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Dubai’s fortune, which has been on the rise for the last two decades, is today reeling under the effect of global recession. Is the bubble of Middle East’s showcase metro about to burst? Jayalakshmi Sengupta reports from Dubai
Dubai, the showcase of enterprise in the Middle East , and always trying to outdo the tallest, largest and the biggest, is having a bit of a beano, you would think, wickedly rolling out a Mercedes Benz, fully plated in white gold, when the rest of the world is reeling under recession.
But wait a minute. According to grapevines (since it is impossible to get a straight quote from these parts), Toyota, one of the largest selling brands in Dubai, has seen a terrible slump recently. From an average sale of 12,000 cars per month, it is trailing at 1100 to 900 cars, for the past few months. In the recent Dubai car show, the Mercs were conspicuous by their absence. The biggest stall on the show was that of Hyundai’s. You don’t have to dig too deep to understand its implications. Given the rate at which Dubai had been expanding and developing in the last so many years, it is more than a storm in the tea cup. Luxury cars have had a huge market in Dubai. With this sudden drought in the sale of its coveted brands, a purported 70% drop, it is not just the car dealers that are groaning, the economy is whimpering too.
The retail market is always the first to show signs of a malingering crisis. So when new malls open with a flat 20% discount promotional sale offer (as one of its latest malls on Sheik Zaiyed Road has done), it is a dead giveaway. In fact, it spells doom with a capital D. All to bolster the trickling tourists who seem to be most disinclined to part with their money.
This is not some imaginary little lint to be brushed off. Whatever maybe the transient population, the fact that serious buyers are getting scantier is more than obvious. The brand new terminal of the Emirate airlines looked very bare despite the recent great Dubai Shopping Festival festoons in the air. Even after slashing the rates by half, sales at the festival did not seem promising at all. February /March in Dubai, which usually sees a heavy tourist traffic has been skidding as if it’s on some Alpine incline. Apparently, from what was 90% in old times, the foot fall at the festival has been a mere 10% this year. Mere 38% tourists have braved the recession and stepped out.
No wonder, hotel occupancy is at an all time low. With 80% to 90% occupancy rates against the world standard of 60% to 70%, Dubai has had always a party. Now it is struggling at a mere 50% with rooms of 1500 darhams going for 600 dhs. “The bulk of the hotel guests are only business travellers and not tourists,” says Tridib Gupta, chief financial officer of a renowned hotel group. “We are desperately renegotiating all contracts to cut costs,” he admits.
This is more than a smoke signal for Dubai, even if there is a worldwide recession today. Unlike other countries, Dubai has neither the resources nor industries to cope with this sudden change in winds. For its meagre 14% local population to manage its outrageous growth rate, without its crutch of cheap, imported manpower on one hand, and the rich tourists and foreign investments on the other, will be crushing to say the least.
Dubai did wonders as a business model till the going was good, consciously moving away from the rest of the Emirates to sell itself up as an up market luxury destination. It tweaked its laws (even at the cost of outraging the other Emirates), making its land foreigner-friendly and offering a tax haven. Foreign companies till date prefers a Dubai registration to evade taxes.
The realtors, investors and retailers, pushed the gilded juggernaut to inflate prices and make the bubble grow. “Over the last three years reality prices had grown over 400%”, says Dipanker Banerjee, a long time resident of Dubai. However, post- bubble, there has been a 20 % -25% market correction which probably is good for the stability of the market but has resulted in fantastic losses to speculative investors. As a result there has been a large number of defaults, bringing about a halt to half the ongoing projects. Construction amounts to almost 70% of the Dubai economy and thus has far reaching ramifications.
Dubai didn’t seem to care much losing its edge in terms of bargain shopping or being competitive in the global market over the years. Dubai generously stoked the insatiable thirst for luxurious living, growing at a frantic pace, and fiddling with just a couple of variables - more money to create more wealth and more labour to keep up with the construction and the service industry. Unfortunately, it did not care for the welfare of its ordinary employees either despite the increasing cost of living in these parts. For a service industry that is manpower intensive this was a huge risk to take. But there was always more where it came from. Cheap workers were easy come, easy go until now.
Recession, however, has changed everything. The juggernaut came to a screeching halt with 50% to 70 % construction going on hold overnight pushing the whole economy on slippery grounds. Hard hit newspaper real estate supplements are the best evidence. Thicker than the main paper once, today they are reduced to a few pages. Some of the biggest players in the market are bankrupt. Established companies have been forced to cut down on its workforce .The government refuses to comment on how many people are leaving Dubai. But the recent news claims that only in the white collar segment, 3500 jobs have been struck off in the last three months, in the construction sector only.
Despite the 90,000 visa its government professes to be churning out every month, sharp cuts in both white collar jobs and blue collar jobs have left its service industry, construction work and foreign investment limping. If the stories of the abandoned cars that have been doing the rounds are not enough, a rumour that Naqueel, a real estate mammoth has been irregular in payment of salaries over the last several months, is shocking. Many others are sending their employees on long leave.
So what’s up with the ambitious projects that were to put Dubai in the big league? Ambitious plans of luxury hotels, Las Vegas style strip, theme parks by the Universal Studio, Marvel and Six Flags and formula one, mega Jabel Ali airport that was to dwarf the Dubai airport, are not likely to take off in a hurry now. Projects on anvil like the iconic Burj Dubai will take longer than expected to get their finishing touches and others will continue to live a staggered existence. Dubai Mall, which is part of that huge Burj Dubai development and touted as the ‘greatest’ in the world (after it missed the “biggest” tag to China) has only seen a marginal pitter patter after the initial rush of footfalls. In fact it hasn’t yet opened fully and if grapevine is to be believed, retailers who had signed up but had not opened yet are opting out instead.
With Dubai’s financial base eroded now speculation is rife about major mergers taking place to save what business is still left. Real estate giants and banks are likely to see major restructuring. The traditional backers in Abu Dhabi seemed to have washed its hands off this time. Dubai seems to be looking southwards instead.
So is it all gloom and doom for Dubai? No, not yet. It has been assured that infrastructural development will not slow down. The Jabel Ali airport, its port and free zone, Metro rail project, and road network will continue to develop. What will be a much more difficult task to handle will be the reported power shortfall with no solution in sight. Though they had started talks of nuclear power plants, the long gestation period and massive capital requirement will see it stymied.
The signs are, however, ominous and Dubai is certainly in a vicious bind. With no industry and no natural resources and only brand names to flash, Dubai will take a long time to turn around, experts say. If the real estate prices drop any further, Dubai will lose its credibility and investments will dry up. With rising cost of living and inadequate amenities, foreign workers may stop coming – a choice they don’t have – and the cost of labour will further shoot up – a situation the government can ill afford. Local population will be totally incapable of handling such a debacle and to shore up inflated prices the government will now have to work double time.
“While the modeling the growth of Dubai as a financial and communication hub and luxury tourism on the other the planners need to keep in mind that both these sectors are flighty and will desert at the drop of the hat,” believes Engineer Salahdin, a IT expert.
So while an average Emirati may be in a position to party, it is just a matter of time perhaps before this opulence shrinks. That is not something one wishes for Dubai though. The road it has travelled in the last two decades, growing from a dusty old town to a glittering megapolis, is not be sniffed at. More than anything, its truly cosmopolitan ambience is something to be proud of, especially in this part of the world. While the road back to the top may be difficult and time consuming, if it can be done it surely will be, as Dubai has proved in the past.
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