Over the past few months, Dubai’s glittering skyscrapers have been diminished by the alarms about the emirate’s economic woes. The news has not been easy to take for the showpiece city-state, the most populous among the seven sheikdoms that make up the United Arab Emirates. Indeed, even as the rest of the world spiraled into crisis, the U.A.E. insisted its brand-name city would not be drawn in by the downturn. In fact, the U.A.E. established a “no news is good news” policy of sorts. In January the government announced that fines ranging from $13,600 to $272,500 would be levied against any media outlet that published news considered damaging to the “country’s reputation or its economy.”

But sometimes, the bad news has to be admitted from on high. The U.A.E.’s Minister of Economy, Sultan bin Saeed al-Mansouri, last week acknowledged that the economy of the world’s fifth largest oil exporter is expected to shrink in 2009. He refused to give an indication of the extent of the contraction, saying simply that the U.A.E. would escape recession. The International Monetary Fund had previously said it expected the U.A.E. economy to grow only 3% this year after expanding 7.4% in 2007 and an estimated 6.9% in 2008. (See 10 things to do in Dubai.)

The towers of Dubai have been hardest hit. The large foreign banks that had been financing Dubai’s real estate boom have pulled out, leaving behind a significant burden on local banks, who have turned to the U.A.E. government for help shoring up their liquidity. To date, approximately $15 billion of federal money has been pumped into local banks. Company buyouts financed by Abu Dhabi — the capital of the U.A.E. and the only emirate with petroleum wealth — are believed to be forthcoming, though no officials will discuss details. “Any bailout from Abu Dhabi will come very privately,” says Christopher Davidson, author of Dubai: The Vulnerability of Success. ”Abu Dhabi doesn’t want the Dubai brand to suffer, even if Dubai has disgraced itself with its economic planning.” (See how Dubai placed among the top 10 architectural postponements.)

“The bubble has finally burst,” says one American expat. Some people point to mixed blessings of the financial downturn. Rents, which were at unbearable highs last summer, have now plummeted at least 25%, and property prices are down as much as 50% since August of last year. But while there is some respite from the dawn-to-dusk hammering and drilling that came with Dubai’s construction boom, some $8 billion in projects have now been either scrapped or put on hold. The city’s notoriously brutal traffic jams have eased somewhat in recent weeks since the reported exodus of thousands of expatriates, who make up more than 85% of Dubai’s population. The departures, however, could also be a sign of job losses: foreigners are generally not permitted to live in Dubai without a work visa.

But the city-state has its defenders. “Dubai-bashing is in fashion right now,” says Hassan Jarrar, head of wholesale banking for Standard Chartered Bank in Dubai. “Like most governments, the U.A.E. wants to limit the fears of not just the people inside but also external investors. Are they understating the problem? I don’t think so.” He insists that “the difference between Dubai and Singapore or Shanghai is, in Dubai, when cranes leave site here, they leave when construction is finished.” A trip down Sheikh Zayed Road, Dubai’s main thruway, named after the U.A.E.’s founder and first President, reveals thousands of cranes still operating and the first line of the city’s metro on track to open this summer. (See pictures of Dubai.)

A new billboard has gone up just below Dubai’s World Trade Center. It features images of Dubai’s more recognizable landmarks, like the sail-shaped Burj al-Arab hotel and Burj Dubai, the world’s tallest building. They are all adornments for the subject of the billboard: Dubai’s leader, Sheik Mohammed bin Rashid al-Maktoum. The sheik has been rumored to have suffered significant health problems from the strain brought on by the emirate’s economic woes. The billboard is meant to belie those rumors; it shows the sheik, 59, looking sharp, vibrant and healthier than ever. Behind his picture is a simple caption in Arabic: “We don’t wait for things to happen, we make them happen.” And if you want to say otherwise, Dubai doesn’t want to hear it.

I just received word from a friend in Dubai that Sheikh Mohammed bin Rashid, Vice President and Prime Minister of the UAE and Ruler of Dubai, has ordered the cancellation of all New Year celebration in Dubai in support of the people of Gaza.

