This article first appeared in the St. Louis Beacon, Dec. 14, 2009 - Despite its current economic woes, don't count Dubai out in its goal to become the world's financial hub, says Benjamin Akande, dean of Webster University's School of Business and Technology, who is just back from a trip to the Middle Eastern emirate.
As Akande predicted in an interview with the Beacon on Saturday, Dubai World -- the state-owned holding company of Dubai -- will be bailed out by the United Arab Emirates.
Dubai World sent international financial markets into a tizzy after it announced in late November that it was seeking to restructure $26 billion in real-estate debt. The U.A.E. will pump $10 billion into Dubai World to keep its real-estate unit, Nakheel, operating while the company negotiates with its creditors.
(To read a Wall Street Journal report about the bailout, click here.)
Akande, a professor of economics, is a well-traveled world observer who has headed the business school since 2000. Webster serves about 13,000 business students on campuses in the United States, Europe and Asia.
The response by Main Street Dubaians to the current financial turmoil offers a lesson in resilience, Akande noted.
Here are excerpts from the interview:
What took you to Dubai?
Akande: This was my first trip to the remarkable city-state of Dubai, and it was an interesting visit.
I was there to attend a meeting of business school deans. We had a chance to engage deans from business schools located in the Middle East, to share ideas and perspectives on curriculum.
I was also there to meet with alumni of Webster University in the Middle East, specifically in Dubai. Webster has a significant presence of alumni in that area.
In lay terms, what is the current economic situation in Dubai?
Akande: Less than 50 years ago, Dubai was essentially just a very small place with nothing but sand. The inhabitants were fishermen, and they dove for pearls from the sea. It is a place that in a very short period of time has put itself on the map, transformed itself into an international hub for the Middle East.
A couple of weeks ago, the emirate of Dubai announced that it wanted to renegotiate -- or reschedule -- payments on $26 billion of debt. It created a lot of problems because the investors who loaned this money to Dubai never thought in their wildest dreams that Dubai would be in a situation where they're calling to reschedule their debt.
It is an unfolding story, but it has provoked a lot of conversation and premature assessments on the demise of this city-state -- that it was on the verge of collapse.
They are not defaulting. They are asking to reschedule, and this does not rise to the most recent default we've experienced, which was the one in 2001 of Argentina, which defaulted $100 billion. In that sense, Dubai will turn out to be a minor hiccup when it's all said and done.
For those who are saying it is over for Dubai, my suggestion is don't underestimate the ability and the capacity of this emirate to successfully defy convention.
What is the root of the current economic problems in Dubai, which, unlike other Arab states, has limited oil and natural resources?
Akande: Dubai's strategy has been to become the regional hub for commerce and tourism for the Middle East and Asia, and I believe it's in the process of becoming just that.
When I arrived in Dubai, it was around midnight. As the plane landed, you could see this remarkable formation called the Palm Islands. It is staggering when you see it -- how you can create an island that looks like palm trees from the air, lighted up from one end to the other with magnificent homes and financial facilities and the best of the best.
You get to the airport at midnight, and it is packed with thousands of people coming in and leaving. That for me was the first indication that this was a very different kind of place. At midnight in St. Louis, no one is at the airport.
This state has become a major real-estate haven. And it is not just in Dubai but also its investments -- they own Barneys New York, they own MGM in Las Vegas. In an effort to build all these facilities, they took huge loans. When the price of oil began to fall, and a number of those facilities were not immediately occupied, it started creating a bubble for the real estate subsidiary and so they found themselves in this process.
They're asking for new terms on debt, particularly as it relates to their real estate area, a company called Nakheel -- the real-estate wing of Dubai World.
How will Dubai weather the storm?
Akande: I don't believe it will fail. The United Arab Emirates has a sovereign wealth fund of $900 billion. So even though they've gone on record and said that they're not going to bail them out -- it's a private matter. Let me assure you, at the end of the day if it came to that, Abu Dhabi [the capital of the U.A.E.] will bail out their brother emirates. (Note: A partial bailout was announced today.)
I give you a parallel for that. It's like Fannie Mae and Freddie Mac in the U.S. When they run into trouble, what do we do? We bail them out. The U.A.E. will not allow a default, and I don't think that's where we're going.
I really feel this will be resolved in the next few weeks or so. I believe in the case of Dubai, this is a strategic step in negotiation where you get new terms that are better in a very difficult economy, so they are better positioned to succeed.
Dubai is also a major port for transshipment in the Iraqi war and Afghanistan, and so you see a lot of ships and folks coming through there on a daily basis and pumping billions into that economy.
My prediction is you're going to see the completion of the current construction that spans the landscape because if you don't finish the construction, you lose everything you've done. Construction might be more modest than initially planned, but at the end of the day, I think Dubai is facing what we in the U.S. have faced for the past 18 months. And I wouldn't bet against them.
Did you see indications of tough times in Dubai?
Akande: I was looking for evidence of a downtrodden economy. What I found was construction everywhere. Construction cranes working overtime. What I saw was a bustling Dubai Mall, the largest mall in the world with over 1,200 stores. What I saw was an incessant drive to do what they believe will set them aside as the financial hub of the Middle East, if not the world, one day.
I was looking for sales in different outlets. I was seeking evidence that "we're closed for business.'' I was engaged in conversations with Dubaians and people who live and work there. What they tell me is that this is a speed bump of sorts, but business continues unabated.
There is a tendency that when things are down and not as they should be, that we fold up our tents and go home. We believe that by laying low for a while, that perhaps at the end of the day, things will fix themselves. What I saw in Dubai was a level of resiliency and an audacious capacity to say we're going to keep on keeping on. That's what they've done.
I visited the world's largest indoor skiing facility, which is inside the largest mall in the world, and what I saw were mostly Europeans and Americans skiing, and a lot of Dubaians watching. And it was jam-packed and people were spending money, doing their holiday shopping.
It sends us a message. For us to move beyond this recession, we need to be cautious, but we need to be optimistic. We need to get back up again and find a way to do what successful nations do: To continue to find a way to create jobs, to create spending opportunities, to revive ourselves, to learn from our mistakes and the mistakes of others -- and to move forward.
ABOUT DUBAI
* Dubai is the second-largest of the seven Persian Gulf emirates that in 1971 formed theUnited Arab Emirates (U.A.E. - see larger map at the end of the article), a constitutional federation. The others are: Abu Dhabi, Sharjah, Ajman, Umm al-Qaiwain, Ras al-Khaimah and Fujairah.
* Oil-rich AbuDhabi is the largest emirate and owns more than 90 percent of the oil reserves of the United Arab Emirates.
* Though four-fifths of the U.A.E. is desert, it has made the most of its gulf beaches, luring tourists with lavish hotels, shopping and restaurants.
* The city ofDubai, the emirate of Dubai’s port and commercial center, boasts the Burj DubaiTower, the largest building in the world, and Dubai Mall, the largest shopping mall in the world. Construction continues on the Palm Islands, artificial islands located off the Dubai coastline, to house luxury homes and hotels.
