All Sorts of Things

Random posts on all sorts of things designed to inform and provoke.

Dubai: Ponzi Scheme Just Keeps Taking the Hits

Dubai, the centerpiece of the United Arab Emirates’ (UAE) strategy to diversify its economic base, continues to reel from one hit after another. On September 23, 2012, Credit Suisse announced that it was “trimming its investment banking team in Dubai and relocating some jobs to neighboring Qatar.” This is surely not a good sign for an emirate that has long wanted to become the region’s premier financial hub especially since Credit-Suisse’s departure comes in the wake of “similar steps at Deutsche Bank and Japan’s Nomura Holding” and the collapse of Dubai’s economic growth.

No one can deny the importance of diversification, especially economic diversification for a state without any major natural resources. However, no one can also deny that Dubai’s implementation of this strategy has been without a larger strategic plan. Long-term sustained economic growth begins with the growth of the manufacturing sector and ends with the booming of the services sector. Dubai, because of its enormous wealth and the resources of neighboring Abu Dhabi, completely bypassed the first step and jumped headfirst into the second.

That strategy worked for a good period of time and impressed a number of significant investors and culture-pundits. Consequently, Dubai became a haven for high-end tourism, real estate investment, and the associated dependent industries. However, once everyone visited Dubai they all realized that the place is in the middle of a desert with heat-levels only Satan could like, and no domestic industry to speak of. Given the enormous demand for funds in today’s global marketplace, its makes sense that investors would gravitate towards state’s that promise something other than the promise of attracting more investors. That is a classic Ponzi scheme and Dubai has been effectively running that for a while, eventually relying on Abu Dhabi to help it out when other investors caught on to its game plan.

So what’s the solution? Could it be a return to basics where government spending is curtailed, the Emir attempts to attract manufacturing industries, and shopping is not a nation-state’s bread and butter industry. Dubai has made significant infrastructure developments in a short period of time but unless the Emir makes some changes to his way of thinking, Dubai will be another example of a state that flew too close to the sun and got its Dhob burned off.

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This entry was posted on September 23, 2012 by in Global Economy, International Affairs and tagged , , , , , .
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