Loading ...
Debt Crisis Tests Dubai’s Ruler
The ruler of this city-state, Sheik Mohammed bin Rashid al-Maktoum, became renowned as a developer-king, an autocratic visionary determined to build a 21st-century Xanadu in the desert despite a legion of critics who said it could not be done.
“What I have achieved for Dubai is just 10 percent of my vision,” he would often tell visitors.
That vision took a beating last week after Dubai, struggling under $80 billion in debt, suddenly asked to delay interest payments for its flagship company, Dubai World, sending markets tumbling around the world. Now some analysts are wondering whether Sheik Mohammed can rescue Dubai from the excesses of his own wild ambition.
As the debt crisis was exploding last week, the 60-year-old sheik was casually tweeting during a tour of the British Museum — “Inspired by Islamic artifacts,” he wrote — leading many here to ask how much he knew about Dubai’s precarious finances.
Current and former advisers say they think Sheik Mohammed’s aides left him in the dark for several weeks or even months as Dubai’s problems mounted. Hundreds of property projects have been frozen, and the Western financiers who once flocked here have fled in droves.
Much will depend on his handling of the crisis, from Dubai’s role as a shining example of Arab economic success and stability to the emirates’ federal political structure, which some also see as a model. Last week’s debt bombshell has raised questions about possible tensions with Abu Dhabi, the oil-rich sister emirate that many had expected to bail out Dubai.
Sheik Mo, as expatriates often call him, has dismissed those speculations, and last month he told journalists who asked about a rift with Abu Dhabi to “shut up.” He waves away predictions of Dubai’s collapse as envious carping.
But most agree that the emirate’s current woes, like its spectacular rise over the past few decades, are rooted in Sheik Mohammed’s own zeal to break the Arab mold and “overcome the impossible,” as he put it in his book, “My Vision.”
The scion of a family that has held power since 1833, he grew up in a Bedouin home made of coral where slaves cooked goat stews over an open fire and camels bellowed in the courtyard. It was his father, Sheik Rashid bin Saeed al-Maktoum, who first dreamed of putting Dubai on the map as a port and trade entrepôt. He, too, was ridiculed as crazy, but he proved the skeptics wrong.
Sheik Mohammed’s own dreams for Dubai go well beyond making it into a world financial capital. He says he wants to lead an Arab renaissance that would transform the region. His model is not Las Vegas — as some visitors may think — but 10th-century Córdoba, the Arab-ruled Spanish city that was then Europe’s most enlightened. He has broken taboos by chastising Arabs who “sit around waiting, praising our glorious past and blaming others for our failures and problems.”
He has had some notable successes. Compared with most other Arab countries, the Emirates federation — in which he serves as prime minister in addition to his role as Dubai’s ruler — is a gleaming model of safety, opulence and multicultural openness. Sheik Mohammed has struggled to foster a culture of self-discipline and entrepreneurialism here. He is famous for visiting government offices unannounced, and sometimes firing public officials who are not working.
“He’s one-third entrepreneur, with the bravado of Richard Branson; one-third builder, with the determination of Robert Moses; and one-third Ataturk-style social engineer who is trying to coax his people to rise to the task of running a global financial capital,” said Jim Krane, the author of “City of Gold,” a book on Dubai.
But even his admirers concede that he tried to do too much, too fast. He seems to have resented his dependence on Abu Dhabi, the capital of the Emirates federation, which gave Dubai an annual stipend worth about $2 billion until at least 2002. Sheik Mohammed pushed for revenue-generating projects to compensate for his emirate’s lack of oil. He has often been criticized for relying on an army of low-wage foreign construction workers living in miserable conditions.
One of his central management strategies in recent years was a reliance on four top advisers, called “the four horsemen.” He gave each of them a different Dubai company and forced them to compete. They did so with gusto, topping one another again and again as they built sprawling industrial parks and the world’s tallest skyscraper.
Bankers and foreign advisers say that while the sheik preached openness and transparency, some of the board members of his companies pushed for licenses for family and friends, and other members of the ruling family asked for their shares in the profits.
Few in Sheik Mohammed’s advisory pool were willing to preach caution, even as property prices and asset values fell, say former and current top advisers and employees.
“The attitude within business and government circles was that you don’t pass on bad news” to the sheik, said a former top executive at one of Dubai’s leading companies. The local news media are extremely deferential to the ruling family and tend to cast all news about Dubai in a positive light.
As recently as April, Sheik Mohammed boasted, “I can safely say that we have succeeded in containing the risks of the global financial crisis in record time.”
In recent weeks, though, something changed. The sheik appeared to be under strain, and he started emphasizing the emirate’s links with the United Arab Emirates, current and former advisers say. Just days before Dubai World’s Nov. 25 announcement about its debt, he removed three of his four top advisers from the board of the Investment Corporation of Dubai, which oversees all government business. The board is now made up entirely of members of the ruling family.
When Sheik Mohammed finally broke his silence about Dubai World on Tuesday, in an appearance honoring a national holiday, he played down the severity of the debt problems and accused the news media of exaggerating them.
“It is the fruit-bearing tree that becomes the target” of stone-throwers, he told reporters. “What about someone who has seven fruit trees? It is normal for us to be facing this campaign and this media noise.”
This sense of grievance may come down to Sheik Mohammed’s — and Dubai’s — origins. While Western investors may compare Dubai with New York and London, Sheik Mohammed and his Emirati peers are more inclined to weigh themselves against other Arab countries. By that standard, their prosperity — and Dubai’s extraordinary record of peace and stability — are far more important than a few billion dollars of bad debt.
ROBERT F. WORTH and HEATHER TIMMONS
New York Times