In a statement issued by the state news agency, WAM, late tonight, Sheikh Mohammed told authorities to take the necessary steps to ensure the cancellation of planned events and “all forms of celebrations marking the New Year.”

While it is nice to see that the Arab Gulf countries are taking measures to acknowledge the atrocities taking place in the Gaza Strip, they could be doing a lot more seeing as oil puts them in a position of great power and influence.

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Fireworks display near the Burj Al Arab hotel on Jan 1 2008 to welcome the New Year in Dubai. This year, Sheikh Mohammed bin Rashid, Vice President and Prime minister of the UAE and Ruler of Dubai has ordered a cancellation of all New Year celebration. Pawan Singh / The National

I’ve been a while since I’ve written, although there is truly much to report.  I opted to leave Dubai after a little over 10 months of living there.  My time with the Abu Dhabi-based newspaper THE NATIONAL, while interesting, was not quite the right fit for me, so I opted to return to my freelance/vagabond style life and move to Pakistan (following a month-long visit home to the US).  I will be based in Lahore as of mid-January and cannot begin to imagine the adventures that await me, particularly following the recent atrocities in Mumbai which cast yet another light on the internal operations of Pakistan.  In the meantime, I was happy to rejoin me friends at NEWSWEEK during my last week in Dubai and contribute to the following article.  It appears Dubai is not as sheltered from the storm as many once believed.  

Happy Holidays to all — and stay tuned!

NEWSWEEK

I went to cover the opening of the highly-anticipated Dubai Mall this week — one of the largest malls in the world.  I have to admit, while I was a bit distracted by everything going on in the final days of the US elections, it was a lot of fun.  The highlight for most visitors is the aquarium — the largest in the world!!! There were divers inside the tanks feeding the shark as the media walked through.  We were literally dropping our noteboks and work cameras to pose next to the tanks.  However, for me and the 2 dozen-or-so Americans I spoke to on opening day, the highlight, by far, was Taco Bell – the first ever to open in the Middle East!!!  Nothing like some tacos and a little mystery meat to make you feel at home.

Here is an audio slideshow I did from the event with photos by my pal Nicole Hill.  

Click here: Opening Day at the Dubai Mall

(the audio quality is unfortunately not great, but you get the point.

And here are some photos I snapped with my personal camera.  

Inside the Dubai Mall aquarium tube

me - a bit captivated with the fish inside the Dubai Mall aquarium tube

Inside the mall itself - note the not-so-subtle reminder that you are in the UAE

From the outside, Dubai Mall with Burj Dubai, the world

Vivian Salama

The National

September 7. 2008 6:20PM GMT

DUBAI // Non-oil foreign trade surged by 54 per cent in the first half of the year in Dubai as the emirate continues to diversify away from its dependence on fossil fuel and transform itself into an economic hub.

Dubai recorded a massive jump of Dh104.4 billion (US$28.4bn) in non-oil foreign trade compared with the same period last year, to reach Dh296.6b, according to a report released by Dubai World’s contracts and statistics department, which is commissioned by the Government to compile the trade figures. 

The department said exports recorded significant growth, expanding by Dh7.5bn, or 59 per cent, in the first half of the year to Dh20.1bn. Re-exports registered similar gains, jumping 58 per cent to Dh70.3bn. 

Saeed al Qaizi, the director of procurement for the department, said Dubai had established itself as a trading hub for investments in various industries. 

“Excellent development of infrastructure and reinforcement of its competitive potentials have helped Dubai to become an attractive economic hub,” said Mr Qaizi. Abu Dhabi also showed significant gains in the first half of the year, growing by 28.4 per cent to Dh46.64bn. Non-oil trade is a central cornerstone to the UAE’s economy as it seeks to move away from its oil dependency.

“What you are seeing is growing trade of capital goods as the UAE diversifies and they expand their different industries,” explained Mary Nicola, an economist with Standard Chartered Bank. 

