Dubai World also approached the creditors for a
six-month freeze on its debt repayment. Will the global
economy convalescing from the recent financial
crisis, be able to confront this new financial turmoil
in the Middle East?
The focus of the global investors has shifted from words
like `Depression' and `Dollar' to `Dubai'– one of the seven
emirates of the United Arab Emirates (UAE) and
an emerging world financial hub. The recent debt
restructuring announcement by Dubai World (DW), which came after the
long holidays of Eid and the US's Thanksgiving festivities, evoked
panic among the investors. The more astonishing and eye opening
fact, which actually rang the alarm bells for the debt investors was
an official statement made by the Dubai Government that DW's
debt was not guaranteed by it and debtors will also have to bear
the responsibility and financial impact of its debt restructuring.
This shook the confidence of, not only the regional, but also of
global investors, who prior to this episode, did not distinguish
much between the debt owed by Dubai Government Related
Entities (GREs) and Dubai's sovereign debt.
On November 25, 2009, Dubai proposed to delay repayment of
its debt for six months, which included delay in the payment of $59
bn debt on DW, the conglomerate behind its rapid expansion.
It is a known fact that Dubai is one of the most unique
and unusual economies in the world. It is the second largest emirates
of the UAE, after Abu Dhabi. Contrary to the general opinion
that Dubai's economy is totally driven by oil and gas, the oil
sector contributes only less than 6% to the economy. Dubai's portion
of natural gas revenues in the UAE is only about 2%. Although
Dubai's economy was built on the back of oil money, Dubai's oil reserves
have diminished significantly and are expected to be exhausted in the
near future. The other major sectors that have contributed to the
rapid growth of the Dubai economy are real estate and construction
(22.6%), trade (16%), entrepot (15%) and financial services (11%) (as per
2007 figures). Dubai's GDP has been growing at a medium pace over
the past few years, as indicated by official statistics. In 1995, its GDP
was Arab Emirates Dirham (AED) 41.3 bn, while it rose to AED110.7
bn in 2004 and in 2008, its nominal GDP was reported at US$82
bn. This translates to an overall growth of 98.7% during the
10-year period from 1995 to 2004 and an average yearly growth of 11%. |
