City of gold, city of sand

The Burj al Arab hotel on Jumeirah seafront was Dubai's statement of intent to the world

IT HASN’T taken long for the trickle to become a flood. But that’s because most people have had a problem with Dubai for some time. The biggest construction site in the world, it was peopled with aggressive Essex ex-pats, quantity surveyors in their Porsches, barking their arrogant wealth at anyone who cared to listen. The nouveau riche capital of the universe.

But now those Porsches can no longer be seen – unless you visit the airport’s car park, where their owners dumped them (they were lease hire, anyway) in the rush to board a plane before the police caught up with them and their debts. Others are not so lucky. Along with the jailed bankrupts (insolvency is a crime in the United Arab Emirates), there are dark claims that Arab hosts will stomach no more bad Western behaviour. Women, sadly, have faced the worst of newly-invigorated Sharia law implementation. A female Australian dive shop employee (admittedly, in another emirate) who was found late at work with the owner is now doing a six-year stretch for being caught unchaperoned with a man.

Why, when but a few months ago, all kinds of un-Islamic decadence seemed if not permitted then at least ignored, are the jails filling with white faces? The assumption is that we’re being blamed for the recession, that the Emirate’s rulers gave us our head to make it work and, now they face judgmental cries of “We told you so” from the rest of the Arab world, the have reacted accordingly.

As sad are the wives of former chief executives that are having to live in their cars because hubby over-extended while on a two-year spending splurge. But there is very little about the people who have never done well out of Dubai, the army of thousands of cheap (some might say slave) labour from across South Asia that has built the city and endured almost Khmer Rouge-like working and living conditions, and human rights, for the privilege. They have often found themselves out of work and unable to return home because their former employers, who have collectively put between £300 and £500 billion of construction projects on hold, have their passports. And nobody can make them give them back.

The stampede of those leaving Dubai (the population is predicted to drop by almost as much as a fifth this year alone) is almost audible half way around the world. That is because the jaw-dropping figures that painted Dubai’s growth are more than matched by its recession indicators. House prices there, once the fastest-rising in the world, have fallen by half in the past 12 months, and are predicted to drop by another 20% by the end of this year.

Just as banks scrabbled around as the first, devastating effects of the collapse of the sub-prime market became apparent as they established their exposure to financial vehicles securitized by US mortgages, businesses and private investors have done the same with Dubai. Fortunately, despite some publicising of Arab-British trade fairs and conventions, most Welsh businesses either decided not to prioritise it or struggled to see the benefits of trading with Dubai. And as Wales’ financial sector has predominantly concentrated on private loan provision in recent times, it is unlikely that painful amounts of money will have been lost in the Arabian desert.

That leaves private investors. They may well have been exposed, particularly if they have bought into newer financial products such as unit trusts, which allow exposure to a variety of markets and equities across the globe. Many people who have been attracted to such funds have gone instead for China, which has posted even more spectacular growth than the UAE (bearish economists are talking of a “hard landing” for the country when it posts growth of 6% rather than 7.5% this year – go figure). Anyone who has invested in Dubai, whose construction companies were a sure thing two years ago, can check their funds’ performance by visiting Trustnet.

The good news is that the claims that Dubai was always set up for a fall seem to be wrong. There were arguments that its centralised economy, reliant upon royal family lynch pins which consequently created choke points, and even its lack of democracy would prevent the Emirate from bouncing back. But Dubai’s biggest problem is that it doesn’t have a plan B – yet. And that’s not that unsurprising. The UAE is a new country that has prospered on oil wealth. It doesn’t have hundreds of years of boom and bust cycles to learn from. So, just as you wouldn’t give your 17-year-old child the keys to a Ferrari just after they pass their driving test (unless you’re an Arab royal), why did people bet the farm on Dubai? Where – and we keep coming back to this point – was the responsibility? The risk assessment? Everybody knew the city was being built on leveraged cash. Lots of it.

A lot of that money came from neighbouring Abu Dhabi, which really is wealthy, along with other relatively recent oil producers like Qatar. They too have economies that turn on the say-so of the sons of kings and sheikhs, yet their bourses showed steady gains last month, in line with steady growth that the worldwide recession has found it difficult to shake.

Of course, what this recession has thrown into relief is the question of who we do business with. Do we really want to trade with a country that demonstrates all the hallmarks of dictatorship once you are ejected from the rich man’s club? It’s a question that the business community will have to ask itself when, rather than if, Dubai gets itself back on its feet again.