Even more sentences to ponder

The average Yemeni spends one quarter to one third of his income on qat. Three quarters of the population devote four to six hours daily to buying and chewing the leaves, consumed in the later afternoon after the day’s main meal. Although qat has no nutritional value, a third of Yemen’s agricultural land — double the acreage of a decade ago — is devoted to it.

That's from Le Monde.

Another sentence to ponder

New Geography:

Dubai attracts only 1/10th of tourism of Las Vegas, while having more than one-half the hotel rooms.

Sentences to ponder

In a sign of the struggles Dubai World could face to keep its prized assets, Istithmar World lost its W Hotel in New York in a foreclosure auction Tuesday. The hotel was sold for $2 million. Istithmar World bought the property for $282 million in 2006.

That's from Reuters.

Big unfinished building projects; Is the little guy finished?

And not only that -- you're dealing with a government-owned company.

The National

Mr Nassour’s home should have been completed at the end of this year but construction has not even started, nor is it likely to any time soon. He paid more than Dh350,000 in 2006 towards two properties at the long-delayed project, and now he is worried he may never see any return on his investment.

“They just cancelled my contract and I won’t get my money back,” he says.
Mr Nassour has turned to the Land Department for clarification and to find out what his rights are, but the experience has left a bitter aftertaste.

“That’s enough,” he says. “They need to make the issues they have clear to the investors. I can’t invest without having a clear view of what’s happening.”

But he did invest without a clear view. He's not alone as the article on small investors threatening court action makes clear.

A blog to watch: Suq Al Mal

Suq Al Mal follows the financial sector in the GCC. Recommended. Especially in these times.

I'll be adding it to my blog roll.

Timely

A survey of the world's smartest cities appears in New Geography.

Neutral about everything except minarets

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Other sovereign debt concerns

The New York Times has a graph on other countries which may be facing debt problems; the same graph shows the exposure of bond holders by country. Thanks to The Gulf Blog for the pointer. Not of course that the U.A.E. has a debt problem. It's Dubai that has the problem.

Since Dubai announced it had a problem other countries have received more scrutiny.

The Wall Street Journal reports:

Greece's finance minister promised Wednesday that the country wouldn't default on its loans as the cost of insuring its bonds soared to the highest among the 16 nations that use the euro.
...
He said speculation that Greece would not be able to pay back its borrowing was "completely unfounded" and there was "absolutely no risk to holders of government bonds."

Spreads on Greece's bonds -- the cost of insuring them against the risk of not being repaid -- overtook Ireland as the widest in the euro zone a month ago, even before markets were rocked by an announcement by Dubai's state investment company that it wanted to postpone debt payments.
...
"The battle with the markets is one that you win every day with a view to the credibility of your policy and this is what we are trying to build — credibility," he said.

Cut to junk rating

BBC:

The ratings agency Standard & Poor's has cut the credit rating of six Dubai companies linked to the government to junk status. S&P said extraordinary support from the Dubai government seemed "low" after the emirate said it would not guarantee Dubai World's debts.
...
S&P said it was not rating Dubai World or its property arm Nakheel. It said that under its criteria, a credit standstill - which is what Dubai World had asked for - "is considered a default".
...
In addition, the rating on four banks was cut to junk. They were Emirates Bank International, National Bank of Dubai, Mashreqbank and Dubai Islamic Bank.

Would you visit Dubai in the best of times?

City Comforts:

All that Arab culture learned in a thousand years about adapting cities to great heat -- high-ceilinged buildings along narrow streets which provide shade and short distances to walk outside — have been forgotten or ignored. Confoundingly, with all of Europe and Asia to learn from, the city's design ignores the goals of the sophisticated tourist — to be able to walk around outside — in favor of antiquated down-market Las Vegas.

City Comforts describes itself as a blog "with a new focus on civilizing the real estate megaprojects of the Middle East, East Asia and even the USA."

The Empty State Building

Five of the 10 tallest buildings in New York City today were planned at the tail end of the ebullient 1920s and completed in the early 1930s. In their day, they were the tallest structures in the world, but it took more than a decade for the Empire State to stop being the “Empty State Building.”

That's Edward Glaeser, of Harvard, known for a wide body of economic research including "his work examining the historical evolution of economic hubs like Boston and New York City."

He says Dubai "has condensed three different stages of growth into less than 50 years."

It's in the third stage, and stumbling:

Dubai’s long-run success depends on attracting skilled workers who will not stay in a city that offers only sun-baked purgatory. For a decade, the sheik has tried to promote a third type of growth for Dubai, by turning the city into a place of pleasure with soaring skyscrapers, vast malls and spectacular luxury hotels.

Just as Las Vegas has long succeeded by allowing more misbehavior than Nevada’s neighbors, Dubai recognizes the opportunity that comes from the strictness of neighboring Islamic states....

While Dubai’s good infrastructure, pro-business government and consumer amenities may enable the city to eventually succeed as a connector between the West, the Middle East and India, Dubai has now massively overbuilt relative to the level of current demand. Dubai now has the tallest building in the world, and 11 skyscrapers that are taller than any European building.

Fifty-story buildings are an efficient way to deliver plenty of space, but extreme height is far more expensive and a bellwether of irrational exuberance.

