Counting the Cost - The heart of Dubai's financial crisis - 4 Dec 09 - Pt 1

Al Jazeera English

Transcript

[Music] hello there I'm Kamal Santa Maria welcome to a special edition of counting the cost on Al jazer from the heart of the financial crisis in Dubai coming up comprehensive coverage of what's happened so far where it might go next and what damage Dubai's debt Revelation has done not only to this Emirate but to the UAE and the as a whole and I'm Dan Nolan I'll be tracking the rise of Abu Dhabi from the shadow of its Brash neighbor and has Dubai learned any lessons from this debacle so welcome back to Dubai the second time in 3 weeks we've brought you the show from here but with very good reason indeed this is a city indeed a region still reeling from the effects of that announcement back in late November that the government-owned Cong rate Dubai World of property and investment companies was struggling with about $60 billion worth of debt some would say in the grand scheme of things it's a small number it's at least a manageable number but the effects have been huge markets in this part of the world have been falling overseas markets took a hit as well but then recovered but the real question that was raised was about the vulnerability of this city and what's become known colloquially as the Dubai dream so coming up on this show we're going to speak to the experts people who live and work here in Dubai to get an idea of what they think of the crisis and where it's going before we do that though I really want to take advantage of our broadcast position this week we have 42 stories above Dubai and it's a really good opportunity to give people who perhaps haven't been here before an idea of the LIE of the land and how it all relates to the dub World story speaking of world it's a good place to start look out over here out to see a group of islands which is called the world it's a Dubai World project shaped like a map of the world when you're looking at it uh from the air major major project off the coast of Dubai as we come a bit further left you'll see a sail shaped building out there on the coast that's called the Burge alarab the world's only sevenstar Hotel again gives you an idea of the levels of money we see here and then as we come further left again you'll see the business district or heading into the business district at least this is Shake zad road heading into the financial part of the town and really right now all roads lead to this part of town because of this enormous structure you're going to see over my right shoulder the Burge Dubai it is 800 M High 160 stories it is the tallest building in the world a real icon of the city there is an economic crisis going on here obviously but you can't help but be impressed looking out over this area at what has been built here in such a short space of time got to look at the crisis at itself though and really it's a crisis there are two issues we have to look at the first one is the debt itself and this is how it looks Dubai world has liabilities that is the money it owes of $59 billion the company now says it's only trying to reschedule the debts worth 26 billion which kind of came as a bit of a relief to the markets when you look at it all up though Dubai has debts of about $88 billion that's according to Bank of America Merl Lynch its bigger and much wealthier neighbor Abu iby has debts of $91 billion which really brings us to the second issue here the issue of how this has been handled and how it will continue to be handled the expectation was really that Abu Dhabi would step in and help out it's got more money it's in more of a position to help its so-called younger brother Dubai out that's not exactly how it's happened though Abu DW said yes it will help but it will be on its terms so what's going on here who's the boss is Dubai the financial Hub of this area that it thinks it is or just a pretender to the crown we sent Dan Nolan about 120 km in that direction down Shake zad road to find out it's a national holiday when even the foreign workers get to let their hair down providing the cheap labor which allows rapid construction they are helping to make Abu Dhabi a thriving Metropolis to compete with Dubai the celebrations to Mark 38 years of the United Arab Emirates Kam amidst Dubai's financial debt crisis but for the moment at least any rivalry is played down well I don't believe on what we were saying about D we are all s Emirates we're all together so if the way goes down we all go down but nothing such like that we all up alhamdulillah we are okay everything's okay we are united but a sign the tide in this relationship is turning perhaps with Abu dhabi's attempt at the world's largest fireworks show it was certainly stunning but the kind of display that was once the exclusive domain of flashy free spending Dubai not the fiscally and morally more conservative Abu Dhabi when the global recession first bit Dubai Abu Dhabi stepped in with $15 billion in assistance it says it's ready to help again this time but won't be writing any blank checks which makes for an intriguing period of negotiations between the two ruling families nobody May ever know exactly what happens behind closed doors between Abu dhabi's shik Khalifa and Dubai's Shake Muhammad as they work to rebuild the shattered confidence of investors well Abu Dhabi is in a in is a very difficult situation here it's a real prisoners Dilemma on the one hand Abu Dhabi can't afford the uae's international reput reputation to be totally trashed which it has been over the last few days on the other hand if Abu Dhabi does go in and try and take care of some of these bad debts then they could end up getting involved in potential black hole but with Abu Dhabi underpinned by 90% of the uae's national oil revenues it can surely navigate some black holes especially