Disease in Eldorado

Until the recent global financial crisis (GFC) Dubai’s development model appeared
robust. Its remarkable growth was driven by cheap labour and foreign investment
which became frenzied.1 The crisis exposed the Emirate’s vulnerability. Historically, Dubai prospered at the expense of its regional and United Arab Emirates (UAE) competitors. It largely avoided the interventionist mistakes of Lingah, in Iran, or those of its neighbour, Sharjah.2 In the nineteenth century its wealth was derived from pearling but after the 1960s oil provided the money for some astute investments such as Jebel Ali port. Noteworthy Emirati commercial icons today include Emirates Airlines and Dubai Ports World. Some credit Dubai success to its relatively progressive regime which certainly compares favourably with the dismal performance of many of its Middle Eastern Arab peers.3 Dubai successfully harnessed a diverse workforce – a seemingly incongruous mix of Arabs, South Asians, Persians and Westerners. After 1990, it re-configured its affluence around real estate, tourism and financial services which supplement its flourishing re-export business. Cheap money, ambitious growth plans and loose immigration restrictions primed real estate speculation in Dubai. The catalyst for its property price bubble was the promulgation in 2002 of a new law to allow selective foreign property ownership.4 Dubai became a conduit for international and regional oil liquidity from soaring Gulf oil exports. By July 2008, relentless global industrial growth had pushed oil prices to US$147 per barrel. As with most bubbles, spin prolonged irrational exuberance.5 Dubai’s rulers promulgated a string of at first only grandiose but later superlative and even phantasmagorial projects such as the world’s tallest tower. Cheap credit, funnelled through Dubai’s poorly regulated banks, financed these construction fantasies but, by 2007, the debt binge had become unsustainable. Credit was growing at almost 50 per
cent annually. Then, in October 2008, equity markets crashed. The global recession hit Dubai hard in the short term but Abu Dhabi’s reserves and its geo-strategic location cushion it from the worst consequences of any economic folly.