Read it all.

So if the Empire State Building was called the Empty State Building, what nickname do you think is appropriate for the Burj Dubai? (Follow last link, move mouse over image of the tower and click to see comparison to Empire State Building and skyscrapers.)

Comments are open.

a twitter in Dubai

Some interesting tweeting by Kaleil Isaza.

Any other tweeters I should be following? Please leave suggestions in the comments.

Will U.S. taxpayers be left holding the Dubag?

Andrew Sorkin:

Just as the United States stood behind its banks, in part, to avoid losing the confidence of foreign investors, Abu Dhabi might have to do the same.

That had to be what Citigroup, with its firsthand expertise with bailouts, must have been thinking when it lent $8 billion to Dubai last year. Oh, and here’s an interesting fact: Citigroup made the loan to Dubai on Dec. 14, 2008. Take a look at the calendar — that’s after it received tens of billions in TARP funds. Citigroup’s chairman, Win Bischoff, said at the time, “This is in line with our commitment to the U.A.E. market in general, and reflects our positive outlook on Dubai in particular.” Good call.

Why does Abu Dhabi have to do the same? The U.S. bailed out Citigroup and other banks because of the harm it would do to the U.S. economy if it hadn't. It's by no means clear that there is a parallel in the U.A.E. case. It may be a small price to pay to make sure Dubai bears not the upside, but also the downside of its investment decisions. Also, the potential for real harm may be primarily external to the country. Even there Dubai's default does not appear to be systemically important.

So if Citigroup needs a bailout, it could be the U.S. taxpayer footing the bill. Again. That's what Sorkin seems to be saying. And Tyler Cowen underscores.

Yes, Citigroup is exposed to the tune of $8 billion -- I did a post on this a year ago. But doesn't Abu Dhabi have a big stake in Citigroup? It did the last I read.

And now for something completely different: The debt cloud hanging over California

"Arizona, Rhode Island, and Michigan aren't doing so well, either" says Craig Newmark. He could have included New Jersey as well.

Just so you know Dubai isn't the only geographic political entity with a debt problem.

What does default mean for real?

Seabee who writes Life in Dubai has some thoughts on the mishandling of the announcement that Dubai World is seeking a restructuring of its debt, and what the default means for the real economy and the people living in it.

Indecision

Indecision is costly. The worst kind of indecision is decisiveness so unburdened by facts that today's decision is just as decisively reversed tomorrow. I call it the nevermind syndrome. It is prominent in the Gulf, and it may be Dubai's undoing.

Of course I'm sure. How dare you question my authority?

Secret Dubai has similar thoughts.

Question of the day

If you are Abu Dhabi, how might you have hedged your exposure to Dubai? (And who is your counterparty exactly)?

From zerohedge which has other pointed questions.

The image Dubai does not want you to see

Which, of course only draws attention to it.

As described by the Wall Street Journal,

The Sunday London Times newspaper was removed by authorities from shelves in the United Arab Emirates on Sunday amid intensive reporting of Dubai's debt problems, an executive at the paper said.
...
A government official in Abu Dhabi, the capital of the U.A.E., said that the picture of Sheik Mohammed, which accompanied a story entitled: The sinking of Dubai's dream, was "offensive."

More:

At a bankers conference in Dubai early this month, Dubai's ruler, Sheik Mohammed bin Rashid Al Maktoum, delivered a prepared address about Dubai's optimistic economic prospects in Arabic. Then he briefly switched to English to berate the media and other critics for fanning speculation of a rift with Abu Dhabi.

"So, to the people of you who nag over Dubai and Abu Dhabi, shut up," he said. The audience laughed and applauded.

Who's laughing now?

Jo Tatchell, author of A Diamond in the Desert, is a guest contributor in The Times today. She writes:

Abu Dhabi has been playing a long game. Quietly amassing vast oil riches (the true extent of which are unknown) it has been nursing a long-term objective: centralisation of the UAE under the leadership of the ruling Al Nahyan family, securing greater political power and influence abroad in the process.

The strategy is simple. Abu Dhabi will cherry-pick the successful big- name assets and transfer them to Abu Dhabi control. These deals have been under discussion for some months. It has already sought to secure majority stakes in the Burj skyscraper and the Emirates airline, symbolic jewels in Dubai Inc’s crown.
...
Though undeclared, the hope is that these events will force the leadership of Dubai to resign. In a modern playout of ancient tribal politics Abu Dhabi wants Dubai reined in and put on a short leash. They are looking for the Makhtoums to fall in line with Abu Dhabi’s new vision for a modern Islamic state.

More from today's Times:

The Government of Dubai said today that it will not stand behind its wholly-owned subsidiary Dubai World, prompting fears that the company’s creditors could lose billions of dollars.

Today's comment, from Abdulrahman al-Saleh, the director general of Dubai’s Department of Finance, effectively confirms that country does not have enough money to repay Dubai World’s $60 billion of liabilities. Deloitte, the accountancy firm, has been called in to restructure the giant business.
...
Many creditors had assumed that the structure of Islamic bonds implied there was state backing for this type of financing and Dubai’s failure to support the Nakheel debt could have damaging implications for the wider Islamic market.