Independent Political Analyst & Keynote Speaker, Daniel Silke comments on the economic crisis facing Dubai. All comments may be used in press reports with appropriate credits.

Don’t Write off Dubai Just Yet!

For many, there was a jealousy consumed with envy in their analysis of Dubai. Double-digit economic growth for over a decade made the Emirate a new economic model in a region that never before saw itself as a true global player. The audacity of development projects like The Palm and Burj developments were breathless achievements and a testimony to ingenuity and design. You couldn’t help but be impressed with the scale and size of property and residential projects – nor the strategic expansion of Emirates Airlines which was the catalyst in making the location of the Emirate critical to its economic development.

So, the “Debt Restructuring” or “Standstill” of some $80bn worth of loans just announced was justifiably enough to unnerve investors and the larger banking sector. Dubai’s exceptional growth path was built on debt. Its huge infrastructure projects financed by loans while its glamorous real estate companies played a global game of investing in assets as diverse as the Cape Town’s Waterfront, Barney’s clothing store in New York and the MGM Grand Casino in Las Vegas.

Sanctioned from the Sheikh’s palace, Dubai World and Nakheel (the largest of the property conglomerates) acted with impunity. A lack of any regulation or oversight enabled these companies to adopt the adage of “build and they will come” negating the market forces of demand and supply. Testimony to this is the many incomplete or vacant office towers that litter the desert along Sheikh Zayed Road – now a living monument to oversupply and market saturation.

But, for all the Western sniggering (and frustration) with Dubai’s current malaise, Dubai managed something of a miracle in a region beset by violence and social disintegration. For the first time, Sheikh Mohammed bin Rashid Al Maktoum invested in his own region (or City) rather than accumulate vast sums of cash for the private use of the favoured class. Be it motivated by vanity (and who can deny that building the biggest and best are not vanity projects?), Maktoum laid the foundation for a remarkable Arab recovery.

Instead of looking inward and retracting into a religious or nationalist cocoon, Dubai stepped out of its comfort zone to create wealth and engage the world – and in particular the West – through the development of tourism and promotion of the City as a global player alongside London, New York and Paris. Dubai’s vision was much broader than just being a fleshpot in a hot, dusty and inhospitable part of the world. Making Dubai and example in the Arab world, exposing the region to outside influences (and vices) and creating a welcoming environment for business and leisure surely was an achievement rarely seen in decades of strife and disengagement with the West. And, the vision was copied by Abu Dhabi, Qatar and even conservative Saudi Arabia albeit on a more modest (and wiser) scale.

But here’s the rub. Although the vision of Maktoum and his Father can only be commended, the inability of the authoritarian nature of the state to effectively manage its execution coupled with an unexpected global financial crisis, has brought the Emirates credibility into disrepute. Without transparency and scrutiny in the public domain, a maverick state-sponsored capitalism took root that failed to temper the over-stimulated economy and bubble-like property market. Instead of putting checks and balances into corporate governance, the free-for-all reigned forth.

Ultimately, Dubai’s model was built around importing demand and services from the rest of the world. Its lack of any domestic market (and population), meant that the Emirate was vulnerable on virtually every front of its economy. Although Sheikh Maktoum enjoyed the luxury of having virtually no poor to worry about, relying on (often fickle) ex-pat skills and their purchasing power was almost a bigger millstone. And, with no domestic demand, every other sector of the economy had to be imported – from media conglomerates to services.  So, as the world contracted, so did Dubai. Bad timing combined with Authoritarian inertia and the narcotic effect of prestige, has placed the Emirate in a negative light. It’s credibility as an investment destination will take a long time to recover.

Ironically, what Dubai started, others will continue to emulate. Certainly Abu Dhabi looks set to come out of the crisis smiling. It too, watched carefully as its more flamboyant brother flirted with excess. And, it has learnt from the Dubai model. Watch Abu Dhabi market itself now as the region’s new emerging leader and take advantage of the stumbles across the Emirati line. With massive oil deposits as an insurance policy against the vagaries of the markets, Abu Dhabi knows it is now the proverbial son. Didn’t your Father always tell you that it’s fine to dabble in a risky business so long as you had something to fall back on? Abu Dhabi now has the ultimate fall-back position and with the Dubai model textbook in hand – warts and all – it can only come out trumps.