“One of the chief areas of trade is capital transfer and knowledge transfer, and that is where Asia comes to play.”

Ms Nicola said the UAE did not run the risk of a deficit with a trade surplus of close to 20 per cent. However, she said an increasing GDP per capita was accompanied by an increase in reliance on consumer goods, particularly in the UAE, where consumption levels were high. 

“There will be an increased reliance on other countries, particularly for consumer goods – not only for food but even clothes, cars and consumer goods like electronics,” she said. 

“As people get richer, they want to spend more, so you will see more imports from other countries… with food being the main issue here.”

India topped the list of Dubai’s main trading partners in the import, export and re-export sectors during the period. 
In imports, bilateral trade volume grew by 49.6 per cent, reaching Dh24.1bn against Dh16.1bn in the first half of last year. 

“Trade relations have been doing very well and India’s direct contacts with the UAE, and particularly Dubai, go back centuries,” said Venu Rajamony, India’s consul general in Dubai. “We have been one of the number one trading partners [with Dubai] for a long time, and we are happy to maintain that position.”

Dominating the list of imports from India are gems and jewellery, vegetables, fruits, spices, engineering goods, tea, meat, rice, textiles, marine products, machinery and plastic products. 

Rice trade has been an issue of contention between India and the UAE in recent months, since India decided to ban the export of all non-basmati rice in an effort to alleviate soaring food prices and potential shortages at home.

Mr Rajamony said he understood his government was considering lifting the ban on one type of rice, but “nothing has been decided yet as far as I know”.

China was Dubai’s second-biggest trading partner, reaching Dh23.8bn and up 29.9 per cent compared with the same period last year. The US maintained third place with Dh16.4bn worth of imports during the period.

India also topped trading partners in exports at Dh8.3bn during the first six months of the year, a growth rate of 44.4 per cent. 

Mr Rajamony said the Indian government hoped the two countries would engage in greater trade in the engineering and agriculture sectors. 

Switzerland was the second-largest recipient of Dubai exports at Dh1.5bn, growing by a staggering 6,040 per cent since the first half of last year. 
The Jebel Ali Free Zone has also jumped significantly from 16th place to third, with exports reaching Dh800 million.

India once again topped the list of re-export partners, at Dh21.9bn, followed by Iran at Dh10.2bn and Switzerland with Dh4.8bn.

vsalama@thenational.ae

from the IHT today.  Interesting – i was just discussing this with a friend today!  Who’s to say that small and overly pretentious countries with strong ties to the United States are not at risk of getting onto the bad side of defiant neighbors given the evolving world order?

Associated Press

DUBAI, United Arab Emirates: Abu Dhabi and Dubai have been rivals for decades, one building world-class museums as fast as the other has been throwing up skyscrapers.

But the healthy competition that’s helped transform them into two of the Middle East’s most vibrant and bustling cities has soured as they grow increasingly divided over their relations with two other rivals — Iran and the United States.

At first, the differences were cultural. Dubai’s sprawling beaches, American-style theme parks and over-the-top shopping malls clash with the more prim sophistication of Abu Dhabi, which is building a symphony orchestra and branches of the Guggenheim and Louvre museums.

But now Dubai’s soaring commercial growth, liberal Western outlook — and massive trade with Iran — are becoming a liability for U.S.-friendly Abu Dhabi.

With half the population and glitz of Dubai, Abu Dhabi is the richest emirate and capital of the seven that make up the United Arab Emirates. As the world’s fourth largest exporter of oil, Abu Dhabi is also the main provider for the rest of the semi-independent states, including Dubai.

That gives Abu Dhabi the political capital to assert its authority and rein in Dubai’s at times murky commercial dealings with Iran.

The UAE and other Sunni-ruled Arab states are suspicious of Shiite Iran, just a boat ride across the Gulf from Dubai. They share the West’s concern over Iran’s nuclear program and fear Tehran’s growing ability to empower Shiites across the region, especially in Iraq.

