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Dubai: too enthusiastic, too fast, too much debt, too vulnerable, too contagious. In 2007 the Emirate of Dubai, aiming to become one of the major financial and touristic hubs in the world, launched the Dubai Strategic Plan 2015, and prospected an economic growth of 11% per year, actually based on a precarious development of high leveraged real estate projects and income from tourismas major drivers of the agenda (oil represents only 3% of local revenues). The plan aimed to double the GDP of the emirate to $108bn by 2015. The too aggressive and speculative real estate culture created in Dubai an unprecedented portfolio of high leveraged projects, without an appropriate real demand, and represented a clearly visible bubble-economy, what western media completely missed to notice at that time. According to Proleads Dubai, in 2009 1,372 building projects were ongoing in the UAE for a supposed market value of $900bn (mostly in Dubai), representing 46% of all building projects on construction in the Gulf on that time, estimated at a valuation of $1.5trn. During the same days Morgan Stanley reported about real estate projects in the UAE worth $263bn cancelled or delayed because of lack of cash, and in another report Proleads mentioned a combined worth of $582bn for suspended projects. In a different report Proleads monitored in 2009 5,200 regional construction projects, and prospected a titanic pipeline of $3.4trn for infrastructure projects, with the UAE representing 25% of the self-valuated pipeline. Actually really nobody was and is able in the GCC to know and report reliable numbers about debt, projects, assets, anything.

In Dubai money was available for an historical party with Hollywood stars & fireworks, but not for salaries. Not comprehensible was in 2007 also the transaction of the later bankrupted Dubai World in buying 9.4% of the world’s leading gaming/casino leader MGM Mirage for $6bn in total including joint investments in a common $8.5bn project (MGM Mirage was $13bn heavily indebted and is the provider of a forbidden business field to Islamic principles), as precondition to project luxury non gaming resorts in Abu Dhabi and Dubai worth $5bn, expected to open 2012. These projects, as well as the $27bn Guggenheim and Louvre museums projects are currently on hold and reported to finish the construction likely from 2015 to 2017. The market value of the DW stake in MGM Mirage today is less than $500m. Of course the total amount of all investments has been fully financed on debt. Only few months later in 2008, while the local economy was imploding, Dubai World celebrated with the South African operator Kerzner International the extravagant launch of the $1.5bn Atlantis Resort in Dubai at a cost of $20m for the party, which included worldwide historical fireworks. Few days later the workforce of the contractor were sacked without notice, because of no cash available for salaries, while the South African partner announced the delay of 3 hotels in his country because of lack of funds. Originated by the alliance in the Emirates with Dubai World, MGM is preparing end of the year the re-launch of the striptease nightclub and restaurant Studio 54 in Las Vegas, partnering this not really Islamic conform project with the Abu Dhabi based property-investment company Tasameem, company controlled by Sheikh Mansour, owner of Manchester City and CIO of government’s owned IPIC (supposed asset under management $15bn to $40bn), which bought in the middle of the financial collapse of the Emirates in 2008 the London Michelin-starred restaurants Yauatcha and Hakkasan for £30m.

Debt in the GCC is accelerating, and in 2012 is prospected to be much higher than $358bn as reported by The Institute of International Finance IIF in 2008 (+200% versus 2005), with the UAE accounting about 50% of total obligations. The RBS reported that this year the six GCC countries need to refinance $60bn debt, other local sources from the GCC reported refinancing volume of $12bn this year and $35bn 2013-14. In the jungle of opaque and unreliable data, nothing can be seen as reliable in this concern. In case of fiscal deficit the GCC countries have to borrow foreign currency to maintain fiscal stability, or utilize reserves accumulated over years. Saudi Aramco wrote in 2009 that in order to supply further 64m barrels per day to the current quota, oil producers from the GCC have to invest $6trn until 2030, which should lead to $2.8trn debt, following to the statistical ongoing characteristic to finance 46% of investments in the oil industry by debt. The surprisingly increased debt in terms of loans and bonds issued by all government’s vehicles, and all capital market / M&A transactions executed by GCC investors fully on debt are proving the opposite. Because of limited transparency among all GCC-banks it is not possible to clear the real volume of debt, neither the rate of insolvency in the area, and the real losses of not repaid loans matured since 2008. All this did not match with the universally well known picture of a strong Gulf able to acquire substantial stakes in Western companies because of its own oil & gas revenues. Without the substantial financial support of US, EU and Asian banks in giving/prolonging loans and subscribing new sovereign debt the situation in the entire Gulf would be very different today.

“Economy is sound”, Sheikh Mohammed in December 2008. Although Dubai was sending out messages of strength and solvency, all government and Ruler’s vehicles were in the situation to be solvent only rising further debt. According to controversial official statement at that time, Dubai’s total debt in 2009 was $80bn to $120bn; hereof a confusing amount of $23bn to $47bn accumulated by the conglomerate Dubai World, the developer of the real estate project in that emirate. In 2009 the Dubai’s Ruler blamed western media for exaggerating the debt restructuring of the emirate, and the local government rejected the responsibility for the huge borrowing of all state’s controlled vehicles, making clear to be not under obligation to pay back debt to lenders. The Dubai Executive Council reported figures never heard before to restore confidence, without giving any details about methodology and source of evaluation, such as the over proportional value of sovereign assets for $1.3trn, compared to aggregated debt obligations of $80bn (but $110bn according to the UAE ministry of finance). Other officials of the government relativized the debt in Dubai in comparison to the $2.3trn wrote down by US and EU lenders, and trillions of tax-income inappropriately used to bail out greedy collapsed financial institutions. With the scope to avoid bankruptcy of Dubai’s government linked vehicles, all involved in the real estate sector, and consequently to deteriorate the entire UAE nation, the supposed rich Emirates of Dubai received 2008-09 $20bn from the Emirate of Abu Dhabi in order to meet obligations. Further to that the UAE government in Abu Dhabi created a $33bn Emergency Funds to alleviate the liquidity shortage of local banks and to protect them against a natural collapse. The Abu Dhabi based government issued $11.6bn from international debt markets to sustain the bailout of Dubai, which also raised $6.5bn in Euro Medium-Term Notes and Islamic bond issues (Sukuk), bought by banks in Europe, Asia and the US. All (government’s owned) banks in Abu Dhabi are exposed to the $100bn debt of Dubai (on behalf of the government of Abu Dhabi), but forwarded the same debt to international banks in name of gas & oil income.