Friday, February 27, 2009

George Mason University in RAK shuttered

Not really surprising.

Inside Higher Ed
The short history of George Mason’s expansion into the Persian Gulf region may prove a cautionary tale, highlighting many of the difficulties universities stand to encounter in arrangements that are increasingly common across higher education. Enrollment didn’t grow at nearly the pace university officials had expected, and George Mason had little choice but to end the experiment when investors decided to dramatically curtail subsidies.

“Did we not know some stuff we should have known? Basically that’s correct,” Stearns said. “Would we do it again under different circumstances? Absolutely.”

The university, which was based in the Ras-Al-Khaimah province, was funded by a government-supported foundation known as the RAK Education Company (Edrak). As with several similar arrangements in the Gulf, the university offered its name, expertise and support but footed none of the operational costs. The goal, however, was that the university would be self-sustaining through tuition revenues within five years of its founding.

Edrak recently declared that it would reduce its subsidy to the university by about 50 percent, and in so doing refused to pay the cost of hiring a new vice president, according to Stearns. Furthermore, Edrak was pushing George Mason to allow the university’s academic dean to report directly to the foundation, breaking with the prior arrangement where the dean reported to Stearns. The absence of a vice president and a change in the reporting structure would likely have been unacceptable to George Mason’s accreditor, the Southern Association of Colleges and Schools [SACS].

“In terms of academic oversight, we felt that was perilous,” Stearns said.
Perilous, indeed. Not only would it endanger GMU's accreditation at home, it's simply a bad model for the success of an institution of higher learning.

There's also this GMU press release:
Educational agencies in RAK intend to develop a new institution, the American University of Ras Al Khaimah, and have asked George Mason University to play a consultant role in the school. The new arrangement would be different from the current operation. George Mason University administrators will soon be discussing this new opportunity with higher education leaders in RAK to see if a mutually beneficial agreement can be negotiated.

"This development underlines the amicable relationships that continue despite some admittedly challenging discussion in recent weeks," said Stearns.
In my opinion, the most important thing a consultant can tell the foundation is to set up a structure where the head of day to day operations of the university reports to board independent of the foundation. But of course that's the very notion they have already rejected.


Wednesday, February 25, 2009

What about the second $10 billion?

On Sunday, Dubai announced that it had secured a $10 billion loan from Abu Dhabi and would issue another $10 billion in the private market. The loan covered short term borrowing that was coming due.

Forbes reports on developments since Sunday:
The announcement sent stocks soaring nearly 8.0% on Monday, eased spreads on credit-default swaps and was cheered by business leaders and beaming politicians splashed across the pages of the UAE's newspapers.

But by Wednesday, the mood in Dubai dimmed. Most of Monday's gains had been clawed back....

The backlash after the initial surge may represent the many unanswered questions surrounding the so-called "bailout" of Dubai. The emirate said on Wednesday it would use the $10.0 billion on a case-by-case basis to help wholly or partly state-owned companies repay short-term debts. But to truly restore investor confidence, a more comprehensive stimulus package with direct intervention in the real-estate and mortgage-lending markets would be needed....

As for the second $10.0 billion chunk Dubai said it planned to raise on Sunday -- presumably by issuing five-year bonds on the open market, rather than sealing another Abu-Dhabi deal -- speculation was mounting Wednesday that this would not take place until 2012 or even 2013. Nomura's Riley told Forbes that with a planned coupon rate of 4.0%, such a bond issue would not be warmly greeted in the current environment. Although this yield is still higher than for sovereign debt issued by Britain, Germany or the U.S., 4.0% does not price in the full extent of comparable risk.
That the "4.0% does not price in the full extent of comparable risk" is further evidence that Abu Dhabi's loan to Dubai -- via proxy through the Central Bank -- is a bailout.

Ouch - "Former Gulf boom town":
Dubai said on Wednesday $10 billion in bond proceeds from the United Arab Emirates central bank would be enough for now to help state-linked firms settle debts and restructure to tackle an economic downturn.

The former Gulf boom town would give loans on a case-by-case basis to wholly or partly state-owned companies looking to repay debts maturing this year as well as to meet other commitments, said Nasser al-Shaikh, director-general of Dubai's Department of Finance.
Companies tapping the support fund would have to pay back the loans at a price at least equal to the 4 percent Dubai is paying on the bonds, and repay the loans once the financial climate improves, he said.