Iran and the UAE have diplomatic ties and both benefit from their booming commerce. Thousands of Iranian business are based in Dubai, which also hosts the Arab world’s largest Iranian expat community.

With U.S. sanctions against Iran already in place and Washington threatening new penalties for Tehran’s failure to curb uranium enrichment, Dubai is finding it more difficult to defend its lucrative commercial dealingswith Iran’s ruling elite.

The UAE has been a loyal ally in America’s war on terror. The U.S. has been allowed to operate in an airbase in the outskirts of Abu Dhabi and its warships regularly dock in Dubai’s ports.

But Iranian investment in Dubai — about US$14 billion each year — buoys a robust development plan largely financed with foreign cash. The trade is also huge boost to Tehran’s confidence that it can survive Western-imposed sanctions.

“Iran is not suffering from sanctions if it can still bring things through Dubai,” said Jean-François Seznec, a Gulf specialist at Georgetown University.

Last year, the Bush administration asked Abu Dhabi to crack down on companies suspected of smuggling equipment to Iran to build explosive devices killing American soldiers in Iraq and Afghanistan. The White House also expressed concerns about shipments to Iranian front companies operating in Dubai.

Within days, the UAE president announced a law that allows authorities to “ban or restrict imports, exports or passthrough shipments for reasons of health, safety, environmental concerns, national security or foreign affairs.”

Authorities announced the closure of some companies, but it isn’t clear how thoroughly the law has been enforced. Analysts say Dubai has largely ignored America’s pressure to curb trade with Iran.

By continuing with business as usual, “Dubai has been jeopardizing Abu Dhabi’s relationship with Washington,” said Christopher Davidson, a UAE specialist and a lecturer at the U.K.’s Durham University.

Plus, Dubai’s permissive ways to accommodate Western residents and tourists — by circumventing alcohol restrictions and other rules in the conservative Muslim country — have made the city-state a “liability for the federation, with its behavior,” Davidson said.

So Abu Dhabi has stepped up its pressure, starting with delicate issues Dubai has trouble defending — nudity and excessive booze. Last month, Dubai obliged when Abu Dhabi questioned its neighbor’s Islamic credentials.

Police detained almost 80 people over in a crackdown on public drinking, topless sunbathing and nudity on public beaches. Undercover policemen also rounded up 17 foreign men authorities accused of being gay.

Dubai’s acting police chief vowed to detain all those suspected of acts “deemed offensive, immoral or disrespectful.”

But limiting Iranian business in Dubai is a tougher task, with few rewards for Abu Dhabi, analysts say.

“Neither of them wants to be too close to the U.S. nor too distant from Iran,” said Abdulkhaleq Abdullah, political science professor at Emirates University.

The balancing act associated with trying to accommodate the U.S. and Iran has enabled Dubai and Abu Dhabi to “play good cop, bad cop,” Seznec said.

But he said it was also possible Abu Dhabi doesn’t truly want Dubai to stop being “the main transport hub for Iran.”

The UAE capital looks after the interests of other Gulf states, who fear a U.S. recession and high inflation because their currencies are pegged to the dollar, Seznec said.

“And a bankrupt Iran is simply not in the Gulf’s interest,” he said.

This is a really great bit from the gang at the New Yorker Cartoon Lounge.  It has been a bit hit amongst my American friends living here…. because it’s *SO* true!!!

JULY 21, 2008

AN INTERVIEW WITH DUBAI

Vivian Salama

The National: July 26. 2008 4:26PM GM

ABU DHABI // Abu Dhabi and Dubai remain among the world’s most expensive cities, though at a lower ranking than last year, a new cost-of-living survey has revealed.

This year Dubai ranks as the 52nd most expensive city, down from 32nd place last year, while the capital is number 62, down from 45th, according to Mercer, the international human resources company that conducts the annual survey. The cities rank second and third in the Middle East respectively, behind Tel Aviv, which ranked 14th. Conversely, a number of European cities have risen in the ranks and dominate the top of the list.

