That's not change in the Gulf that we can believe in

Posted By Daniel W. Drezner Thursday, February 12, 2009 - 1:13 PM Share

Back in the day, it was thought that bustling Dubai would act as a guide for how the Gulf economies should liberalize in order to increase their economic growth. Dubai would not bring democratization, but cultural tolerance, transparency and cosmpolilitanism are pretty nice to have, and Dubai seemed to have more of these traits than the rest of the Gulf.

In the wake of the current downturn, Dubai is struggling along with the rest of the region. Unfortunately, Robert Worth reports in the NYT that the emirate's response has not been in a liberal direction:

Instead of moving toward greater transparency, the emirates seem to be moving in the other direction. A new draft media law would make it a crime to damage the country’s reputation or economy, punishable by fines of up to 1 million dirhams (about $272,000). Some say it is already having a chilling effect on reporting about the crisis.
Last month, local newspapers reported that Dubai was canceling 1,500 work visas every day, citing unnamed government officials. Asked about the number, Humaid bin Dimas, a spokesman for Dubai’s Labor Ministry, said he would not confirm or deny it and refused to comment further. Some say the true figure is much higher.

I seriously doubt that this tactic is going to improve Dubai's economic health.

The rest of the essay suggests that the emirate is in such desperate straits that it will be forced to go to Abu Dhabi -- the more conservative and oil-rich emirate -- for a bailout.

EXPLORE:GLOBALIZATION, AUTHORITARIAN CAPITALISM, DUBAI, FINANCIAL MELTDOWN

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BUZZ KILLINGTON

2:36 PM ET

February 12, 2009

The floggings will continue

The floggings will continue until morale improves.

KXB

4:19 PM ET

February 12, 2009

It's worse than you think

Our company conducted a series of structural engineering seminars in Dubai back in November. We had 200+ attend, and as a bonus we sold several thousand dollars worth of our engineering publications. Then, in January of this year, we did another series of seminars. But, this time, we barely had 50 people show up and sold zero publications. We noticed a lot of the work sites which were humming with activity just two months earlier were no sitting empty.

NEWBURYCT

7:42 PM ET

February 12, 2009

Fact and fiction

I don't doubt many of Worth's stories are true, but I strongly suspect there is more sustaining Dubai at this point than just the fickle confidence of European marketing managers foolish enough to buy real estate while on a work visa in a foreign country. Dubai does have a home-grown professional class which developed before Dubai became the Las Vegas of the Penninsula. That professional class (mostly Indian, Pakistani, and Lebanese, with a growing group of Emiratis), will be able to sustain Dubai's economy at a reasonable level, although maybe not with the flashy excess of recent years. Even without shopping malls and outrageously over-the-top real estate projects, Dubai still sits in a strategic shipping location and still provides an excellent market for all kinds of trade. And based on Dubai's experience over the last 30 years, I doubt even new laws restricting transparency and work visas will change the emirate's very nature -- an extremely well-run police state, where everything is allowed until it isn't, at which point you're already on a plane or dhow out of there....

THE LOUNSBURY

8:11 PM ET

February 12, 2009

Afraid I would disagree

The Professional Class in Dubai, all imported (kha, home grown...) as the Emiratis are essentially all fonctionnaires, is rather fragile. Dubai's role is a service and export platform for the region. The regional economies are getting hammered on both the petrol side and the mfg goods side. Dubai's strat shipping location is not particularly unique, one has to detour into a bottlenecked Gulf, and other tranship ports that are on more direct lines are coming online.

Given the massive exposure of the entire financial system to highly leveraged real estate and hyper speculative real sector firms built on (as I can attest from reviewing business plans for financing) rather aggressive growth assumptions, Dubai is in for some very serious pain. Dubai WAS well run, up to c. 2003. Since then excessive speculation got the better of it.

DON S

11:43 AM ET

February 13, 2009

Dubai's professional class

@NewburyCT,

You make an interesting argument, but I might point out a fundamental problem, which is that the foreigners in the 'professional' class you cite have no citizen rights that I am aware of, no right to stay in Dubai if they lose their employment-linked work permit. The Pakistanis and possibly the Lebanese may have no particularly good alternatives, but the Indians do - India has been swiftly growing and salaries and opportunities are on the rise there.

The policy of revoking the right to stay in Dubai when employment ends is disasterous; many of these highly skilled people would stay and find new employment or found businesses if they were allowed to, but instead Dubai has been forcing them out. They may leave empty apartments, cars, and bills behind, but they will take their most valuable assets (skills) with them. If this policy doesn't change the UAE may find they have forced the golden goose out the door and end up squatting in a gold-plated ghost town.

DON S

12:59 AM ET

February 13, 2009

Another sad story

Hard times in the global depression. Will Dubai be Iceland South, albeit for different reasons? They seem to have been exporting their welfare state with the policy of cancelling work visas. But they are also exporting their consumer spending and their knowledge base along with the workers they force out. That poor Frenchwoman is probably going to have to abandon that apartment and her car, go home and start over. The bank will be left holding real estate and a used car worth much less than the loans on them, and what are the chances they will be able to pursue her to France? She can probably declare bankruptcy instead. If I were her I'd use my credit card to buy a one-way ticket home, now.

THE LOUNSBURY

11:20 AM ET

February 13, 2009

No pursuit

Unless the Fr. woman had credit with a French bank, she essentially gets to walk away. Emirati law does not provide for the same kind of consumer bankruptcy that you take for granted. Of course the banks in Dubai are going, due to the neanderthalic visa policy, outdated and semi-neanderthalic law on credit, to suck up quite a chunk of bad expat debt.

That being said, the Expat community in Dubai always lived well beyond its real means. From at least 2001-2002 forward quite a culture of showy overconsumption took hold.

Drezner's disappointment with transparency is, however, rather silly. Dubai was NEVER transparent, and the Anti Criticism law really is just a more obvious stick for an effective policy that was always in place. My years doing venture in that area, I learnt never, ever, take the Dubai media seriously. Dubai always was a black box in terms of political liberalism or public expression, anyone who thought differently was merely reading into it their desires. What it did do, and probably will continue to do, is set standards for free exchange and fairly liberal rules on corporate set up (although the slaver like attitudes towards labourers is the dark side of that quasi-liberalism).