The mechanism was still being worked out but cash could be lent directly to firms or through banks, Shaikh said, adding that using the entire $20 billion would be the 'worst-case scenario'.
The fixed rate of interest doesn't sound like Islamic finance to me -- Dubai doesn't appear to be willing to share ownership with Abu Dhabi. On the other hand, at least by the market's reckoning, Abu Dhabi is taking a clear downside risk. Just what it will possess if Dubai is unable to pay is unclear.


Greg Mankiw:
The inconsistency in the policy here becomes fully apparent only when one understands how China "manipulates" its currency: It keeps the value of the yuan lower than it otherwise might be by supplying yuan and demanding dollars in foreign-exchange markets. Those dollars are then invested in U.S. Treasuries.

In other words, Secretary Clinton is now asking the Chinese to do precisely what Secretary Geithner asked them not to do.
My emphasis.

Monday, February 23, 2009

Care to rephrase that?

"My client molested the vacuum." - Lawyer Hamdi Al Sheewi as quoted by Gulf News

Dubai receives federal bailout

Wall Street Journal:
The effective bailout will be structured as a long-term bond, the governments of Dubai and the UAE said in separate statements late Sunday.
Amid the real-estate carnage and the uncertainty over a bailout, debt investors drove up the cost of insuring Dubai against default. Although the market is a small and illiquid one, the cost of insuring $10 million worth of Dubai-related debt for five years soared recently to over $1 million per year, about what it costs to insure Icelandic debt.

Then last week, Dubai eased worries somewhat by paying down and refinancing a big loan that was coming due. Borse Dubai, a government-controlled holding company, borrowed $3.8 billion last year to finance its purchase of a 20% stake in Nasdaq OMX Group Inc. nternational banks, however, only provided modest refinancing, forcing Dubai's government to step in and pony up the difference, some $2.2 billion, according to people familiar with the deal.
In a statement late Sunday, the Dubai government said it would issue $20 billion in long-term bonds. The statement said the first tranche of the facility -- $10 billion worth -- was fully subscribed by the UAE's central bank.

The bond will be unsecured, fixed-rate paper, yielding 4% per year, with a five-year maturity, the government said. The UAE's state media confirmed the deal in a separate statement.
...the publicly disclosed terms of the deal late Sunday suggest Abu Dhabi was willing to extend its loan with no strings attached, at least for the time being.
My emphasis. Let's make no bones about it. This is a bailout.

In the current worldwide environment of distrust, it's pretty clear the market did not believe Dubai would be able to pay. Abu Dhabi's action is meant to boost confidence that the second tranche is a solid investment -- that if Dubai doesn't pay then Abu Dhabi will. This may be where the strings are hidden.

Other reports: Emirates 24/7 | The National | Gulf News | Financial Times

Saturday, February 21, 2009

Emaar-owned company declares bankruptcy

Via nzm we learn that the American-based home builder John Laing Homes, acquired in 2006 by Dubai-based Emaar, has filed for Chapter 11 bankruptcy protection. The report comes from Los Angeles Business.

The National also has a report:
Emaar’s purchase of John Laing in June 2006 was the cornerstone of its effort to expand into the US housing market. But Emaar, the Middle East’s largest developer, made the foray as the US housing market peaked.
Still on the John Laing website is the 2006 press release announcing Emaar's purchase of the home builder:
[CEO of John Laing, Larry Webb said]: "The combination of Emaar and John Laing Homes will provide us with additional financial and professional resources to expand beyond our traditional markets of California and Colorado. It's a strategy that Emaar has used successfully in driving growth in their regional real estate markets throughout the world, and we're looking forward to being a part of Emaar's vision for the future of global real estate development."

Upon closing, John Laing Homes will be operated as a division of Emaar. John Laing Homes' corporate headquarters will remain in Newport Beach, CA, and continue to be managed by Larry Webb, who, along with the senior management team, have agreed to multiyear contracts.

On April 17, 2006, Emaar filed voluntarily with the Committee on Foreign Investment in the United States (CFIUS), which has approved the transaction.
Dubai-based Gulf News last covered John Laing Homes on February 13th. The Gulf News story on the bankruptcy is here.

In the UAE, you can "be prevented from leaving the country or may even be imprisoned until [your] debt is repaid."


Friday, February 20, 2009

Seeking Osama bin Laden

A UCLA geography professor has a paper in the MIT International Review provides some suggestions based on a mathematical model and Osama's "last known location, cultural background, security needs, declining health, limited mobility and height"

Thursday, February 19, 2009

Bad policy

Emiratis are already a tiny percentage of the private-sector workforce. Making it more difficult to terminate Emiratis will only make firms less likely to hire other Emiratis.

Addendum. The Financial Times has a franker report.

Labels: ,

Should we be worried about Dubai?

