LETTERS FROM AROUND THE WORLD
Atlantis Hotel Opening
Recently my wife, having gone through an extremely stressful week, couldn’t resist saying, “I need a bailout!”
Why not? Bailouts are becoming all the rage.
The first “bailout” went to the US government in November, and European governments weren’t very far behind with their own bailout deals that same month. China announced a bailout package of $586 billion on Nov 9 which was more wide ranging than the US one, to stimulate growth. Even the Indian government declared a “stimulus” package (i.e. bailout by another name) on Dec 7, to stem the cascade effect of the crisis.
In the second round, specific industries took their turn in asking for bailouts: with the Big Three auto makers leading the pack. Not to be left behind, key commodities like oil, steel, aluminum and copper, all “bailed out”–with prices nose-diving as if everyone was running a “going-out-of-business” sale! Only gold seems to have kept its head, keeping most of its value.
For the most part, bailout seems to have become the word of choice everywhere.
So what’s going down here? One of my friends, who heads the investment department in a leading Dubai bank with multi-billion dollar assets, informed me that in financial colloquium, “the problem has now moved from the Wall Street to the Main Street.”
But, no matter how you look at the problem, it is hard to understand how this all happened. Was the subprime, from where it all began, such a big issue? How can you relate the drop in oil prices to the sub prime? Wasn’t the sub prime a US problem? How did we (the rest of the world) get drowned in this tsunami? That it is a tsunami is beyond question – how else would you describe something that was so sudden in onset and so swift in course, leaving so much devastation and so many wrecked fortunes in its wake? And all this in a trice of time!
But there seem to be some exceptions.
The last week of November, for instance, saw a mega media bash in Dubai–an event that was visible even to satellites in outer space. On November 21, the night skies were ablaze with fireworks and celebration during the opening ceremony of the second “seven star” hotel resort in Dubai, the Atlantis. The whole Jumairah Palm Island (on which Atlantis is located) lit up like a massive beacon. And with its light, $3 million US dollars, the amount reportedly spent on the opulent display, went up in smoke.
The opening of the Atlantis was a spectacle to rival the Beijing Olympics. All major network channels covered it on the prime time news. The glitterati and royalty from Dubai as well as Hollywood and Bollywood graced this mega event. Robert De Niro, Charlize Theron, Kylie Minogue, Priyanka Chopra (ex-Miss World), just to name few. Sol Kerzner, the chairman of Kerzner International, which owns the Atlantis Dubai, explained that since the construction of the hotel itself cost $1500 million, $20 million seemed reasonable for the opening night.
But that’s only one side of the story.
At around the same time Atlantis was preparing to open its doors to the world, a powerful rumor was spreading all around Dubai. Five star hotel lounges and shisha cafes, office grapevines and informal gatherings were all agog with hushed conversations. The rumor whispered that Dubai was deep in debt and also needed a massive bailout, which was being hammered out with big brother (Abu Dhabi). The rumor mill was churning out incredible stories such as “Emirates Airlines will go under the hammer; Burj Al Arab is next etc etc.”
Burj Al Arab
The rumor had gained such tsunami proportions in the last few weeks that finally a very senior government source had to openly announce that these rumors were baseless. Mohammad Al Abbar, Chairman of the Dubai Advisory Council, gave public assurances that Dubai is able to meet all its debt obligations since its assets far outweigh its debts. The markets greeted this announcement with a 3% cheer. Nonetheless, the Dubai stock market, like others around the world, has not regained lost ground. To give but one example, the shares of Emaar Properties have lost over 80% of their value in the last few months. Burj Dubai, the tallest building in the world, is one of Emaar’s many prestigious projects.
On a macro economic scale, Dubai has enjoyed an average GDP growth rate of over 17% annually for the last several years. But there is now official acknowledgement that 2009 could see this rate climb down to as low as 6% to 8%, a very healthy growth rate no doubt, but much slower than before.
The mood on the street is one of caution and restraint. We live in an increasingly interconnected world and the Gulf economies are not totally insulated from the ripple effect of the tsunami that is sweeping across the world.
Although there is no serious concern or panic on the streets of Dubai (no wide scale job losses as yet, no overt project cancellations, no bailout packages), there are clear signs of a slowdown. A major construction company has shed 15% of its employees.
New project announcements have almost halted. Many banks have tightened their criteria for personal loans. Local airlines have lowered some of their fares. Real estate prices are dropping. Some private corporations have drawn up contingency plans; to be put in motion should business go belly-up. Expenses and expansions are being quietly but closely scrutinized and shelved, as far as possible. Wait and watch is the word.
Yet, in the midst of all this gloom and doom going round the globe, there seems to be a little bit of hope. America which was the epicenter of the financial tsunami has also become the focal point of hope in the shape of the new President Elect, Barack Obama. Suddenly everyone is gripped by Obama-mania! There is so much interest in the Obama presidency here that the leading daily newspaper in Dubai “Gulf News” is actually running a full page feature called “Obama President” which reports on all the action from the office of the President Elect. France is thrilled with Obama’s victory. In Japan, we read, they are even selling Obama dolls! No American President (or President-Elect for that matter) has captured the world’s imagination and expectation quite so much since John Kennedy. The “size 10” shoes thrown at President Bush in Baghdad symbolize a world impatient to move on from the Bush years.
Hope, it would seem, is as infectious as despair!
A hundred and forty nine years have passed since Dickens wrote the following lines, and yet they mirror the times we live in:
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair.”
Last week one my acquaintances who is also a close competitor in the marketplace called me to share his woes. We’ve known each other socially for over seven years, but our chats are usually polite, superficial and never about business. That day he was positively loquacious and very friendly. The herd instinct overruling caution?
Who knows? This might be the beginning a new friendship!
Crossing Dubai Creek
Vibhas Tattu hails from India and is a manufacturing engineer by profession. He has worked in India, USA and now in the United Arab Emirates. Vibhas is interested in Shakespeare, Indian music, poetry (English, Hindi and Marathi) and a new found love of writing.
Tattu has a bachelor’s degree in Production Engineering from the University of Bombay and Master’s degree in Industrial Engineering and Operations Research from the University of California at Berkeley, where he was a Fellow.
by Vibhas Tattu
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