How did the Ferris wheel become the must-have municipal toy? I was amused to read in the Times of India over the weekend that apparently Ahmedabad is the latest city to be infected with this mania: “It was during one of the Vibrant Gujarat summits that the company Saloria Chartered Architects of London, one of the top 100 architect firms of UK and right holders of equipment technology, had proposed a viewing wheel and recreation zone modeled on London Eye, or Millennium Wheel. The finer details of the agreement between the construction company and Ahmedabad Municipal Corporation (AMC) are taking shape with talks on revenue model, space sharing and ticketing. The site for the project will be the Sabarmati riverfront, claimed a senior AMC official.”
The timing is interesting as Dubai also unveiled plans last week to build the Dubai Eye. Unlike Ahmedabad’s still-unnamed ride which would just be a replica of the 135-meter London Eye, Dubai developers plan to construct the world’s largest ferris wheel at 210 meters. Natch.
The proposal as unveiled is to build – you guessed it – a luxury mixed-use shopping/entertainment/hotel complex on what was the only open beachfront in New Dubai. (Because, really, there’s no need for a public park in Dubai. We must remedy the dearth Dior and Jimmy Choo boutiques. More sheisha cafes and Cinnabon outlets for everyone!)
Excellent, I thought to myself. This is the remainder of the resurrection of Dubailand, the part that features a medley of theme parks across the size of New York City, now with a six-times-as-big replica of the Taj Mahal. But the story actually referred to an entirely new complex of theme parks, this one being beside Jebel Ali port.
The $2.7 billion development will “include an adventure park featuring Hollywood brands, a marine park, a children’s park and a night safari,” according to Reuters. “Meraas has formed partnerships with several major film studios in Mumbai to obtain content for the Bollywood Parks section, which will include a theatre showing Broadway-style musicals.”
Broadway musicals with Bollywood beats! This is something even Disney hasn’t thought of. The announcement of BollywoodLand comes a few days after Sheikh Mohammed, the ruler of Dubai, said Dubai would be building a new city within Dubai, named after himself. No price tag was put on Mohammed bin Rashid City but it is planned to be home to the ‘Mall of the World,’ which would usurp Dubai Mall as the world’s largest shopping mall, which is currently next to the world’s tallest tower Burj Khalifa, which itself features the world’s tallest dancing fountain. The development will also include a park 30 percent bigger than Hyde Park in London and more than 100 hotels.
Each of these stories, especially those run by local media, contain quotes from analysts espousing the same sort of wisdom: The worst of the economic downturn is behind Dubai. Laissez les bons temps roulez!
But some party-pooper journalists in the international business press have provided some caveats in the Dubai-is-back frenzy. Reuters points out that Dubai entities have nearly $50 billion of liabilities between 2014 and 2016 and “given the lack of major asset sales or haircuts, there has been little progress on the de-leveraging front.”
In its restructuring proposal in July 2010, Dubai World said it needed time for assets to recover in value in order for it to sell them and use the cash to pay off its debt. Under this plan, which was finalized in March 2011, between $1.3 and $2.3 billion would be raised between 2010 and 2012 by selling assets such as through P&O Ferries and Gazeley, a warehouse developer.
But the story says that a lingering weak global economy has meant that these sales have not gone ahead as planned, and if they did, the values weren’t what they were hoping for.
“The main issue is the depressed value of the international portfolio. Local assets are flourishing and doing great business but we haven’t seen any credible asset sales so far which can help reduce the debt burden,” Reuters quoted a senior Dubai banker as saying. “The most likely situation we see is Dubai going to the banks and again saying they have no money to repay the debt.”
So, money is still scarce to pay off debt but billions are available to construct new and ever-larger developments? Does Dubai need 100 more hotels? I’m no Alan Greenspan but, even with all the superlatives, it sounds like irrational exuberance to me.
Cityscape DubaiGlobal — it got renamed “global” after Dubai’s market went comatose following the economic crisis in 2008 — was held here last week. It’s sort of like speed-dating for the real estate set. Developers set up booths, many with huge and incredibly detailed models of future developments, and investors stroll around, stopping at projects that catch their fancy. In the boom years here, as many as 40,000 people a day in the first two days would apparently visit the show and many, many of them bought properties while there.
This year, it seems the glory of those days has returned. Organizers have said that attendance was up by 25 percent this year compared to 2011 and the media fanfare trumpeted this year’s over-the-top projects, the sorts of developments that made Dubai famous in the first place.
