Analysis of Dubais Economy

Analysis of Dubais EconomyDubais Financial CrisisDubai is usu every(prenominal)y characterized by flip piercing towers, rotating buildings, spectacular arc achieveectural designs, flow of petro-dollars which refers to the income coming from exporting petroleum and its products to separate countries, broad and clean road net prevails, etcetera It represents a locution of modernization and advancement and has earned a place amongst wizard of the well-nigh technically advanced countries in the homo. This rapid increase of the ground was a end point of the focal point of the governance on tourism thus promoting the unfeigned ground sector with the help of tax revenues coming from export of oil and internal blow. With the amplest corpo tangible estate attach to of Dubai Emaar properties becoming vernacularrupt in the follow in States and vaDubai proposal to delay the repayment of all its debts for a period of 6 months on November 26, 2009 the monetary crisis in Du bai was exposed in front end of the knowlight-emitting diodege dobriny which had noxious effects on countries close to the institution. The debts were as large as $59 one thousand thousand causing a stop to the enthronization circle of Dubai for 6 months. The Dubais true estate labor was found on considerable loans which they anticipate to pay through the revenues they earn from them still with recession impinging the exertion badly their plans failed. Thus the Dubais pecuniary crisis to a large result good deal be verbalize to be a consequence of cover estate bubble burst in Dubai.Dubais EconomyBefore acquiring to the monetary crisis it is important to know the structure of the Dubais preservation which is one of the nearly unique and unusual in the world. It is divided into b be(a) zones stationup by the government of Dubai. The zones are industry specific with Jebel Ali withdraw zone cosmos the fastest growing in the world. The Jebel Ali free zone off ers a set of products and services such as ready to use offices, Business centers, factories, Warehouses, cornerstone ready plots etc. Jebel Ali free zone comm only referred to as Jafza is a part of Dubai based a state owned Economic Zones World. It is one of the worlds biggest developers of Economic Zones, Logistics and Re search and ontogeny driven Industrial Parks. The main free zones of Dubai are Jebel Ali free zone, Dubai Internet City, Dubai Media City, and Dubai Mari clock time City which are based on the industries they are link up with.People have false misconception to the highest degree Dubais deliverance they believe that its primarily driven by oil and bobble although the oil sector comprises of less than 6% economic system of Dubai that was primarily unfree on oil as a main source of revenue in the past. Dubai being a part of the unite Arab Emirates is judge to be bang-up producer of oil, petroleum and natural gas although it is a wide-cut producer barely compared to other countries of the get together Arab Emirates it produces relatively lesser quantities of oil. Dubai produces 240,000 set of oil per day and its revenues from natural gas constitute only 2% of the total revenue that United Arab Emirates gets from natural gas. Although it is true that Dubais economy was initially build on the revenues grantd by its reserves of oil and natural gas exactly with time its oil reserves have reduced significantly as a result of a large increase in the drive for oil and oil products around the world and over the days and Dubai exporting a corking amount of oil to other countries it is expected that Dubais reserves of oil result get exhausted in the succeeding(a) 20 courses and so it has punishing on the tourism industry to generate good revenues at that time. (Dubai hit hard)Another large bestow sector of Dubais economy is the substantive estate which forms 22.6% of the economy of Dubai. The groovy achievement of this industr y is owed to the heighten on tourism. Over the years the government of Dubai has concentrated largely on tourism they have invested large capitals in requestliness to promote their tourism in the process they have built toss kayoed scrapers, clean and well knit network of roads. The government has focused on providing world class facilities in Dubai in the process creating architectural designs and buildings which attracts tourists from all around the world. As the real(a) estate industry is closely related to the tourism industry it has developed as a study industry in Dubai and contributes greatly to its economy.According to a survey in 2007 the largest modify sectors for the Dubais economy other than oil were real estate and building, art and fiscal services which contribute 22.6%, 16% and 11% respectively to the Dubais economy.From the facts mentioned above it can be ascertained that at that place has been a shift in Dubais economy from being solely dependent on oil to development of other sectors by using the large amounts of money coming from the oil to development of other sectors like tourism but it has been stuck badly due to fall in prices of buildings and as most of them were based on loans vaDubai formally procl started that the biggest of its real estate companies would not be able to repay their debts for a period of at least six months leading to the financial crisis.The insurance policy of diversifying to Real EstateThe funds had always been flowing into Dubai due to its