if the reward is a stake in some of Dubai's key assets Emirates airline has a has a fantastic brand behind as does the Dubai ports operation these these must be the cherries Abu Dhabi wants to pick Abu Dhabi has failed to secure a stake in Dubai's pride and joy before but their own Airline Etihad now has almost as many plane orders as Emirates still it's a long way off producing the billion doll profits Emirates has achieved in the past and that Dubai really needs more than ever right now you saw Christopher Davidson in that report there from Dan Nolan he's actually the author of a 2008 book called Dubai the vulnerability of success a very apt title you might say right now he's a real expert on the situation he's lived and worked here in the UAE let's look at a little more now of our conversation with him Dubai of course has been pretty much autonomous since it broke away from Abu Dhabi all the way back in 1833 it can't really go completely cap in hand to Abu Dhabi or allow this proposed cherry picking to happen where Abu Dhabi might come along and bail out certain components of Dubai if it does that then let's say 170 years of History comes to an end so Dubai at the moment I think is holding out for some kind of better deal maybe even trying to find some external assistance here I think uh the Sunday Times disappearing from the shelves on Sunday uh because it featured uh negative reporting about uh rulership in Dubai tells us all we need to know under the surface this was a little more than a dictatorship and when the going was good it was trying to style itself as a corporation now something that's really been in full swing ever since this crisis started is the blame game Dubai's government hasn't really Taken full responsibility for this instead putting a lot of blame on the international media we talked about the British press uh with Chris Sunday times you can't get hold of it here in Dubai or Abu Dhabi at the moment it's been taken off the news STS also the rules of Abu Dhabi even putting a bit of blame on investors saying they need to take some responsibility have a look at this this is what the director general of Dubai's Department of Finance Abdul ramman alale said he said it is correct that the government owns Dubai world but the decision when it was set up was that it should receive financing based on the viability of its projects not on government guarantees creditors need to take part of the responsibility for their decision to lend to the companies well those creditors they're of course the banks standard charted HSBC Lloyd's Royal Bank of Scotland Emirates NBD and Abu Dhabi Commercial Bank they have now formed a committee of creditors uh which will begin negotiations with Dubai World and and think about some of those names too as well Lloyd's Royal Bank of Scotland weren't they in financial trouble at one point as well and didn't they get bailed out by their government in Britain but what has Dubai really learned from this from the storm that it kicked off has it taken responsibility have lessons been leared again here's Dan noan while International stock markets only slid for 48 hours they still haven't stabilized in Dubai and neighbor Abu Dhabi so far the slide has erased around $15 billion on paper at least of UAE shares all thanks to a misguided strategy to drop news of a debt standstill just before the Eid holidays then going to ground in the hope it would blow over the only thing that's been blown is Dubai's credit ratings Port operators DP world are among six Dubai government linked companies to have their ratings downgraded to junk status by standard and pause property arm nil is in even more trouble its Flagship development of 300 man-made islands in the shape of the world may never be finished ail's official line is that work is quote continuing but we took a flight over them to see for ourselves and found no signs of movement other than the sea slowly taking back what was once hers by springing up from the desert so fast Dubai created something unique in this whole region but most of the experts say the wheels became unhinged by taking advantage of too much easy credit to invest outside their home turf in 2007 when the world economy was booming paying $1 billion to buy Barney's department store in New York might have seemed like a good idea as did another 5 billion in Las Vegas developing hotels and casinos with MGM or even 100 million to bring the luxury QE2 Cruise liner into a Dubai Port but the global recession in 2008 came at the worst possible time for such enormous Investments easy credit terms dried up and the debt problems were soon to follow when you go into uh Ultra Luxury uh uh department stores or if you go into uh you know casinos where you do not have an advantage of over others uh and you pay up front up front if I may add maybe that's where the errors were made coming from the Emirate of Sha but now based in Dubai academic Sultan Al casmi provides a fairly honest appraisal of what went wrong like many here he believes the problems have been exaggerated by Foreign media he says the building of sevenstar hotels the world's fifth busiest airport and the biggest Financial Center between Singapore and Europe all in under a decade of course requires taking a few risks what you do have with a pioneering mentality is that you you you could risk making mistakes along the way but if you don't then then you risk being complacent and so it's a trade-off there if no job loss is announced as yet from the Dubai World debacle there's no doubt more pain to come but it could be a leaner and meaner Dubai that emerges on the other side stick around counting the cost returns in a moment with more from from our Dubai financial crisis special when we look in depth at what could possibly be the world's biggest default on Islamic bonds we're back in a moment