Yvonne Traber, a principal and research manager at Mercer, attributed much of the change to exchange rate fluctuations. “Current market conditions have led to the further weakening of the US dollar which, coupled with the strengthening of the Euro and many other currencies, has caused significant changes in this year’s rankings,” she said.

The survey, covering 143 cities in six continents, is designed to help multinational companies and governments determine compensation allowances for their expatriate employees. It charts the cost of more than 200 everyday items, from clothing and footwear, to groceries, personal care needs, transport costs and dining out, as well as the cost of renting a high quality two-bedroom furnished flat.

The cost of living in many European cities has grown more rapidly than in Abu Dhabi and Dubai because, in addition to inflation, the cost of goods is denominated in euros, which have strengthened against the dollar.

On the other hand, soaring oil prices and the rapid growth of GCC economies has fuelled inflation in the Middle East this year at a faster rate than in Europe and the US.

UAE inflation accelerated to a 20-year high of 11.4 per cent last year and will rise slightly to 11.8 per cent this year, a Reuters poll last month showed. Food, beverage and tobacco accounted for 11 per cent of that rise and, according to the Emirates Consumer Protection Society, a division of the UAE Ministry of Economy, food inflation could rise as high as 40 per cent this year.

“The saying goes that Emirates Hills is now more expensive than Beverly Hills,” said Mary Nicola, an economist with Standard Chartered Bank in Dubai. “Day-to-day expenses in terms of groceries and such have become more expensive here.” 

Soaring rent prices have also become a burden for UAE residents. A report released by the Abu Dhabi Department of Planning and Economy (DPE) estimated that rents during the first quarter alone increased by 18 per cent.

A recent survey found that rents in the capital had risen by an average of 49 per cent since June of last year and, in some cases, almost doubled since the beginning of the year despite a Government cap of five per cent. The survey by Asteco, a UAE property services company, found that rent for two-bedroom apartments in the Muroor and Tourist Club areas increased by 80 per cent or more in the 12 months from last June.

The annual rent for two-bedroom apartments ranged from Dh180,000 (US$49,000) to Dh194,400 in Hamdan Street, on the Corniche, in the Tourist Club area, Salam Street, Muroor and Khalifa Street. The average rent for one-bedroom apartments throughout the city ranged from Dh110,000 to more than Dh140,000, depending on the quality and location of the unit, the survey found.

In comparison, the UK estate agent Foxtons is offering two-bedroom flats in the fashionable districts of Kensington or Notting Hill for £2,167 (Dh15,843) a month, or Dh190,838 a year. A similar two-bedroom apartment in the Financial District of New York was advertised by the CitiHabitats agency for $4,350 (Dh15,977) a month, or Dh192,000 a year.

Ms Traber said that multinational companies were attracted to countries with a high rate of economic growth. “Companies may assign high priority to expansion in these economies but may have to deal with inflationary pressures due to competition for expatriate-level housing and other services,” she noted.

Ms Nicola said inflation would have an impact on attracting new people to the GCC. 

“Businesses trying to set up shop and attract new talent have to fork out more money,” she said.

Worldwide, Moscow ranked as the world’s most expensive city for the second year running, followed by Tokyo, and London. The only US city in the top 50 is New York, which is down from 15th place last year to 22nd this year, due to the weakness of the dollar.

Switching gears a bit, a friend of mine sent me the following email and I thought it was hilarious, especially seeing as my sun glasses fogged up today when I stepped out of my car and into the steamy summer heat. It is H-O-T here.  Every time I comment on the heat to one of the Emirati locals, he looks at me with pity as though to say “aren’t you cute – you call this heat.”  I’m screwed.  Today’s temps, a toasty 98F (39C)…. child’s play next to the 104F degree weather I “enjoyed” in Muscat, Oman last week!!  The air is MOIST – humidity levels are around a million.  It’s going to be a long, painful summer.  

———

“We’re not shying away from our responsibilities,” said V Nandakumar, a spokesman for Lulu hypermarkets, which signed a memorandum of understanding last month with the Ministry of Economy implementing price caps on 32 basic items. “From the wholesalers and importers and suppliers, we hope that they also follow similar price caps or some kind of measures to curb the [impact of] inflation.”