large reserves of oil that it posses and initially the whole economy of Dubai was dependent mainly on income coming from oil and natural gas but at that place has been a shift as the Dubai government now ciphers at grant the tourism industry the biggest industry of Dubai and has invested a grand capital in developing this industry. In the year 2000 the establishment of Dubai Financial Market (DFM) as a minuteary food market for transaction of trading secur ities and bonds both topically and world(prenominal)ly was study step in diversifying Dubais economy. The establishment of Dubai Financial market was a part of the governments plan to diversify Dubais economy from a trade based economy to the one which is tourism and service oriented make real estate to a greater extent valuable in Dubai.The inclination of the government towards tourism did turn out to be a promoter for the real estate and construction industry and the real estate industry grew at a rapid pace in Dubai becoming one of the largest industries in Dubai. As a result of the governments promotion to tourism Dubai witnessed a real estate boom which resulted in appreciation of billet prices in Dubai from 2004-2006. These policies modify Dubai into a center for large scale real estate development projects and made it a home for mevery large projects and tallest skyscrapers of the world which are now amongst famous buildings of the world. The results of these policies are visible through buildings like the Burj Dubai, the ribbon Islands, the Emirates Towers, and the worlds most expensive hotel, the Burj Al Arab which reflect the rapid development and the great advancement of the real estate and construction industry in Dubai qualification it a world class tourist destination. all told the results of these policies led to a great change in Dubais landscape which as well as led to a great amount of foreign investments in Dubai as Dubai became a great destination for investors around the world. For many years Dubai has given great returns to investors around the world with an aggregate of approximately more than 40% per annum which has attracted clients from around the world trying to get the investment ladder ready but during the utmost(a) few months being hit badly by recession these earnings have turned into losses with a depreciation in office prices creating a situation of financial crisis in Dubai.Although Dubai has given great returns in the past but the ugly face of the Dubai model that it was based on speculation and debt that was somewhere in the breakneck boom in Dubai and with the prices of buildings locomote in the recent past this face was exposed as the largest real estate companies were not able to repay their debts that were due till celestial latitude 2009 and the government asked the investment companies delay the collection of all their funds for at least a period of 6 months which hit badly the finance industry of Dubai which is one of the major industries of Dubai.The Dubai WorldThe Dubai world which is an investment beau monde acts as a regulatory company in Dubai. It manages a portfolio of wrinklees projects for the Dubai government. It functions crossways a wide range of industries and projects which promote Dubai as a hub for trading and commerce. Sultan Ahmed bin Sulayem is the chairman of the company.Sheikh Mohammed bin Rashid Al Maktoum, chthoniancoat Minister and guilt President of the United Arab Emirates is the major stake holder of the company. The company was established by Sheikh Mohammed bin Rashid Al Maktoum under a decree ratified on marching music 2nd 2006 with an aim to regulate and promote trade in Dubai.The stature of Dubai world is rather large in the planetary market and it has large investments not only within Dubai but also in countries around the world. Some of its major investments range from MGM Mirage Las Vegas Casino Company to Standard Chartered Plc a London-traded bank and luxury retailer Barneys New York through asset management unshakable named Istithmar PJSC.The Initial success of Dubai in the Period of global financial CrisisIn the early period of global financial system Dubais financial structure, kinetic construction and tourism industries and relished tax free incentives seemed to be a great advantage for it and many people even expected it to remain free from any sort of recession. A major factor that created this illusion in the minds of people was the continuance of investment activities and construction at a feverous pace even when there was a pretermit of capital in all other parts of the world and no other country was even thinking of such investments Dubai announced to construct a bleak tallest building of the world just after Lehman Brothers collapsed in the United States. All these steps along with the booming infrastructure of Dubai attracted many investors from around the world who thought of Dubai as a good prospect for investment and expected good returns from it. Dubai has built one of the finest infrastructures of the world and it is quite natural for investors to be attracted towards such a place which lead to the initial success of Dubai in a period when the world was facing recession and lacking investments but its overdependence on debts caused the financial crisis.Seeds of troubleThe global financial crisis during 2008-09 resulted in major downfall of Dubais real estate market. It l ed to slow down of the economy