Won't Abu Dhabi come to the rescue?

Check out RGE's analysis. Of course - as the author mentions - yesterday Abu Dhabi loaned Dubai Bourse $1B "to avoid defaulting on a $3.4 billion loan." [But see UPDATE below.] Oddly (or not) the version of the Reuters story run in Dubai's Gulf News does not mention Abu Dhabi's role. I did not find the story in the Abu Dhabi-funded The National.

UPDATE: Financial Times reports,
At the eleventh-hour, local banks stepped in to make up the $1bn shortfall.

Bankers and officials dismissed reports that the UAE federal government had deposited funds in local banks to underwrite the shortfall.
The closure of the $2.5bn loan, scheduled to be announced on Thursday, is an indication that Dubai has prized open clogged credit markets and should go some way to assuaging investor concerns about Dubai’s risk of default.


Monday, February 16, 2009

Lacking bailout Dubai heads into Icelandic territory

Wall Street Journal (subscription req.):
Abu Dhabi's decision last week to pump $4.4 billion into its own banks while offering no support to lenders in Dubai or other emirates in the Gulf federation may simply be brinkmanship amongst the sheikhs. But the possibility Abu Dhabi will refuse to come to Dubai's aid -- once seen as almost unthinkable -- can no longer be ruled out.

That raises the prospect of a deeper debt crisis in Dubai. And even a fragmentation of the 37 year-old federation if Abu Dhabi refuses to pump billions of dollars into the economies of poorer emirates like Dubai to prevent either a corporate default or severe downturn. The cost of insuring Dubai debt has rocketed to around 10 percentage points for five-year debt -- higher even than Iceland.
Abu Dhabi is driving a hard bargain. Its demands are thought to include the surrender of Dubai's autonomy and the loss of control over crown jewels such as Emirates Airline and Nakheel, builder of the emirate's Palm-shaped islands. That may be too much for Dubai's ruling Maktoum family to stomach -- partly because the rulers of the two sheikhdoms are cousins. But also, because Dubai contends it was a principle of the 1971 agreement to form the federation that Abu Dhabi would use its oil wealth to support the other emirates.
Financial Times:
The cost of insuring Dubai’s sovereign debt has become almost as expensive as insuring troubled Iceland, illustrating the depth of investor concern about a default by the emirate.

The spread on Dubai’s benchmark five-year credit default swaps last week broke the 1,000 basis points barrier, similar to the spread of Icelandic bonds.
nvestors have been spooked by Abu Dhabi’s decision this month to inject funds into its own banks, without similar support for financial institutions in other emirates. Analysts had previously hoped that the capital of the United Arab Emirates would step in to prevent a default in Dubai, the UAE’s commercial hub.

“The market’s thought process is moving from Dubai being implicitly guaranteed by Abu Dhabi to questioning the relationship between Dubai and Abu Dhabi,” said Dino Kronfol, managing director at Algebra Capital in Dubai.
Birth of a nation, 41 years ago:
Roughly half way along the highway between Abu Dhabi and Dubai, there is an interchange at a place called Semeih. ... It was here, 41 years ago tomorrow, that the two fathers of the UAE federation, Sheikh Zayed of Abu Dhabi and Sheikh Rashid of Dubai, met on February 18 1968, to lay the foundations of the state of today.
The author, Peter Hellyer, makes no mention of his disagreements with Christopher Davidson about the meeting place.

As to a bailout, Secret Dubai thinks Dubai did get one from Abu Dhabi after craftily courting Iran and Saudi Arabia for aid. It's a strategy that I and others have suggested. Abu Dhabi doesn't want its fellow emirate to be beholden to either of those.

Labels: , ,

Friday, February 13, 2009

The Guardian's take on the Dubai crisis

The Guardian:
Many westerners are being made redundant or absconding before the sharia legal system catches up with them.

Half of all the UAE's construction projects, totalling $582bn (£400bn), have either been put on hold or cancelled, leaving a trail of half-built towers on the outskirts of the city stretching into the desert.
"I look out of my balcony every day and I see Brits by the pool on their laptops," said Andrew Hillocks, 29, a sacked telecoms consultant whose passport has been seized. He will be escorted to the airport next week. "They're looking for work that just isn't there. I sold my car to cover my loan, but other people are panicking." Under Dubai's strict legal code defaulting on debt or bouncing a cheque is punishable with jail. Any expatriate in financial difficulty knows the safest bet is to take the next outbound flight.