However, according to Burhan Turkmani, the general manager of the Dubai-based Al Rabiah Trading, importers are at the mercy of global exporting countries as market prices on commodities continue to climb.

“We are dealing with exporters and brokers outside this country, so the price is out of our hands and in their hands,” said Mr Turkmani, whose company imports staple foods from countries including Thailand, Vietnam, Pakistan, India and Egypt.

Various factors, including limited water and agricultural land, force countries in the Gulf to rely heavily on imported food items. The UAE imports nearly 85 per cent of its food. However, more than 70 per cent of all UAE food imports, worth Dh11.01 billion (US$2.9bn) annually, are then re-exported to markets around the world, including other GCC countries, the Indian subcontinent, North and East Africa, and the Central Asian Republics.

Global rice prices jumped from US$650 to US$1,000 a tonne in the first three months of this year, reaching a 25-year high. Last week, Thai rice surged to a record US$1,000 a tonne, three times its level in January, and India’s export prices for basmati rice rose from US$1,100 to US$1,200. In March, India halted exports of non-basmati rice as a way to curb rising prices and avoid domestic shortages, a move that has attracted strong criticism from UAE retailers, whose customers include the 1.4 million Indian nationals living here.

According to Riaz Hussein Bhojani, the general manager of a Dubai-based importer, Rashwell Company, the landed price of Pakistani basmati rice is now Dh5,505 a tonne, up from Dh2,569 last year. Mr Bhojani said he now paid as much as Dh230 for a 39kg sack of Pakistani basmati rice. Al Rabiah pays about Dh160 for each 38kg bag of Indian basmati rice, up from Dh115 last year.

“There is absolutely no point in putting a cap on anybody without listening to the importers,” said Mr Bhojani. “The Government needs to form a price committee and then take people from the importers and from ministry and maybe some retailers and find solutions.”

This week, Baniyas Co-operative Society followed the lead of larger retailers such as Carrefour, Union Co-operative Society and Lulu hypermarkets by implementing price caps on dozens of basic commodities in an effort to ease the burden of inflation. Many retailers fear that price caps will ultimately result in losses since they are buying their commodity stocks at one price but selling them for less.

“Price caps should be on the suppliers, not the retailers,” said David Berrick, the retail general manager of Abela Supermarkets. “We can lower our prices and use the marketing tool of ‘everyday low prices’, but if supplier costs go up, we have no choice but to raise prices.”

Mr Turkmani said he understood the concerns of retailers. However, suppliers are being faced with similar challenges. “If importing costs go up, then we are left with no choice but to boost our prices,” he said.

This week, the Ministry of Economy urged retailers to start stockpiling basic food items to prevent shortages caused by export bans in countries such India, Egypt and Brazil. The ministry has also urged local retailers to consider eliminating the middlemen when importing 15 basic commodities as a cost-cutting measure.

“It’s cheaper for the hypermarkets to buy from the farms directly because it eliminates the costs from middle agencies plus it encourages greater sales competition, which ultimately benefits the consumer,” said a spokesman for the Emirates Society of Consumer Protection.

Mr Turkmani objects to such alternatives, saying the industry will suffer major consequences. “Retailers don’t have the experience to deal directly with the farmers,” he said. “We know the best locations, have the best contacts, and can find the best quality of food out there. Eliminating importers would be a mistake.”

The chief executive of Carrefour shares the Government’s sentiments. “We are obliged to find new resources,” said José Luis Duràn last month at the World Retail Congress in Barcelona, Spain. “We must ask how we can work directly with farmers to ensure sustainability, good quality, with reasonable prices.”

Ultimately, said Mr Nandakumar of Lulu, dialogue between regional retailers and importers had thus far been counterproductive. “We are having a blame game here,” he said. “We did our part. Now some kind of initiative from the suppliers and importers must be done to gain the confidence of the country.”