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Will Dubai crisis have a
contagion effect?
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Alok Bhargava
CEO
Voltamp Energy |
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Suhail Farooqui
(Practice CEO)
Al Alawi & Co |
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Will the crisis in Dubai have a contagion effect on the
other countries in the region? |
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My answer would be no. The
other GCC countries have oil-based economies, now
diversified to manufacturing. Dubai’s USP was its
strategic geographic location in the GCC offering a
societal framework conceived to be ‘freer’ than the rest
of the GCC. The Dubai model was perceived as somewhere
between a ‘Luxemburg’ with respect to financial services
and a ‘Singapore’ with respect to logistics, with
limited manufacturing. Unfortunately, on both these
fronts, Dubai could not reach global levels. In the
meanwhile, it digressed more into real estate and
tourism. In short, Dubai was more dependent on global
business environment than the rest of the GCC. |
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If Dubai sneezes, we are not going to get cold.
Dubai was far from alone in taking on too much debt as companies around the
world did the same. While Dubai is not big enough to set off financial
repercussions within the Middle East and/or outside the Middle East, the main
fear is that investors might flee risky markets all at once in search of safe
havens. Dubai crisis is an isolated case and its ramification will largely be
limited to countries which, as Dubai, have overly relied on debt. A fear of
contagion from Dubai may destabilise European banks that were only starting to
mend. A country like the Sultanate of Oman is unlikely to be affected.
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Has the real estate and tourism-led economic model
pursued by Dubai failed? |
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The Dubai model as explained above was not based
on tourism and real estate alone. These two were the consequences. Dubai still
remains a financial and logistics centre for the GCC. The model is more
speculative but has not failed. Like all speculative investments, there will be
ups and downs based on market conditions. I am quite sure it cannot lose its
strategic importance, at least within the GCC.
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Dubai should be viewed as
a busted real estate deal. Busted real estate deals get
re-structured and life goes on. Dubai is still an
exciting place. Canary Wharf, went broke in the 1990s
but it arose out of bankruptcy to become one of London
and the world’s most successful real estate
developments. Bank losses from the global crisis
beginning in 2007 reportedly exceed $3trn. Lehman
Brothers alone accounted for $613bn in liabilities. The
Dubai debacle is minor by this standard. If one is
looking to avoid Dubai for tourism, there are other
places one might avoid first. |
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What are the learnings from the crisis for other
countries in the region? |
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Matured economies must
have diversified portfolios. While dependence on oil
will continue, Oman is rapidly diversifying its
industrial base leading to a perfect business model. I
salute His Majesty The Sultan’s vision in this regard! |
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Dubai is a victim of
global liquidity bubble burst. Dubai crisis is a
reminder of the lasting effects of the global real
estate bubble, which still prevails and is considered as
a dangerous element in the US. Conservative lending
strategies combined with adequate capital requirements
are crucial to the long-term success of any venture. I
don’t think that there is any reason to panic. The Dubai
crisis will not send global markets into a tailspin.
There appears to be little likelihood that the Dubai
default will set off a new round of similar defaults in
other countries. |
Top^
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January - 2010 |
| Cover
Story |
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Striking
the right note
Moulding the manpower
matters with simple solutions has never been easy. But with the ministry
getting into the act to set Omanisation in order, businesses have
to buck up. A report by Visvas Paul D Karra |
Editorial
Emerging markets emerge winners
As one looked forward to a relaxed Eid holidays, came
the shocking news of Dubai World asking its creditors for a standstill
agreement till May 2010, for restructuring debt worth $26bn. The developments
affected sentiment across the globe – stock markets across the world
fell by five per cent on fears that this could delay the economic
recovery for much longer. Moody’s and S&P immediately cut their
rating for Dubai-based government related entities and placed them
on credit watch. In a world where perceptions matter more than reality,
the crisis has given a body blow to the emirate’s reputation as a
destination of choice for tourists, investors and capital. The ramifications
of the problem goes much further than what meets the eye. |
| Other
Headlines |
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Sand Castles
The Dubai debt crisis has put a question mark on the sustainability
of the emirate’s build-and-they-will-come development model. Mayank
Singh reports |
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The coming rise in interest rates
If the US Federal reserve decides that inflation is its
greatest threat and decides to stop the pumping of cash into the banking
system then the 1994 history could repeat itself with a vengeance
in 2010 |
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Competitive regional hub
MOROCCO provides an excellent platform for reaching a
wide range of international markets due to its geographic location
and cultural ties |
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Understanding different cultures is very important
Abdul Rahman Busaidy is probably the only Omani, who looked
east by landing a top position at Jet Airways, an Indian company.
But then boundaries have never been a barrier for him, writes Visvas
Paul D Karra |
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Simplicity begets success
Taking charge of a mobile reselling company which is on
a roll is by no means an easy task, but Joakim Klingefjord, CEO of
renna, has his task cut out, finds out Visvas Paul D Karra |
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The Yemen Question
It has become clear to GCC officials and international
observers that the collateral damage from conflicts cannot be easily
contained within Yemen’s borders |
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Emerging markets – way to go
David Bloom, Global Head of FX Research, HSBC, was in
Oman to deliver his annual address on currency movements and the outlook
on the world economy in 2010, recently. Mayank Singh catches up with
him on the sidelines of the event |
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GCC’s extraordinary hydrocarbons resources
The hydrocarbons sector largely stands behind GCC’s financial
capability. Latest estimates put the value of sovereign wealth funds
of GCC states at $1.5trn |
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A school with a difference
Professor S Sundararajan, Dean, Gulf School of Business,
shares with Mayank Singh the roadmap of the institute and how it will
contribute in fostering better management practices in Oman |
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A lifestyle statement
David Crickmore, CEO, Amouage speaks to Mayank Singh about
the brand’s foray into leather goods, its retail strategy and his
aspirations about being on the same table with internationally reputed
luxury brands like Gucci, Prada and Louis Vuitton |
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Pre-eminent position
OER became the first of the media to catch up with Omar
Adli Al Sharif and congratulate him on becoming a partner in PricewaterhouseCoopers
Oman |
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A Success Story
Haitham M J Al Lawati just turned 30 last month but despite
his young age he has achieved success that take most people many more
years to achieve. OER chats him up to just to see how he has accomplished
such a feat |
| Regulars |
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