Namely, the Taj Mahal Arabia: Just like Agra … but six times bigger! Plus shops and a hotel, (of course!)
The development is expected to cost $1 billion and is part of a “Wonders of the World” series in Dubailand, a theme-park extravaganza that supposedly will be the size of Disney World and Disney Land combined. Other “Wonders” include replicas of the Great Pyramid in Giza, the Hanging Gardens of Babylon, the Coliseum and the Great Wall of China.
Check out the developer’s promotional video:
Now let me just point out that precious little of any of that video is built right now. There are still major developments left unfinished from the boom years, including this one, their investors out of money and with nothing to show for their investment. Nakheel, the developer of the Palm Jumeirah, is changing contracts ad hoc and charging residents there new fees presumably because it needs the money. But nevermind to all that! What Dubai needs is its own version of Venice and its canals, and a development the size of the English city of Birmingham that includes London Bridge, Big Ben, St Paul’s Cathedral and the Houses of Parliament.
Dubailand is currently one big sandpit, the investor protections oft-discussed since the bust have yet to be proven in courts of law here, and one could debate whether the emirate needs more hotels and high-end luxury villas. Not that buyers care, it seems. Nevermind the disgruntlement on the Palm. For Nakheel’s latest development, unveiled just before Cityscape, word is that buyers gobbled up AED800 million ($271.8 million) worth of luxury apartments. Tales are already being shared of people selling their places in line to buy at new developments for AED80,000 ($21,780.) No doubt the flipping is happening fast and furious.
It seems the place has collective amnesia. Wasn’t this how Dubai got in trouble in the first place?
Look, I know that the Arab Spring has boosted Dubai’s fortunes; it continues to be a safe haven for both people and capital when turmoil strikes the region. The emirate’s economy overall is healing. But what about development that is not targeted to the speculator but instead to the end-user, the sort of investor that will stick around through the economic cycles and not disappear at the first whiff of a crash?
But my friend, V.P., thinks I’m being an idealist. “I think by now it’s no secret what Dubai is all about,” he says. “And this is Asia. The Asian mindset is different. It’s only money that counts. And it’s going to be like this for the next 30 or 40 years.
You can either be an idealist and try and fight it or you can enjoy the ride. No one’s going to listen to you when there is SO MUCH MONEY at stake.
I’m sure speculation and a gold-rush mentality have played a role in the development of most major cities. But is there any place where this philosophy represented the sum-total of development?
Ali Rashid Lootah, the chairman of Nakheel, the developer of the Palm mentioned above, doesn’t believe Dubai’s speculative real estate market was ever a problem. “It was a global crisis,” he said in an interview with the BBC. “It was not Dubai.”
My latest story is in Institutional Investor magazine, on Dubai reckoning with its debt hangover, three years after it announced it would not be able to pay its debts. Here is an excerpt to the story. The full link is available here for a limited time.
June 2012 • Angela Shah
IN EARLY APRIL, DUBAI’S MUNICIPAL GOVERNMENT reported that the number of abandoned cars — the symbol par excellence of the once-high-flying emirate’s economic bust — rose by 10 percent in the first three months of this year from the same period a year earlier. But rather than seeing that indicator as a sign that the economy was taking a turn for the worse, leaders attributed the pickup to simple efficiency: The authorities now have three tow trucks to bring in vehicles, compared with just one last year.
The car repo business, with numbers that can be good or bad, depending on how you look at them, is a good metaphor for Dubai’s economic and financial condition. The emirate, which splashed on the global scene a decade ago with a flashy, money-is-no-object development philosophy, only to be brought down by the near-default of some of its flagship companies three years ago, has been quietly getting a handle on its debt problems. Since late 2009, Dubai and its government-related entities have restructured more than $20 billion of bank debt, nearly two thirds of the total, by arm-twisting creditors with a decree that resembles a Western-style bankruptcy restructuring. The emirate’s economy is also on the mend, with moderate growth buoyed by a rebound in tourism and trade.
Dubai may have bounced off the bottom, but it still has a long way to go to resolve its debt problems and return its economy to robust health. Government-related entities such as Dubai World, the conglomerate that set off the crisis in late 2009 by declaring a debt standstill, have rescheduled a large portion of their obligations, but they remain saddled with a massive burden. In its latest report on the United Arab Emirates, issued last month, the International Monetary Fund estimated that the overall debt of Dubai’s GREs — including bank debt, bonds and sukuk (Islamic bonds) — stands at $84.3 billion, or 60.4 percent of GDP. That debt mountain has declined by about $5 billion over the past two years, but the GREs still need to roll over an estimated $14 billion of debt this year.
