Sunday, November 29, 2009

El Dorado runs out of gold

In glittering, glimmering, gleaming Dubai the temperature would never be high enough to suspend work at construction sites or stop partying in night clubs with exotic names. The merciless desert Sun would often make it impossible for labourers, many if not most of them from India, to continue work, but contractors had impossible deadlines to meet and their virtual slave labour had families waiting for the monthly remittance back home. The unbearable heat, of course, would never scorch Dubai’s well-heeled elite — high-flying executives with fantastic expense accounts, investment bankers spoilt for a choice of lucrative deals, sheikhs who casually gifted Rolex watches as tips to waiters, playboys who thought nothing of cavorting with million-dollar-escorts flown in for the night on their $ 60 million-dollar-Gulfstreams — as they raced from home to office to nightclubs in their Bugatti Veyrons.

Meanwhile, this once-upon-a-time Bedouin outpost with a creek from where dhows laden with contraband gold would sail forth for Mahim on India’s western shore (a trade immortalised by innumerable Bollywood films and on which Mumbai’s Mafia thrived till protection became a more lucrative business) transmogrified itself into an amazing city of skyscrapers, chrome-and-glass malls, fabulous office blocks and breath-taking hotels. The Maktoum family, breaking ranks with other Arab rulers, decided to aim high and create a modern Emirate which would emerge as the commercial hub of West Asia: Towards this end, everything had to be the biggest, the tallest, the largest, the swankiest — and, the most expensive. As Dubai ran out of oil, the Government’s focus shifted on grafting on the barren sands of the emirate a service-and-tourism based economy that would flourish as nowhere else.

The Maktoum family almost succeeded in achieving that goal. The decade-long boom was nothing like the world had seen before. Dubai was the new El Dorado and investors rushed in with open cheque books. Where else in the world would Tiger Woods be paid a million dollars for inaugurating a hotel, as he was when he teed off from the helipad of Burj Al Arab Hotel in March 2004? Those were heady days when giddy with success, the Government would announce a new project every day, each more fantastic than the one before, as investors clamoured for a stake in them. With the construction boom came job opportunities and Indians jostled with Pakistanis, Bangladeshis and others for a slice of the pie which just kept expanding. Land was sold, houses were mortgaged, jewellery was pawned, money was borrowed at exorbitant rates of interest to grab a job and buy a one-way ticket: Dubai was the happening place.

Dubai World was floated as an investment company by the Government to oversee the emirate’s super-speed transition; its corporate slogan encapsulated the ruler’s megalomania: “The Sun Never Sets on Dubai World”. Nakheel, a fully-owned subsidiary of Dubai World, became the envy of every real estate developer across the world as it went about reclaiming land from the sea and creating magnificent housing destinations like its awe-inspiring palm-shaped chain of islands called Palm Jumeirah off Dubai’s coast. Exclusive villas with manicured lawns came up on these islands of reclaimed land — not anybody who could afford the price tag buy them; ownership was by invitation and only power celebrities figured on the list of those who qualified. Among them were Bollywood superstar Shah Rukh Khan, footballer David Beckham, Hollywood megastars Brad Pitt and Denzel Washington, super model Naomi Campbell, business barons, tech billionaires and, hold your breath, Afghanistan’s President Hamid Karzai.

If Palm Jumeirah dazzled human imagination, Burj Dubai was meant to defy it: The world’s tallest building would be at the centre of 30,000 exclusive homes, nine drop-dead luxury hotels, nearly eight acres of rolling, lush green parkland, a 30-acre manmade Burj Dubai Lake, the amazing Dubai Mall and 19 residential towers. Burj Dubai would be more than just the world’s tallest building. It would showcase the world’s first Armani Hotel, “designed by Giorgio Armani himself”, with “160 guestrooms and suites, a luxurious Armani Spa, a private club, two gourmet restaurants and a nightclub” spread over 40,000 square metres. All this and more by way of “144 exquisite Armani Residences all furnished in the designer’s ‘homes brand’, Armani Casa”. But Burj Dubai was not meant to be just a profitable business venture worth thousands of millions of dollars; the world’s tallest building would also restore Arab pride that was lost in 1311 when Lincoln Cathedral loomed taller than the Great Pyramids of Giza in Egypt.

Burj Dubai, which was designed as the towering symbol of Dubai’s heady rise, could well become the symbol of its equally dizzying decline. The building’s scheduled opening in early-2010 now seems unlikely. All of a sudden, Dubai seems to have gone broke. The economy of the emirate had begun to flounder soon after the American sub-prime crisis heralded the global financial meltdown: All construction activity came to a halt (59 unfinished buildings in which $ 50 million had already been invested now dot the cityscape), property prices crashed by a whopping 50 per cent, jobs disappeared and expatriates began fleeing Dubai in droves, abandoning their apartments and dumping their cars in the airport parking lot, unable to pay the mortgage on either. El Dorado had run out of gold. The Government insisted the downturn was a minor hiccup, and Dubai would rise and shine again.

Last Thursday, Dubai World let it be known to creditors that it was not in a position to service its $ 59 billion debt and needed time till May next year. Simultaneously, Nakheel declared it was in no position to honour $ 4.05 billion in sukuk or Islamic bonds that it held as investment in its real estate projects. A frantic Government could rustle up $ 2.5 billion in long term bonds from two UAE banks, but that was clearly not sufficient to shore up investor confidence: Markets across the world felt the tremor as reality sank in on Friday morning. What has come as a stunner is Dubai’s inability to pay $ 3.5 billion, its immediate debt-servicing commitment, which even a couple of years ago would be considered loose change by Dubai World.

Such are the pitfalls of state-controlled capitalism. What was real yesterday could turn out to be no more than a mirage today. Dubai may yet recover, but it won’t ever be the same again. The Government of India says our economy won’t be impacted. That’s bunkum. We can look forward to Indian workers returning in hordes from Dubai and a sharp dip in remittances. Is anybody planning for the fallout? Or is our Government living in denial as usual.

(This originally appeared in The Pioneer as my Sunday column, 'Coffee Break'.)

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