Rocky Times for Dubai

Economy in Crisis

Not so long ago vendors in Dubai were camping outside offices to buy property - and then breaking out into fist fights when the off-the-plot property was sold out.

Yet the Huffington Post notices that former bustling cafes and restaurants are now half dead, while ABS-CBN news points out that the trend of thousands of working flocking to the Emirate has now been reversed:

Foreigners, who make up 90 percent of Dubai's population and were responsible for helping build the emirate from the ground up, are now unemployed and returning to their respective countries.

Could the party be over for the high spending GCC member?

Huge Borrowings

The current hangover will not be surprising to those who have been following Dubai's economic story.

For several years the country has been on a borrowing and spending spree.

And according to an article in Business 247, the huge expansion it has been undertaking - as well as the foreign credit it has been gobbling up - means that its banks have been left the largest debtors in the UAE.

The hunger for credit in Dubai along with credit speculation by foreign investors has seen a growth in bank debt by an incredible 400% in just three years, from just over 23 billion US dollars in 2005 to an over 90 billion dollars in 2008.

This has left Dubai's banks with close to 50% of total UAE debt.

Vulnerable

With fewer remaining natural resources than neighboring countries, Dubai's strategy for years has been to diversify.

At breakneck speed the country has been trying to diversify into a trade, tourism, services and financial hub.

Few of these are likely to be unaffected by the credit crunch.

Reliant on Tourism

As we noted before, many of Dubai's projects rely on forecasts of a doubling of 2007 visitor numbers to the country by 2015 - which means targeting a number of over 15 million.

Yet visitor numbers are likely to be hard hit - especially as the UK, where Dubai is most popular as a tourist destination, is suffering worst than most.

Regional Competition Increasing

Qatar's own plans for boosting tourism means regional competition is only going to increase.

While Qatar is planning to target the top-end short stay market - hopefully avoiding some of the culture clashes Dubai has seen - the target quadrupling of hotel rooms by 2012 and the huge expansion of both its airport and its national airline does not bode well for the future of Dubai's tourist industry.

And while Qatar can expect to see a drop in revenue due to the falling price of oil and an increase in the supply of Natural Gas, unlike Dubai it enters the credit crunch with plenty of financial clout - financial clout which it is not afraid to use.