Fully 10.6 percent of the loans held by Dubai banks are nonperforming, the IMF says, and that ratio could jump by another 5 percentage points this year if the authorities manage to reschedule the debt of other government-related entities. Although the real estate market shows signs of stabilizing, property prices have fallen by about 60 percent since 2008, and vacancy rates range from 20 percent for retail property to 30 percent for office buildings. Dubai is slowly healing, but there is no quick remedy for its troubles.
“The only way for Dubai to fix its problems is to grow the economy and generate income, and trade its way out,” says Neil Cuthbert, a senior partner at the Dubai office of law firm SNR Denton. “Over time it will happen. The interesting question is, how long will the banks be happy to carry on pushing out maturities?”
A Modern Silk Road Between Asia and the Middle East
By ANGELA SHAH and STANLEY REED
DUBAI — When Christy Lee, a South Korean investment banker, was dispatched to the Gulf four years ago to drum up business, her friends in Seoul had a hard time taking the assignment seriously. “They would say, Did you enjoy riding the camels?” she recalled.
Then the Gulf states’ oil earnings led to orders worth tens of billions of dollars for South Korean companies: The most noteworthy so far has been the deal for South Korea Electric Power Corp. to build four nuclear plants in Abu Dhabi, worth as much as $30 billion.
Now, when Ms. Lee talks about the Gulf, people listen. She has started her own firm, Daewon Advisory Services, with offices in Seoul and Abu Dhabi. In the past year she has brought 120 executives and leaders from the United Arab Emirates and other Gulf countries to South Korea, eager to figure out how it made its big economic strides. She expects these visits to bring in more deals.
Ms. Lee is one of a growing number of entrepreneurs and other people who have carved out roles as intermediaries between Asia and the Gulf, reviving in modern form — real estate projects, joint ventures, and investment deals — the centuries-old link between the Middle East and Asia known as the Silk Road.
This is what it must have been like around these parts during the glorious boom days:
Luxury hotel! 450 apartments!
A yacht club!
A soccer stadium that opens up to the sea! Real Madrid Resort Island!
I can’t tell you how much it warmed my heart to see the project’s promotional video, which was unveiled this week. This was everyday stuff back during the boom years from 2006 to 2008 but by the time I moved here in December of that year, the party was ending, the layoff notices at the ready for issuance.
But apparently, we’re back to dreaming big. The emirate of Ras al Khaimah and the Real Madrid soccer team have decided to go into the real estate business together. No one said it explicitly, but I’m pretty sure that this will be the world’s first soccer theme park. I know you’re ready to book that flight for opening day at Real Madrid Resort in January 2015. (I love that the video says “public opening.” No doubt there will be lots of VIP festivities in the months beforehand.)
Wait … what are you asking? Oh, right: Where is Ras al Khaimah?
Home to about 300,000 people, the most northern of all the U.A.E.’s seven emirates is, well, perhaps one of the Middle East’s undiscovered tourism gems. It’s definitely off the beaten path, about an hour’s drive from Dubai. It is not the place you expect to be home to a mega-resort.
With the Sikka Art Fair in Bastakiya and Art Dubai following it last week, Dubai was buzzing with artistic options. I made it only to a handful of events and showings – some of us gotta work, you know – but I did enjoy the exhibits and the cultural chatter. While Sikka focused more on supporting local artists and had a more casual feel, Art Dubai was a larger affair – with all the requisite VIP receptions and after-parties – that attracted artists and galleries from all over the world. Among the sculpture, mixed-media and painting at Art Dubai I really liked “China,” a series of seven porcelain vases by Raed Yassin.
The vases were produced in Jingdezhen, China’s capital of porcelain, but instead of featuring illustrations of Chinese dynastic warriors a thousand years ago, these illustrate a more recent conflict: that of the civil war in Lebanon from 1975 to 1990. Though the violence has ended there, Yessin wants to show the “uneasy amnesia” and the “absence of historical narrative that reigns in Lebanon in order to keep a brittle peace.” These blue-and-white vases are entitled “War of the Hotels,” “The Battle for Tal al-Zaatar,” “The Israeli invasion of Beirut,” and “The so-called War of Liberation.” I liked how Yassin used what seems like an ancient medium to illustrate modern conflict.
