As January 4, 2010—the date designated for the official inauguration of the world’s tallest tower, the Burj Dubai—draws nearer, the idea of a ‘skyscraper curse’ sounds more real than ever before. The myth, secretly propounded by financial analysts, seeks to link the genesis of every global financial crisis to the construction of the tallest tower of the time. Their reason, in simple terms, is that these superlative efforts represent more of vanity and irrationality than return on investment, for any structure that grows beyond 60 floors is supposed to be inefficient in terms of space optimisation and infrastructure costs.
So we have the analysts blaming the Asian financial crisis of the 1990s to the completion of the Petronas Tower in Kuala Lumpur, then the world’s tallest, and the global crisis of the 1970s to the Sears Towers in Chicago, not to mention the Great Depression of the 1930s, which is attributed to the construction of a number of high-rises in New York. The story apparently fits perfectly with Dubai’s own building frenzies, manifesting in such audacious projects as the Palm Island and Burj Dubai.
The promoters of Burj Dubai are planning to use the January 4 launch as a dedication to the vision of Dubai’s high-profile ruler, Sheikh Mohammed bin Rashid Al Maktoum, but unfortunately that vision is now getting increasingly blurred by revelations about the emirate’s financial stability. A series of developments relating to colossal repayments falling due has raised the risk of default by state-owned enterprises, which have implications beyond the emirate’s borders. It is these implications that make the Dubai issue a global financial story, capable of dragging the world markets down.
No wonder, the western media has pronounced it as the ‘end of the Dubai dream’. But the government apparatus in Dubai is not inclined to agree. Government functionaries, including the ruler himself, argue that Dubai is suffering the consequences of a global financial crisis like any other country and dismiss the western assumptions as ‘over-exaggeration’. In the process, the market has been left clueless, and is struggling to choose between the two contradictory posturings. Who is right and who is wrong?
From Dubai’s point of view, very little has changed on the ground. The construction boom that made Dubai the toast of investors was already long over. Hundreds of companies had already closed down, packing their staff home, leading to massive defaults in the personal loan business. People have read stories of thousands of cars being abandoned near airports and their owners flying home over a year ago.
Companies were refusing to pay on the grounds that they in turn were not getting their payments. There have even been cases where companies, including Nakheel, a part of the beleaguered Dubai World group, asked for discounted payments and creditors willingly agreed. Dubai was, in fact, getting used to a new business regime, where many of these things were accepted as given, including a certain lack of transparency from the government and its corporate entities.
Although rating agencies such as Standard & Poor’s and Moody’s have been less than sanguine about Dubai’s short-term prospects, they have been moderating their reports with the assumption that Abu Dhabi, as the more dominant partner in the uae federation, would be there to bail out Dubai. The Dubai ruling establishment kept asserting that the two emirates were mutually complementary and there were no uncertainties about such support. It was a different matter that Abu Dhabi all along maintained a stony silence, neither substantiating nor denying the claim. The market had no clue, so it stayed with positive thoughts.
But suddenly hell has broken out. All assumptions about Abu Dhabi’s support seemed to have evaporated. It’s clear that Abu Dhabi will come to Dubai’s support only on its own terms, not at Dubai’s bidding. Armed with its huge oil wealth, Abu Dhabi has been presented with a unique opportunity to outdo Dubai in creating an international profile and Sheikh Mohammed bin Zayed Al Nahyan, the crown prince there, is said to be resolved to utilise the opportunity to the full.
This has come as the proverbial ‘last straw’ for investors, who are now said to be pulling out their money to safer destinations. The new developments in Dubai have particularly shocked Indian businessmen, who have played a leading role in building up the modern emirate that it is. They had confidence in Dubai’s future. As far as they are concerned, that confidence now stands shattered.
(The author is a senior business journalist based in Dubai)
