Dubai crisis ends state of denial about the local slump
Posted on 17 December 2009 with no comments from readers
One refreshing thing to emerge from the Dubai debt crisis of the past few weeks is that people have started to talk about the local real estate crash and the business slump. There is an end to the state of denial that has persisted since September 2008 when the recession first struck.
The UAE was late to the recession because of the oil price boom – oil hit $147 a barrel in July 2008 – and the famous real estate boom with the palm islands and the world’s tallest building under construction in Dubai. But that is all in the past.
Exports slump
New figures from the Dubai Chamber of Commerce show a 19 per cent fall in private sector exports to $45.5 billion from January to November this year. This slump in exports appears to be largely over with a five per cent fall in November signaling a stabilization, albeit at a lower level, actually similar to 2007 before the final boom year.
The advertising sector is also coming out of denial. Menacom forecasts total revenues of $204 million in the UAE for 2009, down from $326 million. CEO Joseph Ghossoub told Gulf News that 2010 would ‘remain flat or at best grow at 3.5-5 per cent’.
It is often said that the first step to recovering from a crisis is to recognize the extent of the problem as the first stage in solving it. Dubai still has someway to go, and so does the UAE.
The $10 billion emergency loan provided at generous terms by Abu Dhabi earlier this week is still just another debt to replace an existing debt. And there are a whole series of multi-billion dollar debts falling due over the next few years.
Mounting debts
Goldman Sachs estimates the total Dubai Government-related debt to be $120 billion, substantially higher than the $80 billion admitted thus far. The leading US bank also reckons that Dubai’s GDP will have slumped from $80 billion to $60 billion this year, which certainly matches the latest export figures.
A collapse in GDP – due mainly to a sudden crash in the property sector – has not only left the Dubai World real estate companies with large debts to banks and contractors, there are many other companies in financial trouble. Indeed, it was also announced this week that a new bankruptcy law is coming.
For unfortunately having lived in a state of denial for over a year, 2010 is still going to be a rude awakening for many companies, and this is going to be the year of the recession that feels worst for most people as the true impact of the slump becomes apparent.
That is the bad news. The good news is that once this process is done the excellent business economics of the UAE will ensure a prosperous future for the survivors.
no Comments posted by readers:
How many will read this and sense “negative” coverage, whilst ignoring the “positive” message?
The psyche of the region does need to change and not fear failure and criticism, but welcome discussion, which indicates interest!
As mentioned above in the article this debt was pretty much paid for with another debt which is a pretty bad sign and only $4.3 Billion or so were paid of the estimated $80 Billion plus owed. The remaining money was required for cash flow. Basically this $4.3 billion payment was like a minimum payment due on a credit card and it was as if one got a balance transfer from another credit card to make the minimum payment due on the other credit card.
To me this is a very very bad sign.