Home | Friday 4th December 2009 | Issue 702
DUBAI NOW, PAY LATER
So the jewel in the capitalist crown has finally fallen off this week as Dubai World, the emirates holding company responsible for conjuring up much of the desert city asked as nicely as they could for a six month debt holiday from their creditors.
Described as a dream location where ‘expansion has no limit’, Dubai was built on cheap immigrant labour (with obligatory absence of worker rights, squalid housing and a high rate of worker injuries and deaths) - all financed with borrowed money from the big global investment players. The creditor list includes plenty of UK interest with all the credit crunch villains involved, including RBS, Lloyds, HSBC and Standard Chartered PLC. In all British banks have a tidy £30bn ‘invested’’ in Dubai.
In a state with rapidly dwindling oil reserves and few natural resources, the idea was to stay afloat with income from property, trade and tourism to hold face with super-wealthy oil rich neighbours like Saudi Arabia and Oman. Well, you’ve got to keep up with the Al-Jones’ haven’t you?
They wasted no time with buying up international property stocks - Dubai World owns many famous locations in the UK (a corner of Trafalgar Square, 10 Whitehall Place and the Metropole building to name just a few) and in the rest of world. But with debt now spiralling into the region of 80 billion dollars (although no one knows the true figures) development projects in Dubai have ground to a halt, with cranes standing idle as everybody scratches their heads wondering what to do next.
The reality is that Dubai is not the only economy based on sand, speculation and other people’s money. Countries that bought wholesale into the consumerist dream such as Iceland, Ireland, Greece and Ukraine are now facing sovereign debt that they have little chance of repaying, and the UK isn’t far behind. Dubai has become the financial crisis in a microcosm, demonstrating that even the most over inflated bubbles can burst when an economy based on debt and denial faces the fact that if the money isn’t really there, spending it anyway eventually leaves you in a hole heap of trouble – yes, even if you have wisely spent it on creating landscaped islands in the shape of a map of the world.