of Dubai. The economic revenue generated was not coming as efficient as before which greatly hindered Dubais growth and as most of its plans were based on money borrowed by investment companies and there were no plans to face any downturns in the economy it became difficult for them to repay that loan. As the main aim of Dubais economy was the tourism industry a slump in the global markets was always bound to affect the economy of Dubai. At the international get council conducted by Mohammed al Abbar, senior enough to abide Dubais Ruler and UAEs Vice President or Prime Minister. He was placed at the name of the Director General of Dubais Department for Economic Development and also as a chairman for Emaar properties the largest real estate company in declination 2008 declared the credits that Emaar enterprise had which had an adverse effect on the economy as a whole.Emaar Enterprise had credits for over 70 one million million million US Dollars. In addition to it they also had additional 10 billion US Dollars in Dubai with holdings estimated above 350 billion as a real estate asset. Earlier in 2009, situation was worse due to the global economic crisis, heavy tolls on employment, office values, constructions, etc. also added into it and resulted in the decrease in costs of these prices due to slow down in the world markets also hit the real estate sector of Dubai which was expecting a rapid development in order to repay all its debts in stipulated time. This not only hit the real estate industry of Dubai but also the finance industries which financed most of the projects of construction. In Feb 2009, the estimated foreign debt for Dubai was approximated at blow billion US Dollars. It leads 250,000 United Arab Emirates national to be responsible for more than 400,000 US Dollars of foreign debts which is a very large amount although Dubai had been hit by a financial crisis in the past also. In the year 1999 Dubai was hit by a similar crisis but at that time the debts were much less than the amounts this time and at that time Abu Dhabi supported it but the amounts are very high this time as the main focus of Dubai government in the recent past has been tourism industry and the real estate is closely related to it.The assessment of Dubai market of property has shown a lot of depreciation or decrement. The property loss was more than 65% of their values since 2001 till November 2008 which has been one of the main causes of the financial crisis as the property market was expecting an increase in prices but the decrease proved to be fatal for it. The construction companies were expecting a rapid increase in the property prices and were expecting to repay their debts using the incomes created from it but that did not happen and lead to the financial crisisIn addition to all these failures in key businesses, consumer satisfaction, wealth etc. is estimated to be in trillions of US Dollars. The financial commi tments incurred by governments proved a fatal loss in economic activity.The Burst of BubbleDubai which is governed by Sheikh Mohammed Bin Rashid Al Maktoum borrowed approx 80 billion US Dollars in a period of 4 years of construction for booming the construction market of economy of regional tourism as their main focus was on tourism as they expect that it would lead to a concrete source of income for them even when their oil reserves get exhausted. Emirates suffered a huge loss in the worlds steepest property slump as a result of global recession. The home prices dropped by 50 percent from their value in 2008 leaving Dubai in a situation where they were not able to generate adequate money in order to repay the debts that they had taken in order to promote the real estate industry.Dubai had 59 billion US Dollars of liabilities in agreement to the standstill of creditors. The debt included more than 3.5 billion dollars of bonds date December 14. This property unit is from Nakheel PJSC a firm from Dubai.Analyst said that the prime reason for the financial crisis in Dubai was the mismanagement or the abuse decision of Sheikh Mohammed. He invested all his as well as the Dubai government wealth in the real estate market in United State and had no plans to deal with any kinds of nose candys faced in their road to success such as recession. He thought that Dubai would neer be stuck with any sort of recession which was a result of lack of adequate planning for bad phases during their journey. The foreign investment of Emaar claimed to be the second largest builders in United States. They ultimately went bankrupt because of the recession and/or filed for chapter 11, which allows shakeup of a company under the laws of nonstarter for United States.United States bankruptcy code permits the reorganization of any of the company under the bankruptcy laws of United States of America. Dubai shifted to their crisis mode with their large and dangerous building boom. Their len ding bonanza presently vanished due to the crisis. Government and banks took huge steps to provide some stand-in to the organization and to rescue the falling organization. The bankruptcy of Emaar properties was a big shock for people around the world and even bigger for the people in Dubai as it acted as a hint of the financial crisis that had begun in Dubai which was considered to be one of the flourishing economies of the world.Announcement and the impact of official moratoriumDated 25 November, 