4 December - JSE Lunchtime - Ntombenhle Radebe - Nedbank

CNBC Africa

Transcript

see we've seen seeing a bit of a pullback in the markets and really seamless even sitting to be spurred on by that us starter that came out yesterday afternoon yes em but the market first big ten very disappointed by their time we saw that the I assume non manufacturing daughter came down to less than the critical 50 level ehman was reported at 48.7 and you know it is 50 is the magical number because it will tell us whether em you know men and men on manufacturing is in the growth phase or not so you know the market not liking that in the market being spooked a little bit like that also jobless claims and were better than expected though yesterday the United States by five percent however you know we knew when the chain store sales I think it was a came out and you know they'd also showed a lot of weakness them in the market em a contraction of them point point three verses last month which is and the 2.1 percent some within so of course we are still getting some very mixed data are globally and really putting a question mark over the extent and the rate of the global economic recovery at this stage yes yeah I think I'm you know people being cautiously optimistic am but a lot of the fundamental data the economic data just pulling things back and saying you know things are not going as smoothly as I previously thought and you know we're seeing a lot of profit taking and today we've seen them you know the commodities pullback also quite a bit them and I think what's the whole world and the entire global market is waiting for is that the jobless and the non-farm payroll numbers coming out later on today in the States as well as the unemployment rate so I think which is all waiting to see them and you see the fix of it and the currencies as well as our stock markets of course the markets is looking for a number of about 130,000 job losses last month later than 190,000 job losses we saw in October and keeping the unemployment rate around 10.2 percent so anything worse than that do you think we could see another pool back in the equity markets you are surely you know it's all the consensus focus on Bloomberg's was about m- 125,000 for the non-farm payroll and also just expecting system unemployment to stay at this 26 year at high of 10 point em 10.2 percent i think it is and you know so the whole market waiting to see happens there and using that data right now to to position themselves and to to see with whether the United States would visit it is higher on this Friday oh and you know lower and based on the data that has come out earlier this week which has been disappointing and what's going to happen today of course here at home we had President Jacob Zuma yesterday and the economic crisis task team aren't lining measures they've been taking and of course we do know we've lost close to a million jobs in South Africa since the recession started though there have been some measures being put in place and again the public public works mr. Jeff George outlined some of the the alleviation they might have provided to the South African economy and job market yes I'm expecting they say their term they will be creating about 500,000 jobs are by the end of this year and that's in line with what President Jacob Zuma said earlier on in the year and so you know we'll see whether their pens out but you know a very big warning coming out of them Jacob Zuma yesterday saying that you know and things it's not smooth sailing just yet you know there will be further contractions and a lot more job losses and happening am towards next year regardless of the fact that we are out of a recession but you know so it makes back there you know some good news for some people that 500,000 jobs will be created but you know a stern warning saying that's going forward it's not necessarily going to be maintained of course we saw that reflected in our own PMI data that came out earlier this week that's although the PMI had improved above the 50 level for the first time in almost two years we still we still saw a contraction in employments and the employment figures in that thing and though we had business confidence our yesterday and a more positive reading on the business confidence index in South Africa there's a much better showing there you know they were up 280 4.1 versus 82 point2 I believe in October and you know with all confidence increasing imports in commodities in share prices in manufacturing and vehicle sales so you know business confidence levels increasing their you know perhaps them you know adding to the sentiment and that you know we may that the recession is helping us along and they're things may be improving so you know will we will see next time what people are thinking and whether you know this can actually be of course there's been a lot of focus on the gold price sitting these new all-time highs almost every day yesterday 1226 dollars nonslip pulling back slightly today of course yesterday we also had the platinum price trading $1,500 announced so also good for our platinum producers yeah I think platinum hasn't had much press lately you know I think people have been focusing more under some very very strong cold and showing that we've seen em lately but you know Wednesday we saw you know about 1500 and you know for the Platinum Plus year-to-date but you know I'm still very very far cry and very very below and the 2250 somewhat level that we saw in March 2008 so you know you know platinum is still got a much more growth and potential there and you know I think visitors will start to turn towards other commodities besides gold to see whether the potential investments and potential growth exists because unlike gold platinum actually has some use and industrial us also jewelry like called the industrial usin as we see the economic recovery gathering traction that should be supportive of the platinum price going forward yes it should be supportive you know specifically for us looking at vehicles and vehicle manufacturing vehicle sales you know we will see their translated into the platinum price I mean we can also speak about oil and say you know oil has been hovering around the 75 79 dollars per barrel level and you know has been very shy to go beyond eighty dollars and you know just a really a reflection and they do both those ones them you know rely on vehicles and vehicle sales and and also rely very much on consumers and where consumers are sitting at the moment whether there is demand they weather the consumer feels it and you know they can go back into and into those kind of industry such as vehicle sales and and boost that kind of that's out of the market so you know and it's still a bit you know sensitive at the moment is still not much direction happening there but you know and that is really because of the consumer aspect of it and you know but we'll should wait and see you know I think the first thing we'll see way to see is where the oil goes above eighty dollars a barrel and then hopefully that will falter on to platinum and you know I'm reaching its end potential of course we saw that oil price reflected in Sasol's trading update yesterday it's expecting a 45-percent fall in first-half headline earnings a share and really it says due to the weaker oil price compared to last year and of course the stronger and and the rand is that something that everybody has to store facturing and isn't it well you know must also remember that oil has gotta inflationary pressures you know it is important to imported inflation and you know so it's also something that we need to be very concerned about you know she did shoot up very quickly or whatever to add to inflationary pressures in South Africa and so it is important that we have a look at that and but also it also shows them the confidence of the United States consumer who is the biggest consumer of oil at the moment and and to show their time you know they're standing whether the United States consumer is coming back to the to the market and whether the recovery is becoming a little bit more protected protected now and a little bit more sustainable