(Notes from Abu Dhabi and Dubai)
I didn’t plan for this. There I was, arguing for an overarching crisis. That a tsunami was coming. That the outer islands had already been hit, and that we could see that enormous wave coming towards the beach. No one was to be spared. Can’t you see, people, it will hit us all? There will be no dry land left. Run for your lives!
The past five weeks looked good for us, Armageddon-types.
And then suddenly, there it is. A place that could convincingly be the Winner of The Crisis. Two new-born cities on the coast of the Arabian Peninsula. To my utter surprise, I have started to suspect not only that the Twin Cities of the Gulf could survive the meltdown relatively unharmed, but also that they might even gain spectacularly from it.
First, the obvious: although Dubai has considerable debt, neither rescheduling, nor financing should be a problem, as long as it can find the right words for a difficult conversation with the Older Brother. The rivalry with Abu Dhabi will give way to co-operation, which will display the fact that the two centres are, in reality, on the way to becoming one.
This One City is sitting on an accumulated wealth in the magnitude of the US bail-out package, even if you correct the latter with a ‘reality-multiplier’ (a.k.a. ‘the second bailout package’...). This is coupled with an exceptionally strong development dynamic, cash-financed in large part, and thus unaffected, or at least not directly affected, by the financial meltdown.
Financial centres that weather the current crisis without a systemic meltdown will see their reputation gain. There is nothing more confidence-building than the history of stability amidst the storm. Imagine ocean liners about to cross the Atlantic, after a gigantic storm. You probably wouldn’t want to take a small boat. Nor the enormous ship that almost sank, even if it has all the luxury in the world. How about that nice, medium sized vessel almost unmoved by the winds, waves, and storm?
Stability will pay off nicely in the post-crisis world.
Second, the coming global regulatory overhaul is very likely to favour a financial centre with pre-existing buzz and relatively large size, but lack of high gearing. Agile and flexible regulatory response teams, could enable Abu Dhabi-Dubai to make the most of the inevitable global clampdown. Special Purpose Vehicles might be out, yet the need for ‘effective solutions’ will be all the same.
The point is that the regulator here does not need to worry about the global systemic effect. The supervisor needs to be seen to sign up for the to-be-emerging global regulatory protocols, make sure that the local system does not melt down, and then offer the maximum flexibility. The rising global New Rule Book will probably take a multi-tiered form, leaving ample room for local manoeuvring. Both the history and the attitude of the emerging ‘United Emirati Centre of Global Finance’ suggests that the appetite will be there to go in this direction.
Third, the talent flow will be staggering. The meltdown of the other economic centres of the world will result in a lot of well educated and experienced professionals finding themselves on the street. They might as well find their way to this sunny oasis of opportunity. The human capital shortage in the Gulf may well be a thing of the past.
As a partnership, then, Abu Dhabi-Dubai could emerge as a winner. If on the other hand the cities prefer to go it alone though, one has a far greater chance of success than the other. Despite the mass denial among Dubai entrepreneurs, the global crisis would be certain to hit them, big time. Credit crunch is already there. There are doubts that Dubai alone has enough to back its banking sector. Abu Dhabi does. The collapse of tourism will hit Dubai badly. Abu Dhabi, being at the early phase of the sector’s development will hardly feel a mosquito bite. The inevitable fall of global transportation will hit the Dubai port. Abu Dhabi, again, will stay mostly unaffected. The ill-conceived manufacturing projects will inexorably be weeded out. The Dubai audacity of unfeasible electronics production will be trumped by the sensible oil-industry support manufacturing projects of Abu Dhabi. It is very unlikely that this advantage will not be turned into hard positions. As the FT pointed out yesterday, it is going to be a tough conversation.
Yet, the potential is there. The Twin Cities of the Gulf might take a new role, this time as the capital of the post-16-September World. Or at least one of them.