What is really mystifying is how badly the Dubai example was handled. The surprise Debt Standstill surely could’ve been massaged a little better. Again, the closed nature of the political system and the experimentation with a hybrid state capitalism in a state governed like a tribal familial authority showed that despite all the money in the world, good old fashioned Public Relations was lacking. Keeping investors informed and having international finance privy to problems was the only way to mitigate the fall-out from the present position. And, to think there are so many international PR companies with so many ex-pat PR practitioners waiting in the gleaming towers of the city who could’ve helped. Now it’s down to Deloitte to sort out the mess – at least the consultants will still have a role to play!

Dubai might be down – but it’s certainly not out. The Emirate has learnt some valuable lessons. Its brashness and assertiveness might have taken a knock – but it can come back fighting. Sheikh Maktoum is a visionary leader whose ego may now be dented, but the notion of integration with the rest of the world and the creation of an alternative financial and cultural hub is not something that should be allowed to flounder. The Dubai model, while unique in the Arab world is a light unto its neighbors and the world. While jealousy and envy might cause many to sneer at recent events, Dubai can (and should) get back on its feet. Don’t count it out just yet.

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This is the first in a series of new political updates from leading Independent Political Analyst & Keynote Speaker, Daniel Silke. All comments may be used in press reports with appropriate credits.

South Africa: 23 November 2009

The end of Thabo Mbeki did not mean the end of ANC infighting

Somehow, the expectation of a clear run for President Jacob Zuma after his election victory never quite materialised. President Zuma did not even enjoy a ‘honeymoon’ period after taking office. Service delivery protests, corruption scandals, high-profile trials and the ANC’s own political infighting has left a President grappling to get his hands firmly on the reins of power. With the end of 2009 approaching, the President has been severely weakened by all these issues. They are increasingly debilitating and require a very strong handle on power and on wayward personalities. President Zuma will need to ratchet up his own personal level of authority within the party which, if it happens, may result in him alienating one or other key component element of the very organizations that supported his quest for the Presidency and therefore put him in office. The irony of Jacob Zuma at the end of 2009 is that by steering an undefined and messy middle-ground, he is doing himself no favours. Leadership means strength and Zuma’s history of appeasement might win him friends on the personal level, but in the world of politics, it means others take advantage. This is the period in which we find ourselves and represents a continuation of the ANC’s internal power struggles of which the seed was sown in the early years of the Mbeki administration.

Julius Malema is raising issues – but not doing them any justice

Every week (or more often), Julius Malema is acting like a de facto president-in-waiting. And, he is making a name for himself by raising critical policy issues in public. His profile building is impressive thanks to a veracious press keen to report controversy. Malema reads his opportunities well….but perhaps, he is overplaying his hand. It’s fair to debate key issues like Nationalization. But, the manner in which he is tackling these issues is fast isolating him within the broader alliance. His criticism of a variety of the ANC stalwarts – and now Jeremy Cronin – is painting him into a rather uncomfortable political corner. And heavyweights like ANC Secretary General, Gwede Mantashe are sure to make him sweat further. Malema’s knee-jerk comments unfortunately do little to enhance the debate. And, he does his side a disservice by them. In fact, Malema’s so-called ideological stance probably has lost ground due to his style and attitude. Finally, Malema is more isolated than ever. Again, this is yet another test for President Zuma. Thus far he has defended the youth leader, but as the rhetoric is ratcheted up yet another notch (in the Cronin saga) someone is likely to fall. Mr Malema smelt blood when he effectively discredited Thabo Mbeki before and after Polokwane. He is simply continuing to test the power that he has accumulated. But, Mbeki was an easy target. To take on Jeremy Cronin (and Mantashe et al), Malema might just find he has bitten of more than he can chew.

By Splitting with the ANC, COPE has left a moderate void within the ruling party

The Congress of the people failed to make enough impact in the April 2009 election. In fact, their result was a few percentage points short of double figures and a long way from them reaching some sort of critical mass. With ineffectual leadership and internal power struggles, the party is struggling to make a modicum of progress within parliament (which will be the subject of a later blog next week). But COPE still holds out some potential due to its alternative ideological approach to developmental politics and the innate talents of many of its key figures. While the intended consequence of COPE was to capture black support and weaken the ANC, the unintended consequence has been to denude the ANC of its more vocal middle-ground. COPE’s formation has left the moderates within the ANC on the back foot – grappling with an increasingly assertive COSATU, ANCYL and SACP. By leaving the ANC, COPE’s ideological stalwarts left a void. It is this void that is now up for battle within the ruling party. Having failed to make sufficient inroads, COPE’s legacy thus far has been only to leave an ideological vacuum in the ANC.