Dubai Crisis

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That is Dubai-sky piercing towers, rotating buildings, spectacular architectural designs,flow of petro-dollers,broad and clean road notworks, etc,etc. Businessmen, investers, and lusury-seekers, used to visit Dubai with all zeal. Some weeks ago, Dubai had issued to international investers, bonds worth $1. 9trillion,whiched sent the message that its economic position is unshakable!

But now that foundation has shaken! inability to rapay loan instalments All these indicate that Dubai’s financial foundation. Reasons Dubai, unlike other six emirates of UAE is not a country rich with oil resources. This city-state is purely a business city wholly depending upon tourism and other businesses. Dubai World, in a haste to attract world enterprenuers started spending more and more on building fine roads, star hotels,etc. Foreign institutional investers also invested much here, especially during the last four years.

But, for some reason, maybe due to economic crisis mainly, FIIs didnot turn to Dubai for investment.. AS a result, real-estate business in Dubai suddenly collapsed. This made an impact on other businesses also. Effects Dubai world, has business tie-ups in different countries including India. Thes projects, may be delayed( resulting in cost increase), or dropped, or prolonged. Unemployment problem may arise in Dubai. Enterprises may have to retrench a portion of their employees.! 0 lakh Indians are working in Dubai and other UAE countries.

Foreign Institutional investers, who have business ties with Dubai World, may face loss. 70 financial institutions have lent credits to Dubai world. Banks in Duabi may face crisis. When the world is recovering from last year’s economic recession, this may push it back to same position. Ray of hope. Inspite of all these, experts hope that it is possible to recover. It comes out of past experience. Dubai had faced similar economic crisis in 1999. Then Abudhabhi, another emirette in UAE, had helped Dubai by lending a loan of $1,00,000. Abudhabhi is a financially stable country..

It can help. But the quantum of need this time is muchmore than it was in 1999. Just on 29th,November,Abudhabhi has announced that it would concider the financing aspect,item wise, taking each main transaction on merits. It has also clarified,it is not going to take full responsibility of all loans.  Top ten financial institutions of the world By greater optimism and assurances by America, major part of the world succumbed to globalization and WTC agreements. American companies, for their profit, encouraged the buying habits of people in the globe

Finance and Gold Stock

The economic powers in the world were amazed last week when India purchased 200 tonnes of gold from International monetary fund(IMF). This purchase needed an investment of Rs. 35,000 crores. India also announced… ABU DHABI, Dec. 2 (Xinhua) — The financial crisis sweeping the world that emerged from Wall Street has taken its toll on the United Arab Emirates (UAE), sending the Gulf oil producing country’s economy into an uncertain path. In the first half of 2008, the world saw a steady rise in oil prices, which climbed to a record high of 147. 27 U. S. dollars a barrel on July 11.

However, the soaring oil prices did not get a firm footing since then, with the supply and demand factors remained in a balance, as top officials of the oil cartel Organization of Petroleum Exporting Countries (OPEC) had said repeatedly. After the speculative factors gave way to the fundamentals in the market, oil prices began a journey of correction, declining below 60 dollars a barrel, which represented a drop of more than 60 percent compared with the peak in July. The decline of oil prices was no good news for the UAE, for the oil sector accounted for about 35. 9 percent of the country’s GDP in 2007.

Local newspaper Gulf News estimated in July that the oil revenue of Abu Dhabi whose production accounts for nearly 94 percent of the UAE’s crude oil output, would reach 100 billion dollars if the price remained on high level. But the figure seems impossible now. In addition to oil prices, the UAE is facing a reverse in its property market which has been booming since the government allowed foreign investors to buy property on a freehold basis in 2002. A report released by Morgan Stanley in August predicted a decline of 10 percent by 2010 in the property market of Dubai, the UAE’s commercial and financial hub.