Unfortunately, a more recent conflict – that of the Arab Spring which began a little more than a year ago – was deemed unacceptable and two works were literally pulled off of the walls at the Madinat Jumeirah after the show opened Wednesday. According to a video report in the International Business Times, an online business newspaper, the two works are a painting titled “After Washing” by Libyan artist Shadi Alzaqaouq, which depicts a woman holding a pair of men’s underwear with the word “Leave” written on it. “Leave,” or “Irhal,” in Arabic was commonly heard throughout protests in Tunisia, Egypt and Libya as people protested against their autocratic regimes.
The second work to be removed was a wall-sized painting by Moroccan artist Zakaria Ramhani, which showed the Egyptian female protester who was beaten up and stripped down by the army to her blue bra. Ironically, both works deemed unacceptable for display at Dubai’s most prestigious art gathering had been being shown at a local art gallery here in Dubai.
On Friday, Filippino performer Carlos Celdran was questioned by authorities in the middle of his one-man show, “Living la vida Imelda,” which contains political and religious humor, including a fictional conversation between the former Philippines first lady and the late Libyan leader, Muammar Qaddhafi, according to the GMA News in the Philippines. He imagines “Imelda telling Gaddafi, ‘Islam is all about peace, and if you are funding a war in my country that is pitting Filipino against Filipino, you are also pitting Muslim against Muslim. How are you following Mohammed?'”
Authorities asked the comic to turn the humor down several notches, but that would have meant cutting more than half the show. He cancelled his scheduled appearance Saturday and flew home.
In a city like Dubai that’s constantly on the hunt for the new, Bastakiya remains as a solitary outpost to the past. The buildings, which are about 50 years old may not be considered “old” by most of the world’s standards, but they are symbolic of how people lived in the Arabian peninsula before oil wealth transformed society here.
The mud-brick houses that make up the village are whitewashed on the inside and each feature the vertical wind tunnels that brought in cool breezes from Dubai Creek, which was – and still is in a small way today – the commercial lifeline of what was once a small fishing village. Today, it’s home to the Sikka Art Fair – “sikka” means alleyways such as are found in the compound – which started yesterday and runs for 10 days. Also, the Dubai Culture Authority this year started an artists-in-residence program in one of the houses.
The noise of the city slips away once inside the compound. It even seems cooler; a breeze wafts through the alleys and Bastikiya is filled with birdsong. Have to enjoy it before the summer’s annual assault sets in!
Right now, Afghanistan depends on foreign donor money for more than 90 percent of its budget. Decades of war and Taliban repression have left its business institutions fragile. A good part of its own homegrown economy is illicit – think poppy – while another part, the bakeries, groceries and SIM card purveyors, might operate in more of a gray area. Bank laws, tax codes and related legalities have had to all be rewritten, modernized and put into effect. For the first time, Afghanis are using the banking system to deposit weekly paychecks (as opposed to stuffing cash around the house.) Visa has only offered credit card services there since 2008.
One hope to boost the domestic economy is through the mining sector. Afghanistan is blessed with a treasure chest of precious minerals and metals such as gold, copper, iron ore and chromite as well as oil and gas reserves that could be worth as much as $1 billion. We traveled by helicopter from Camp Morehead, to Ghazni province about halfway between Kabul and Kandahar to visit a copper and gold mine that was initially explored by the Soviets in the ’70s and ’80s. The U.S. Geological Service digitized their old maps and is now preparing to offer tenders to mining companies interested in excavating the metals. It’s one of several sites being opened in the hopes that the mines will generate economic development, not only from the wealth they extract but through related jobs they create in villages nearby.
The potential is huge. But mining projects are not overnight fixes. The infrastructure needed to support the mine and the surrounding roads will not be built quickly. A thriving mining village might not take hold for several years. And, there is the worry over insurgency. The area is still considered “hot,” — the special forces officer who led the team that cleared the site before we landed said he felt our security situation was secure but that “the Taliban does know we are here.”
I spent a day in Herat, interviewing entrepreneurs in this city located in the far northwestern corner of Afghanistan about an hour’s south of the Iranian border. That afternoon, we took a driving tour of the city and the security situation was stable enough to warrant a visit to the Citadel of Alexander, or the Qala Iktyaruddin, which dates back to 330 B.C. Sadly, the famed Herati vineyards don’t produce wine anymore.