The recent opening of an exhibition of contemporary art at Abu Dhabi’s Saadiyat Island arts and culture complex aptly captured the core issue related to the financial stress its sister emirate, Dubai, is experiencing. The exhibition is entitled “Disorientation II,” which is a good description of what is going on in Dubai these days as it struggles to regain investor confidence while delaying repayment of tens of billions of dollars of debt.
For the second time in a year, Dubai is clearly uncomfortable as the international media dissects three of its fundamental but still secretive driving forces: how the emirate’s decision-making takes place at the top levels; the full extent of its financial problems; and its strategy for pulling out of the current financial predicament. Beyond Dubai’s debt repayment difficulties, we know almost nothing about the deeper issues and trends, or the strategies to address them. That is the real weakness of Dubai, now facing a ballooning crisis because its cash flow is weak.
“Disorientation” – rather than panic, depression or collapse – is a good word to describe what is going on in Dubai. It is also not a problem specific to the emirate. The malaise of appearing immobilized and silent at the moment of greatest local stress and global interest is a widespread trait in the entire Arab world. In its moment of economic stress, Dubai is remarkably similar to the rest of the Arab world in terms of governance.
Dubai faces a massive loss of investor confidence in a world it created that is built almost totally on investor confidence. What the emirate needs now along with short-term cash advances is to revive trust in its core competencies. The only way to do that – the only way, not the easiest way – is for the political and economic leadership team in Dubai to speak more openly and accurately about the extent of the current stresses, their underlying implications, and the strategy to address them. For if Dubai does not have investor and consumer confidence, it has little else.
Dubai registered phenomenal growth in the last two decades because local, Arab and foreign investors were willing to keep building and buying real estate developments, go shopping, stay in funky hotels, and enjoy increasingly exotic but captivating forms of entertainment, like indoor skiing or watching sharks in large aquariums. Dubai provided high-quality services to the massive oil-fueled Gulf market in fields like transport, advertising and public relations, entrepot trade, aviation, leisure diversions, and more, and leveraged this core business competence into a wider web of real estate speculation that took on a life of its own.
The core business and service roles that Dubai plays in the region remain valid, giving it healthy future prospects if it focuses on its core tasks. Its cash-flow issues and over-leveraged investments reflect problems experienced by many leading global banks and companies recently. The difference is staggering, though, in how General Motors or Citibank responded to their business vulnerabilities with transparency, disclosure, restructuring, strategic refocusing, and new accountability mechanisms, and how Dubai is responding to its similar problems with none of these basic corporate good governance moves.
The leadership of Dubai, meaning Sheikh Mohammad bin Rashid Al-Maktoum primarily, was widely hailed during the boom years as being “visionary.” The real test of his leadership comes now, when Dubai faces the much more demanding task of restructuring, rationalizing and re-launching a more sustainable developmental strategy. I sense lingering disorientation when I keep hearing leading business and political figures speaking in public about how things are back on track, and growth is reviving. Refusing to address one’s core business model problems or design a hard-nosed strategy to fix them is a sign of poor management.
Dubai can learn much from others around the world. Now is the time for it to stop trying to be a global pioneer, and to instead absorb lessons from others who have weathered the sorts of tests the emirate is now facing for the first time. The most important lesson pertains to the entire Arab world, but is magnified in Dubai because of the extent and speed of its boom-and-bust cycle: Sustainable growth requires that absolute economic power be tempered by the twin forces of transparency and accountability.
Checks-and-balances to guide economic investments and protect people’s rights and interests comprise an explicitly political process. Someone in the Arab world has to seize the moment one day and dare to practice politics, by generating mechanisms that hold both economic and security power accountable to the constituencies they serve, namely the citizenry; or where the citizenry is small, the investors. This is Dubai’s real opportunity. Cash-flow is a short-term problem that can be fixed.
Rami G. Khouri is published twice-weekly by THE DAILY STAR.
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