Abu Dhabi Rising From Dubai’s Ashes?

Abu Dhabi is reportedly bailing out Dubai to the tune of 10 billion dollars but is it stealing Dubai’s crown as the best place to live in the UAE too?

The Valentine’s Day edition of the Guardian ran a substantial report on the state of Dubai today – how property prices have crashed, unemployment is fast rising, car and home repossessions are increasing and indebted expatriates are fleeing the city before they are arrested and/or deported.

Today the Wall Street Journal is running with another report into the failing state of the emirate of Dubai and how it has had to turn in desperation to neighbouring emirate Abu Dhabi for a financial hand out in order to meet its own debt obligations.  Meanwhile, Abu Dhabi continues to emerge as a sustainable model for growth in the region.

Could it be that Abu Dhabi is rising from Dubai ashes and developing into the new playground for expatriate workers in the Middle East?  Some say that yes, with its oil reserves and more ‘modest’ approach to advancement Abu Dhabi will continue to triumph…but speak to some expats in the emirate and you realise that not everything in Abu Dhabi is rosy either.

The impact of the global credit crunch was late manifesting itself in the United Arab Emirates as it continued to boom right up until late last summer.  Oil prices remained high - which continued to boost the fortunes of emirates like Dubai and Abu Dhabi, and as a result everyone in the UAE felt affluent and that success was a guarantee.  However, the international impact of excessive consumerism, ridiculous bank lending practices and general overexpansion couldn’t be ignored forever, and all of a sudden the banks that were fuelling the boom in Dubai began to call in debt and refuse to offer new lines of credit.

This had an almost overnight impact in Dubai as developers were forced to rein in their spending, cancel projects, lay off staff and put pressure on their customers to pay up.  Unfortunately the majority of customers in the real estate boom in Dubai were speculators who only ever intended making down payments and one or two instalments on the price of their property.  They were intending to flip and reap the dividends of past years when prices for property in Dubai rose at incredible – yet clearly unsustainable – rates.  These speculators are having to face up to the fact they may lose everything, meanwhile even companies in Dubai owned by its ruler Sheik Mohammed bin Rashid al Maktoum are having to merge arms and consolidate to cut costs.

Cars are being repossessed at record rates, jobs are being shed and with them expatriates are losing their right to remain resident in the emirate.  This is because the vast majority of expats are only allowed to remain living in Dubai under a visa that is sponsored by an employer, and once the employer withdraws employment, the validity of the visa is nullified.  Expats then have a month to leave or find another job.  Those who fail to do so face deportation if they haven’t left – and those who have debts in Dubai on cars, property or just in the form of an unpaid parking fine for example, have to pay them before they go or face prison – as non-payment of debt or bouncing a cheque for example are criminal offences.  Which is why expats are apparently escaping Dubai in droves.

Many expats who want to stay in the region and continue living the famed tax-free expat lifestyle that parts of the Middle East are synonymous with have moved over to Abu Dhabi in search of work and prospects.  And today it was announced that Abu Dhabi is to come to Dubai’s immediate rescue with a ‘loan’ package worth USD 10 billion.  So it looks as though Dubai’s even richer neighbour is not only the saviour for the city, but a haven for international workers who don’t want to return home and who do want to continue living ‘the lifestyle.’

So, is Abu Dhabi a more sustainable model?  Has it got everything right to ride out this period of global recession and depression?  Those who look at the emirate’s oil reserves say yes – after all it has about 95% of the entire UAE’s oil reserves and a more than healthy sovereign wealth fund supporting it.  But in reality the price of oil has recently dived, and what’s more, one nation or state alone cannot fly in the face of a global recession.  Building projects in Abu Dhabi are being cut back or even shelved and according to the report in the Guardian, mass redundancies are in the offing as site managers quickly ship ‘unwanted’ staff back to the likes of India before they apparently commit suicide.  So dire are things for these poor people who have sold everything and got themselves into debt to get to the Middle East in the first place, with the promise of untold riches from working on construction sites proving unfounded.

There are clearly no two ways about it…things in the UAE are dire – but perhaps no more dire than anywhere else in the world.  There are still opportunities out there for some expats, but they are fewer and further between.