cheque is punishable with jail. Any expatriate in financial difficulty knows the safest bet is to take the next outbound flight. 

At the airport, hundreds of cars have apparently been abandoned in recent weeks. Keys are left in the ignition, with maxed-out credit cards and apology letters in the glove compartment. 

Expatriates from the developing world maintained Dubai’s orgy of consumption during the boom years. Now they too are being forced to leave. Perhaps those who suffer most are the construction workers from South Asia who have carried out perilous work on building sites earning as little as £70 a month. 

The Indian embassy is report edly anticipating an exodus with 20,000 seats on flights to India already “bulk-booked” for next month. Buses come to pick up 250 workers every night from one dusty street on the edge of Sonapur, a labour camp on the edge of the desert. 

Dubai’s future will actually be decided well away from the shimmering skyscrapers. To find out why, you need to drive along 90 miles south along the Gulf coastline, past tiny Bedouin enclaves and shimmering desert mosques. 

Abu Dhabi, the oil-rich capital of the UAE and the richest emirate, has opted for a more conservative and, some say, prudent approach to growth that contrasts with Dubai’s giddy expansion. But it boasts 95 per cent of the UAE’s oil reserves and more than half of its GDP, and regional experts predict it will overtake Dubai as the destination of choice for westerners in the Middle East. 

Dubai, which has barely a trickle of oil in comparison, is projecting a 42 per cent increase in public spending on infrastructure projects, to compensate for vanishing private investment. 

But it cannot go it alone. Abu Dhabi is increasingly expected to bail out its poorer neighbour, and the two ruling families are meeting regularly to decide how to transfer cash into Dubai’s ailing economy. ¦ — The Guardian, London