17 December 2009
he financial press has been quite busy covering the developments around Dubai’s financial situation in recent weeks, following their surprised intention to reschedule some debt repayments, as a result of the 50% slump in their property values and the global financial crisis.
Fortunately for Dubai, the sister state of Abu Dhabi is flushed with cash and as it turned out was willing to bail them out to the tune of tens of billions of USD.
Contrary to Dubai, a state with not much oil and thus aspiring to diversify away into financial services and tourism, Abu Dhabi controls approximately 8% of the world’s oil and one of the largest Sovereign Wealth Funds (SWF).
Nevertheless, usually money does not come, in transactions of this nature, with no strings attached.
With the Presidency of the United Arab Emirates (UAE) in Abu Dhabi’s hand, most probably this is their “investment” in getting the creative minded Dubai back to their fold.
As to Dubai’s aspirations to become the financial hub and tourist magnet in the Middle East, quite possibly Abu Dhabi will let them do, with them having some say in how things are going to be run, as they too have similar aspirations.
However, Dubai has been the spot in the Middle East with the most international profile. This is unlikely to be challenged by any region in the near future. A most reasonable compromise might be ways in which Abu Dhabi can gain advantage from that on the commercial front eventually. After all, despite them flushing with petrodollars, their SWF is at this very moment still trying to get away from the commitment to invest in Citigroup at what seems to be a sky high price compared with recent closing share prices.
Although the overall impact on the global economic recovery is muted, Dubai is an influential emerging economy worth watching. Any settlements or bail outs may become precedent to other emerging economies currently coping with the flows of hot money resulting from the ultra lenient US monetary policy, should they too face similar problems in the near future.
In the meantime, it looks like the UAE as a whole will support Dubai until it finally manages to recover sufficiently, and still become an international player with its unique profile.