27 February 2009

* Dubai's bail-out

Jebel Ali port in Dubai boasts of being the largest man-made harbour in the world. Its “quad-lift” cranes can hoist four 20-foot containers at once. The port’s second terminal will raise its capacity to 14m containers. But plans for a third terminal look premature. Dubai is suffering from a slump in the trading, lending, holidaying and profiteering that buoyed this remarkable emirate for so long.

On February 22nd Dubai was hoisted out of its financial trouble by its oil-rich neighbour, Abu Dhabi. The central bank for the United Arab Emirates (UAE) bought $10 billion-worth of Dubai’s five-year bonds. The bail-out confirmed everyone’s assumption that Abu Dhabi would not let the second-biggest member of the UAE fail. But its benefactor waited long enough to plant a seed of doubt in people’s minds. In recent weeks, the spreads on credit-default swaps for securities issued by Dubai’s government and several of its biggest corporations have widened alarmingly, if a little hysterically.

Having long ago depleted most of its oil reserves, Dubai has reinvented itself as a “sell-side” emirate, dreaming up ingenious schemes for other people to invest in. Chris Davidson of Durham University, who has written a history of the emirate, describes it as a “spongelike economy”, designed to absorb foreign money. The government imposes few levies (Dubai has no income tax) and accounts for only $10 billion of the emirate’s debts. But its rulers sponsor an extended family of companies. Between them, these corporations have amassed about $70 billion of liabilities (see chart), adding to a debt pile that almost matches the emirate’s 2008 GDP of $82 billion. 

On the other side of Dubai’s ledger, the government claims to have $90 billion in assets on top of the $260 billion held by its corporations. But it has not revealed the composition or liquidity of its holdings. The very fact that it had to turn to its neighbour for help suggests that its own family silver is not that easy to sell.

The bond proceeds will allow Dubai to meet its obligations this year (which amount to about $10 billion-15 billion) and probably next. But what will Abu Dhabi ask in return? On the face of it, not much. Tristan Cooper, of Moody’s, a rating agency, had expected Abu Dhabi to be “a bit more fussy” about how the funds were used. It might, say, have taken equity stakes in Dubai’s freewheeling corporations or sought some control over their managers.
But Mr Davidson thinks the unstated price of Abu Dhabi’s support will be stiff indeed. “It is the end of the second emirate’s economic autonomy, which it has fiercely protected,” he says. Why else did Abu Dhabi put Dubai through “months of pain and humiliation”, if it did not see some long-term gain from chastening its neighbour and strengthening the UAE federation, Mr Davidson asks. Dubai will now have to be more accommodating of its neighbour’s wishes, he says. It will, for example, have to forgo its independent foreign policy, which had seen it become Iran’s outlet to the world, even as Abu Dhabi kept a careful distance.
Dubai will also have to “lose its ambitions to become the Monaco of the Gulf,” Mr Davidson says. Abu Dhabi will insist on greater prudence and Dubai’s go-getting rulers may also now feel defeated. Their economic ambitions were driven partly by their political insecurities. “A lot of the urgency we saw in the last ten years was fuelled exactly by Dubai’s need to keep its autonomy,” Mr Davidson says.
But for all Dubai’s woes, the Gulf still needs a financial centre, a port, and a secure place to live, Mr Cooper points out. With a little less gumption and a lot less gearing, “Dubai is plausible”.


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Lebanon Time-Line

Introducing Lebanon

Coolly combining the ancient with the ultramodern, Lebanon is one of the most captivating countries in the Middle East. From the Phoenician findings of Tyre (Sour) and Roman Baalbek's tremendous temple to Beirut's BO18 and Bernard Khoury's modern movement, the span of Lebanon's history leaves many visitors spinning. Tripoli (Trablous) is considered to have the best souk in the country and is famous for its Mamluk architecture. It's well equipped with a taste of modernity as well; Jounieh, formerly a sleepy fishing village, is a town alive with nightclubs and glitz on summer weekends.

With all of the Middle East's best bits - warm and welcoming people, mind-blowing history and considerable culture, Lebanon is also the antithesis of many people's imaginings of the Middle East: mostly mountainous with skiing to boot, it's also laid-back, liberal and fun. While Beirut is fast becoming the region's party place, Lebanon is working hard to recapture its crown as the 'Paris of the Orient'.

The rejuvenation of the Beirut Central District is one of the largest, most ambitious urban redevelopment projects ever undertaken. Travellers will find the excitement surrounding this and other developments and designs palpable - and very infectious.

Finally, Lebanon's cuisine is considered the richest of the region. From hummus to hommard (lobster), you'll dine like a king. With legendary sights, hospitality, food and nightlife, what more could a traveller want?

Introducing Beirut

What Beirut is depends entirely on where you are. If you’re gazing at the beautifully reconstructed colonial relics and mosques of central Beirut’s Downtown, the city is a triumph of rejuvenation over disaster.

If you’re in the young, vibrant neighbourhoods of Gemmayzeh or Achrafiye, Beirut is about living for the moment: partying, eating and drinking as if there’s no tomorrow. If you’re standing in the shadow of buildings still peppered with bullet holes, or walking the Green Line with an elderly resident, it’s a city of bitter memories and a dark past. If you’re with Beirut’s Armenians, Beirut is about salvation; if you’re with its handful of Jews, it’s about hiding your true identity. Here you’ll find the freest gay scene in the Arab Middle East, yet homosexuality is still illegal. If you’re in one of Beirut’s southern refugee camps, Beirut is about sorrow and displacement; other southern districts are considered a base for paramilitary operations and south Beirut is home to infamous Hezbollah secretary general, Hassan Nasrallah. For some, it’s a city of fear; for others, freedom.

Throw in maniacal drivers, air pollution from old, smoking Mercedes taxis, world-class universities, bars to rival Soho and coffee thicker than mud, political demonstrations, and swimming pools awash with more silicone than Miami. Add people so friendly you’ll swear it can’t be true, a political situation existing on a knife-edge, internationally renowned museums and gallery openings that continue in the face of explosions, assassinations and power cuts, and you’ll find that you’ve never experienced a capital city quite so alive and kicking – despite its frequent volatility.