2009, the final declaration came in by the government of Dubai. They announced that the company intends to ask all its providers for financing to Dubai World, its subsidiary Nakheel to remain standstill and overlay the maturities until at least the date 30 May 2010. This announcement meant a great decrease in the inflow of money for all the financial companies who had invested in motley projects in Dubai and also sent a bad message to the world which had come to know that Dubai was i n a financial crisis. Several months before the announcement Dubai world accounted for $59-billion debt which accounted for nearly three fourthly of the emirates total debt of US$80-billion. These debts also included a $3.5-billion debt which the company was ineffective to pay by its December deadline. This announcement not only led to a degradation of Dubais goodwill among investment companies but also had a bad impact on the global markets which were recovering from the impacts of recession, the announcement in a way pushed the recovering markets back when they had started growing.The impact was very concentrated as it degraded the investment status of Dubai amongst various investment companies. The governments announcement led both Standard Poors Investors Services and Moodys who were the key investors of Dubai heavily downgraded the debt of various Dubai government-related entities with interests in commercial operations, utilities, property, and commodities trading which me ant that it became harder for companies to get money for their projects. For Moody, the downgrade meant that the alter agencies would lose their investment grade status which would help Moody to make it very difficult for them to get the money required for their businesses.The effect was not only internal its impact was felt by all major markets of the world who experienced a drop in their stock indices. The main European markets shattered on November 26 followed by huge drops in Asian stocks on November 27 creating a bad impact on these markets that were recovering from the shocks of recession.Possibilities of RecoveryAlthough Dubai is presently suffering with a financial crisis there are still possibilities that it will recover from this crisis. Abu Dhabi the capital of the United Arab Emirates which is also the richest country of the United Arab Emirates is the brightest ray of hope for Dubai. Dubai has already asked Abu Dhabi to bail it out of the crisis. The hope even increase s as Abu Dhabi has helped Dubai in the past when Dubai was in Crisis although the demand is much higher than the past. Abu Dhabi has helped Dubai with an amount of $10 billion in order to bail out the Dubai world. A recent report by HSBC which says that Abu Dhabi has the specie liquid state to support its own companies and banks is even more plus reply as Dubais point of view. Thus Abu Dhabi may use some of this liquidity to bail out Dubai from this phase of crisis. With the U.A.E central bank showing positive signs by confirming that its board has discussed plans for supporting real estate business by lending Dubai as well as remaining United Arab Emirates has increased the probabilities of recovery for Dubai to a great extent.Impact on Indian EconomyIndian banks have communicated to the Reserve patois of India that their sheets show peanut investments in Dubai as compared to their revenues generated. The main investments are those of State Bank of India, Bank of Baroda and IC ICI combined together denote investments of around Rs 7000 crores with SBI having Rs 1500 crore in the combined charts. stock-still Bank of Barodas spreadsheet has Rs 4000 crore invested in UAE with only Rs 600 crores in real estate markets and has no negative impact on the health of the bank.However the professional front may face losses as Indians constitute 40% of the tribe of Dubai and are all in the business or service sector and so it may affect the remittances to India could decline provided the company is able to work out a bailout from this scenario.UAE has not been a significant source of investment in the Indian portfolio however the crises as already stated will affect the remittances or permanent transference of money to the relatives of Indians settled in Dubai was an important component of Indian Economy as in the beginning(a) quarter of fiscal year 2010 as it formed 45% of the invisibles. further the crises have created intense pressure on employment thereby dim inution the invisibles coming to the country.Dubai Worlds subsidiary DP World has investments in the Indian sea ports and planned investments of $ 500 million can hamper Indias water strength.Dubai crises and Indian exports are closely linked and reached a massive 13% in the fiscal of 2010 as is shown in the graph below. These figures give an estimate of how the exports could vacillation the critical situation and hamper the export market.Indian real estate developers who had ventured into Dubai like Nagarjuna Constructions, BSEL Infra, Larsen and Toubro etcReferencesDubai Crisis 2009. (n.d.), Retrieved on March 15, 2010 from http//www.gktoday.in/2009/11/what-is-dubai-crisis-2009.htmlDubai Economic Crisis. (n.d.), Retrieved on March 15, 2010 from http//www.docstoc.com/docs/23974903/Dubai-Economic-Crisis-And-Its-Impacts-On-IndiaDubai hit hard. (n.d.), Retrieved on March 15, 2010 from http//www.globalcrisisnews.com/real-estate/dubai-hit-hard-by-financial-crisis/id=625/