At the airport, hundreds of cars have apparently been abandoned in recent weeks. Keys are left in the ignition and maxed out credit cards and apology letters in the glove box. Officials put the number of vehicles at 11. "No one believes that. There are 11 cars abandoned just on my street," said Anne, 26, a fashion editor from London.
But unlike their British counterparts, construction workers from India, Bangladesh and Pakistan cannot abandon lives in the glove compartment of a 4x4. Most took loans to pay agent fees to come to Dubai, and their debts will follow them home.

"I sold our land and took loans in the village to come here," said Imran Hassan, a 20-year-old Bangladeshi farmer. "I paid the agent £2,000 to bring me. He said I would earn 1,500 dirham [£287] a month, but we are paid 572 dirham. When I return people in the village will want their money but I have none."

How the economic pressures could change the political dynamics

Some analysts say the crisis is likely to have long-lasting effects on the seven-member emirates federation, where Dubai has long played rebellious younger brother to oil-rich and more conservative Abu Dhabi. Dubai officials, swallowing their pride, have made clear that they would be open to a bailout, but so far Abu Dhabi has offered assistance only to its own banks.

“Why is Abu Dhabi allowing its neighbor to have its international reputation trashed, when it could bail out Dubai’s banks and restore confidence?” said Christopher M. Davidson, who predicted the current crisis in “Dubai: The Vulnerability of Success,” a book published last year. “Perhaps the plan is to centralize the U.A.E.” under Abu Dhabi’s control, he mused, in a move that would sharply curtail Dubai’s independence and perhaps change its signature freewheeling style.

Labels: ,

Friday, February 06, 2009

Not that he needs my endorsement...

... but if you want to read a really good proposal for how the US should conduct its fiscal policy check out Greg Mankiw post, My Preferred Fiscal Stimulus.

It deserves to be widely read and there might be a few readers of The Emirates Economist who don't Greg Mankiw. Highly unlikely, of course.

Wednesday, February 04, 2009

Believe it or not

Would you believe that in the former Soviet Union there was a market for burned out lightbulbs. You haven't done that have you, replaced a good bulb at work with a bad for the home?

And, would you believe that I'd thought of this independently at about the same time? No doubt that many folks were thinking along similar lines.

This is part of an email I sent a few hours ago to my senators about the U.S. stimulus bill:
The more the bill is burdened with future spending the more taxpayers/consumers will cut back their spending today because they know they will be the ones who have to pay the bill eventually. The downturn we are suffering is in large measure due to a loss of consumer confidence -- we don't want to make that worse.
I had in mind that Ricardian Equivalence thinking kicks in in times like these. Unless, as Robin Hanson is recommending, the government lies about how much it is spending.

Tuesday, February 03, 2009

Betting on an oil price increase

Despite the relatively low price of oil today, someone believes they will be higher in the future. Otherwise they wouldn't be investing so, uhm, heavily in developing the Alberta tar sands.

And that comports well with my belief that oil prices won't be all that high in the future.


Zimbabwe strikes out on its inflation problem. Read it here.


Virginia lawmaker wants Saudi School checked out

Washington Post

Lawmaker Wants Saudi School Checked Out

Rep. Frank R. Wolf (R-Va.) has asked Secretary of State Hillary Rodham Clinton to convene a panel to examine course materials at the Islamic Saudi Academy, a school in Fairfax County that is funded by the Saudi government and that enrolls students in pre-kindergarten through 12th grade.

A Washington Post review last summer found that as recently as 2006, a textbook given to high school students contained passages that extolled jihad and martyrdom. School officials have said that all potentially offensive material will be gone by the coming academic year and that teachers have been told to avoid inflammatory topics.
Washington Post June 2008:
At issue are recent reviews of teaching materials concluding that some textbooks used by the Islamic school in Fairfax contain language intolerant of Jews and other groups as well as passages that could be construed as advocating violence.

One review of academy textbooks was undertaken for the congressionally appointed U.S. Commission on International Religious Freedom, which recommended in October that the State Department close the school until it proves that it is not teaching a type of religious intolerance potentially dangerous to the United States.

Bahais and Shiite and Sufi Muslims are among those denounced in some academy texts, according to reviews of the books by the commission.

Rahima Abdullah, of the academy's Education Department, reiterated the academy's position that criticisms of its teachings have relied on out-of-context interpretations. She noted that the academy has revised a number of passages and will do so again if given direction from the State Department.

"Just like Fairfax County, we would like to know what the State Department would say, too," she said. "They've had the books since 2007. We've done our best to comply with all requests by extending the books over to the State Department."
My mother attended the school. When it was Mount Vernon High School. (MVHS still exists, but is in another location.)