Dubai Crisis: Who will have the last laugh?

What do you get when you get a pile of borrowed money, cheap labors from South Asia and a desert with limitless ambition? You get the modern Dubai. Call it Capitalism with a capital “C”.

Dubai's boasts of "biggest, tallest, richest" have lost their allure. Yet the Dubai local media is all praises for the “sons of the desert” who transformed the desert into a dream city.

To recap the turn of events, on the eve of the Eid religious festival, the Dubai government announced that one of its main investment vehicles, Dubai World, could not pay its bills. Like many over-leveraged companies that are being exposed by the recession, Dubai had borrowed beyond its means to fund its building boom that went bust. The British banks and investors that have poured many Billions into funding the Dubai dream now face an uncertain future over how much of their money could be lost.

With borrowed money, the smart Sheikhs not only built the biggest and tallest buildings back home but also went on an overseas spending spree snapping up many plum assets. They bought the Golf courses in England, paid $82m for the QE2 liner, bought luxury hotels like the Mandarin Oriental in New York, and took a 22% stake in the London Stock Exchange.

Dubai Holding, Dubai government's flagship company after launching its own private-equity firm, Dubai International Capital (DIC), paid $1 billion for a stake in Daimler Chrysler, the car maker, followed that by acquiring Tussauds Group, owner of the famous waxworks museum and a string of theme parks. DIC also has an undisclosed sum invested in Sony Corporation as well as a 2.87% stake in India's ICICI bank.

In Britain, DIC bought Doncasters, the engineering firm, and Travelodge, the budget-hotel chain.

In 2006, with borrowed money, DP World a subsidiary of Dubai World acquired P&O, a terminal operating company that operates marine terminal facilities worldwide, for $6.8 billion. 

When the going gets tough, the tough goes partying. Amidst the global financial crisis, Dubai splurged $20 million back in 2008 for the inauguration of the Atlantis, a garish $1.5bn hotel complex with 1,539 rooms boasting $35,000 a night suite. It was reported that at the time of the launch the Atlantis had a long waiting list for its highly priced suits. Among those who showed up for what the local press described as the "party of the decade" were Hollywood stars Robert de Niro, Charlize Theron, Mischa Barton and Wesley Snipes.

Who finally spoiled the party? Can you blame the Sheikhs alone? An elite group of expatriates head some of the biggest firms in Dubai. To name a few, David Eldon, a Scot is the Chairman of Dubai International Financial Centre (DIFC).Gerald Lawless, an Irish is the Executive Chairman of Jumeirah Group, Maurice Flanagan, Executive Vice-chairman of Emirates, and Rick Pudner, Chief executive of Emirates NBD (merged entity of Emirates Bank and National Bank of Dubai) are British.

In addition, an army of expatriate advisors might be surrounding the over ambitious Sheikhs imparting wisdom. Don't forget that these affluent expatriates were paid quite handsomely too. Little did they realize that they were splurging on their own country's money borrowed by the Sheikhs.

There is an old adage about the UAE: "Emirates stands for English-Managed, Indian-Run, Arabs Taking Enormous Salaries." Going forward, at some point, Dubai will emerge from its current crisis but not without some collateral damage. The current Sheikhdom crisis, some term as minuscule comparing to the global financial crisis will become history. 

With borrowed money, splurging big time on construction and acquisitions, the Sheikhs had the time of their lives living their dreams. Who knows, they probably will accomplish even more going forward. Now you could very well guess who will have the last laugh.

Rajesh Kumar