But the correction of prices in the UAE’s property market came earlier than Morgan Stanley predicted. In November, HSBC said in are port that property prices fell in October by four percent in Dubai and five percent in Abu Dhabi, which is the first ever since2002 and may be a turning point of the six-year bull market. In the stock markets, the UAE has been suffering a free fall this year, a similar experience that some emerging markets had during the same period. On Nov. 16, the Dubai Financial Market (DFM) index closed at 1,981. 4 points, falling by 68. 51 percent from the year’s peak of 6,291. 87 points on Jan. 15 with a loss of 4. 67 billion dirhams (1. 27billion dollars) in market value. On the same day, the Abu Dhabi Securities Exchange (ADX) also fell to its lowest point this year, with its general index hitting2,755. 62, down 46. 48 percent from 5,148. 49 points on June 11 with a loss of 1. 52 billion dirhams.

Banks’ Tightening Purse Strings

The UAE Central Bank held a meeting with representatives from all banks operating in the country on Sept. 8, three days after the U. S. investment bank Lehman Brothers filed for bankruptcy, to assess the status of the UAE banking system. A statement released by the Central Bank after the meeting said that the UAE banks had no exposure to Lehman Brothers and there was no systemic risk in the UAE. But the statement also revealed that the country’s banking system was also facing a lack of liquidity by saying that “various suggestions for boosting liquidity of banks were also discussed. ” On Sept. 2, the Central Bank announced the establishment of an emergency lending facility worth 50 billion dirhams for banks operating in the country, marking the first move to inject liquidity since the Wall Street meltdown emerged. After that, the UAE government took more steps to shore up the banking system. The Central Bank announced on Oct. 8 a two-percentage-point cut in its lending rate to 3 percent in a bid to boost liquidity of local banks. It also lowered the rate on its repurchase of certificate of deposit (REPO) from 2 percent to 1. percent with effect from Oct. 8. In mid-October, the UAE cabinet said that it decided to take preventive measures to support the banking system. Under the measures, the government will provide a three-year guarantee to deposits and savings in all national banks and foreign banks with “significant operations” in the country. In addition, the government will also guarantee all inter-bank lending operations between banks operating in the country and inject sufficient liquidity in the financial system if and when necessary.

The government also decided to inject another 70 billion dirhams into the banking system. Despite the measures taken by the government, the lack of liquidity has made banks operating in the UAE tighten their purse strings. HSBC raised its minimum salary requirement for a personal loan from 5,000 dirhams to 10,000 dirhams in October and doubled it again in November to 20,000 dirhams. Another major foreign bank operating in the UAE Lloyds TSB decided in November to stop lending to customers who wanted to buy apartments.

In the meantime, the bank lowered its loan to value ratio on villas to 50 percent from 80 percent in October. The UAE’s national banks, including the country’s largest bank Emirates NBD, were also reportedly tightening their credit.

Uncertain Prospect of Mega Projects

In the past few years, the UAE has witnessed a boom in its property market, with prices quadrupled. The property sector became an important contributor to the country’s efforts to diversify its economy so as to reduce the dependence on the oil industry. Property developers in the UAE launched a series of iconic projects during the boom, including the three Palm Islands and Burj Dubai, the highest architecture to date in the world. The success of those iconic projects in promoting themselves and their developers and the continuous upturn in the property market have encouraged developers float more mega projects. In October, Nakheel, the developer of the Palm Islands, announced a new project named “Nakheel Harbor & Tower. ” The project, which will cover an area of more than 270 hectares and accommodate over 55,000 people, will include a tower more than 1,000 meters high.

If completed, the Nakheel Tower will take Burj Dubai’s title of the world’s highest building, whose current height stands at 688 meters. According to Nakheel, the Nakheel Harbor & Tower will take more than 10 years to complete. Now, with the credit squeeze and a possible bear market for the property sector, the project’s fate seems uncertain. In fact, Nakheel said in mid-November that it will reassess its “immediate business objectives to accommodate the current economic climate. The next few months will see a scaling back of activity around some of our projects. “

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