Dubai Madness Threatens to Make a Comeback

With choreographed inevitability, there are signs that madness is returning to Dubai. For those of you who thought the financial crisis had wiped it out for good, think again.

The newfound belief that we are out of the economic downturn is presumably a reaction to a series of upbeat Government messages following the successful launch in October of the Dubai Sovereign debt issue. This apparently heralds a return to normal. Actually, it represents international investor appetite for yield at any price, not to mention this City’s obsession with banner headline over substance. What it most specifically does not do is signify this country’s problems, most specifically those relating to Dubai, are over.

The catastrophe visited upon Dubai is something that in good part we should have avoided. However, it did occur and barring a generational change in attitudes, there is legitimate concern that it will happen again. Recovery and a return to economic growth, at least the kind that translates to street level rather than the nice, mathematical models conjured up by the backroom boys, is in everyone’s interests.

The first step though is an acknowledgment of past mistakes, the fallout from which had little to do with the global financial crisis at large. This is an essential requirement to moving forward. Yet there is neither any sign of contrition, nor a willingness to listen to advice. We are encouraged to believe that commercial growth is very quickly returning to this city, when in fact it cannot do so under present conditions. If indeed it does, it will have nothing to do with policy, which is absent and all to do with luck.

Apologists will no doubt point to the dramatic reduction in DIFC rental costs as evidence that remedial work is in place. One cannot underestimate the critical importance of such a step in harvesting opinion that common sense is finally gaining a foothold. It would have been more gratifying, however, as a considered, early market response to economic conditions rather than in reply to the threat of financial institutions threatening to pull out over high costs.

Real estate equity losses are colossal and worsening. Oversupply is a given and there is still no solution in hand other than to bury heads and wait. Worse, if one believes the disappointing comments from Nakheel, one of the chief architects of the speculative frenzy, preparations are afoot to do it all again.

The old guard would have you believe there is everything to gain from talking things up. Only last week a senior banker commented, “The shortcomings of the region are immediate in nature and problems in the real estate and banking sectors are being worked through”. Such statements remind me once more of the optimist falling from the top story of a skyscraper, who upon passing the fourth story is overheard muttering: “So far, so good!

Yet the answers for those of us at the coalface seem straightforward enough, business will return, given encouragement. With its central location, Dubai can survive and thrive, at least in its traditional sense as a trading centre.  Do what you do well and respect your limitations is a good maxim. If the city could focus on its strong points; geography, multiculturalism, tolerance, entrepreneurship, then recovery would seem assured. Exploit niches; Emirates and JAFZA are prime examples, which Dubai Plc should emulate.

However, the medieval incorporation process and the cost of establishing business here still militate against easy entry. Visa applications still require a lunatic process, with more concern shown over whether the applicant has an arcane degree than any innate qualities suitable for his or her field of endeavour. Perish the thought of allowing the employer to determine whether the individual is appropriately qualified.

Take away the draconian processing and expense of commercial establishment and people flood in. In evidence, look no further than the Free Zone offerings of other Emirates. Small to medium enterprises represent the essential endoskeleton of any mature, diversified economy and yet we alienate them. In comparison, Ras Al Khaimah Free Trade Zone has encouraged the incorporation of over four thousand companies during the worst two years in history. Why? Because it is quick, transparent and cheap.

If Dubai wants business to grow and therefore by extension, reap a huge increase in demand for the chronic over supply of property, the answer in part at least seems reasonable; simplify the company establishment process and make it financially attractive.

It’s wise to warn against gloating over the end of the city’s glitzy heyday. History tells us reinvention is in its blood. However, as one European blog put it, we have been “walking a very thin line between construction and demolition for a long time”.

It’s time for this perpetual oscillation between metropolis and apocalypse to cease.

by Stephen Corley

Stephen Corley is a long time resident of Dubai. He has considerable experience as an investment banker, entrepreneur, columnist and writer. Stephen is presently the Managing Director of an Equity Management, Property Syndication and Investment Strategy firm based in the UAE.

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