No unbiased observer would be able to dismiss the fact that Dubai has been able to create many wonders. And by wonders I do not mean its remarkable skyscrapers, huge malls, and its trademark palm islands; however part of its overall image, what I mean by wonders lays in its revolutionized business models that granted the small city in the aggressive desert a global position.
Examples of such innovative in times and well adapted business models in other times can be found in its numerous world-class free zones (e.g. knowledge city, Media and Internet city, etc …), in its laws flexibility that permit a 100% foreign ownership, in its extremely flexible taxes policies (e.g. no import or re-export taxes and no corporate taxes for the first 15-50 years of operation,) and in its legendary logistics services in air and sea ports. These are only examples of the real competitive advantages that Dubai has been able to create in the past 10-20 years.
However, it seems that its unprecedented success has blurred the vision of its officials and led them to think that they are the modern alchemists who can turn anything into gold.
The debt crisis Dubai is going through these days is nothing but another episode of the series of greed and uncalculated risk that led the whole world to the economical crisis at the first place. Corporate investors, banks, and even individuals believed beyond doubt in the current financial systems and in their dreams of ‘building bigger’ and ‘having more.’ And suddenly, the dreams just turned into nightmares.
One of the most basic studies that should be carried out before providing long term financing is studying the capacity of the company requesting the debt; How much does it owe other financial institutions, how many projects is it already engaged in and how is it planning to pay back its debts. It seems that nobody asked these questions or discussed them with Dubai World. Dubai World kept inflating its bubble and international banks provided the required tools till they reach the moment when the bubble is just about to explode. It is the moment of truth for both; for Dubai World that kept taking a debt after another to finance projects with no real added values, and for the banks that kept providing with proper risk calculations.
Before concluding this post I just want to comment on how Dubai officials are dealing with this crisis. I believe in such situations, the leadership behavior carries a great weight on stabilizing the matter at hands or adding more fuel to the already burning situation. I am afraid that Dubai officials are from the latter category. They keep coming out and trying to act as there is nothing serious going on. Not only that, but they talk with unmistakable tone of arrogance and aggressive words towards others whom they like to call: people who are envious of Dubai!!
I am not sure such level of communication is suitable to address a global fear caused by your own behavior. When the economical meltdown started about a year ago, I remember one of Dubai World big officials when asked about the possibility of Dubai sinking down because of the events; he stated that: ‘our company will never fail because we are MEN!!!!!!!!’ This is a direct quote, and believe me I do not know what is the relation between being a man and bypassing such an economical situation.
Of course I am not suggesting panicking on TV and press releases, but I am supporting being logic, consistent, clear, and courageous enough to face the situation and addressing it in the proper manners especially that your are working under a global spot light and not only talking to some poor investor who owns 5 stocks in your company and does not really know what a stock is!!!
