Tuesday, January 27, 2009

Dubai vs Abu Dhabi - the race is more interesting

Been here for about a decade to see the frantic developments taking place in both cities/emirates.
The heat is on nowadays with the current downturn with a lot of rumours flying through the roof. Speculations and gossips are part of daily chats and conversations. Is Dubai really financially troubled? You have to read between the lines when browsing those reports in the local papers.
It seems, Abu Dhabi is having the last laugh after all.

Story on Pak Lah's visit to Dubai HERE.

Abu Dhabi profits from Dubai's downturn

Mohammed Alabbar, the head of Emaar and a member of the emirate's ruling council, wanted to set the record straight in a speech at the Dubai International Financial Centre. It was not a happy occasion.
A day earlier, the government of the UAE announced it would help merge and finance two struggling mortgage lenders, Amlak and Tamweel, a sign that the global financial crisis was snapping at the heels of the emirate's credit-fuelled boom.
'I will not mince words,' Alabbar told his audience in late November. 'I am here to state facts.'
Dubai, he said, was going through a 'healthy' correction to property prices. Yes, the emirate did owe about $10bn in sovereign debt, with an extra $70bn owed by 'affiliated companies,' but Alabbar said its $350bn in estimated assets would be more than capable of meeting these obligations. As for the rescue of Amlak and Tamweel, Alabbar said it was an example of how Dubai's economic advisory council would act in a timely and transparent manner under his leadership.
But even Alabbar could not mask the growing importance of Abu Dhabi, seat of the United Arab Emirates' federal government, when it came to Dubai's future. He underlined Dubai's 'proud identity' as part of the seven-member UAE, and said that countrywide measures to bolster the federation's financial system were a reminder of economic unity. 'We stand by our guarantees, as one country,' he said.
These words were a major turning point, according to Christopher Davidson, a British academic and author of several works on the UAE. For most of 2008, he said, Dubai's technocrats would have been flying the flag of autonomy, backing the emirate's past tendency to resist the centralizing, federalist urges of neighbouring Abu Dhabi.
But with the financial crisis squeezing credit flows and pushing foreign investors to withdraw to less risky climes, the power balance was now shifting to Abu Dhabi's healthier balance sheet and political clout.

Budget surplus
Abu Dhabi has built up a huge budget surplus over the years, thanks to its lucrative oil revenues, state-backed investment funds and its unwillingness to splash the kind of money that Dubai is prepared to spend.
Oil-starved Dubai relies more on international capital flows, leaving its balance sheet less able to withstand shocks to the financial system. The result is an expected deficit of $1.1bn this year, according to a Reuters interview with Dubai official Nasser al-Shaikh.
But this is not simply a rerun of the past year's credit crunch, with Abu Dhabi as the US Treasury bailing out Dubai's deregulated Wall Street. Don't expect part-nationalization of flagship firms any time soon.
The two emirates are more like rivals competing for global leadership on a number of different playing fields, from tourism to aerospace. That means Abu Dhabi's own growth plans could benefit from a slowdown in Dubai, while discreetly making sure that the fallout is contained.
'Abu Dhabi has been crowding into several spaces that Dubai is trying to command,' said Jim Krane, author of a forthcoming book on Dubai, The Story of the World's Fastest City. He described Abu Dhabi's launch of Etihad Airways in 2003 as a direct challenge to Dubai-based airline Emirates. 'Now, Abu Dhabi stands to gain if Dubai slips.'

Modest slowdown
And Dubai is slipping. Its double-digit economic growth is reportedly expected to fall by more than half to around 4%-6% this year, while Abu Dhabi is forecasting a more modest slowdown to around 7%.
Dubai's real estate sector, once the jewel in its crown, is unravelling at an alarming rate, with projects put on hold and companies cutting jobs.
Earlier this month, Britain's Casa Dubai, which specialized in selling Dubai property to British consumers, went into liquidation after admitting that it had made 'virtually nothing' in sales since August. In a statement on its website, the company even said a major developer had gone on the run from the police with GBP500,000 worth of clients' money.
Not everyone believes this spells doom for Dubai. HSBC economist Simon Williams told Forbes that the quality of the emirate's service sector was unequalled in the region, and that Abu Dhabi would not necessarily take its place as a result of the slump. 'Growth will be stronger in Abu Dhabi this year,' he said, 'but anyone doing business in the UAE has always recognized that Dubai and Abu Dhabi are very different places.'
Abu Dhabi's reliance on oil revenues is also a problem, with oil prices down more than 70% since their summer peak of $147.50 a barrel last year. But the emirate's wide-ranging development plan is paving the way for something more long-lasting, with investment in energy, technology and even intellectual capital, symbolized by the opening of satellite campuses for New York University and Paris' Sorbonne, quietly balancing out the more obvious big hotels and golf courses.
'The economy Abu Dhabi is building is recession-proof,' said Davidson. 'Yes, it does have tourism, yes, it does have real estate, but these are not central pillars of the new economy. These are icing on the cake.'


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