Has Dubai really served its time in the financial desert?

“Between now and 2020, you will get some of the wildest ideas coming from
Dubai,” Shaibani told The Telegraph in an interview in his office in the
heart of Dubai’s financial district.

“I think we really need something big, but what it is I don’t know.”

Almost written off five years ago when the financial crisis exposed its
dependence on borrowing, Dubai has bounced back after restructuring most of
its debts and moving closer politically to its oil-rich partner, Abu Dhabi,
which dominates the federation of seven emirates that make up the UAE.
Hotels are once again booked out, its commercial districts and ports are
buzzing and, more importantly, real estate prices are once again on the

In pure economic terms, Dubai’s rise to prominence has been meteoric. In the
past decade its gross domestic product more than quintupled to around $82bn,
according to official figures. Its rise – without the direct benefit of oil
– once led US president George W Bush to describe the emirate as “a model”
for the entire Middle East.

With little of its own oil or gas, Dubai’s rulers have historically placed
investments, commerce and rapid urban development at the centre of an
economic strategy based on the philosophy of “build and they will come”.
Much of the task for ensuring that enough finance is in place for the World
Expo’s various projects, due to take shape on land near Jebel Ali, about 25
miles from the centre of Dubai, will fall largely on the shoulders of

Ranked in the top five most powerful Arabs in finance – alongside heavyweights
such as Saudi Arabia’s Prince Alwaleed bin Talal – by Gulf Business
magazine, Shaibani is the chief executive of the Investment Corporation of
Dubai (ICD). Set up in 2006, the ICD controls the emirate’s most treasured
and valuable investments, including stakes in companies such as Emirates
Airline, Emaar Properties, the London Stock Exchange and Nasdaq.

Shaibani is also part of the trusted inner circle of the emirate’s ruler and
vice-president of the UAE, Sheikh Mohammed bin Rashid Al Maktoum. Although
Shaibani says that much of the funding for the Expo is already factored in
to Dubai’s budget, the government is looking at alternatives such as opening
up infrastructure projects to international investors for the first time
through public private partnership (PPP) initiatives, or issuing Islamic
bonds known as sukuk. There is also the possibility, if required, of selling
stakes in some of the companies within the ICD’s portfolio, such as
Emirates, through initial public offerings (IPOs) on local and international
stock exchanges.

“We have an option if we need it,” said Shaibani. He names Emirates, Dubai
International Airport, Dnata and Dubal – the emirate’s giant aluminium
smelter – among the companies that could have stakes sold off to the public
if funds were ever required. Combined, these four entities alone had
revenues in the past financial year of more than $24bn.

Selling stakes in these prized companies would be a dramatic change in policy
for Dubai, which has fiercely held on to its most highly regarded financial
assets. However, Shaibani says that pursuing such a strategy in the future
“would be a fantastic way to raise capital if we need to”.

Unquestionably, Emirates is the crown jewel in Dubai’s investment portfolio
and arguably its most valuable asset. The company, which is the world’s
largest long-haul carrier, has turned a profit in each of the past 25 years.
Despite the problems of high fuel costs and fluctuations in international
traffic due to catastrophic events such as the September 11 attacks in New
York, Emirates has defied industry trends that have wrecked many
international rivals.

By 2020, the company aims to be carrying 70m passengers a year, nearly twice
the current number. By that time, it will operate a giant fleet of 250
aircraft from Dubai, which will boast two of the world’s busiest airports.

“We are dead serious. I cannot list it [Emirates] now because there is still
value to be created there,” Shaibani said. “We don’t want to give away value
just like that.

“Ideally, we would like to list here but we also have the option of a
secondary listing either on the London Stock Exchange, which is very
strategic for us because we are the largest shareholders.” Dubai owns a 20pc
stake in the LSE.

After spending a large part of his career in London and then Singapore, where
he managed Al Khaleej Investments in Asia, Shaibani rose to prominence
during the emirate’s darkest hour in recent history. The emirates shocked
the markets in November 2009 when it announced it needed to freeze $26bn of
debt owed by one of its largest “Government-Related Entities” (GREs), Dubai

The move sent global markets plummeting and saw debt restructuring
consultants, including Shriti Vadera, a former adviser to Gordon Brown,
descend like hawks on the emirate.

The financial crisis brought to an abrupt halt a debt-fuelled real-estate boom
in Dubai, and with it many of the vast projects that had transformed the
city from little more than a pearl fishing village 50 years ago into today’s
global mega-city. Faced with debts that some international banks had
estimated to exceed $100bn, Shaibani was placed in charge of the effort to
restructure the emirate’s finances and a foreign investment strategy that
had seen billions squandered on trophy assets.

At the peak of its overseas investment binge in the middle of the past decade,
Dubai held stakes in, or owned outright, high-profile companies and assets
such as DaimlerChrysler, the old cruise liner Queen Elizabeth II, Cirque du
Soleil and the US department store chain Barneys New York.

In 2012, Dubai finally gave up hope of turning around debt-laden Barneys,
which one of the emirate’s funds had rushed into buying for $942m in 2007.
Ignominiously, Dubai eventually handed most of the company over to its US

In hindsight, Shaibani said the deal to buy Barneys was typical of some of the
errors made at that time by executives who were given too much leeway to run
some of Dubai’s main sovereign wealth investment vehicles.

“It was a little bit of a dreamland,” he said, stressing that the “era has
gone” and that Dubai won’t be putting all of its “eggs in somebody else’s
basket” again when it comes to investing outside its home territory, or even
the Middle East.

When Dubai does invest overseas, the money will now most probably be focused
on building up its core strengths of transport, tourism and real estate.
“We’re still investing very heavily overseas but definitely we are wiser
than before,” he said. Africa has increasingly become a focus, led by
initiatives such as the Dubai government-owned DP World’s port facility in
Djibouti and Emirates opening up more routes to the continent than any other

China is another important market, where Dubai has recently signed an
agreement to build an Atlantis resort modelled on the giant water park
showpiece of the emirate’s Palm Island.

The UK is also viewed as a major destination for future investment. The London
Gateway Port, the new deep-water harbour at the mouth of the Thames, was
made possible by £1.5bn of investment and project finance from DP World,
which inherited the site when it took over PO Ports in 2005. “The UK is
very strategic for us,” said Shaibani. “Traditionally, we have always felt
the UK was a very healthy market.”

Dubai and the UK have a close historical relationship, which dates back to
when the Arab sheikhdoms of the Gulf came under the protection of the
British authorities in the region before the 1970s.

Those close ties remain, with an estimated 100,000 UK expatriates – by far the
largest European community in the Gulf – living and working in the emirates.
British managers have also played a key role in building Dubai, including
the recently-knighted president of Emirates, Sir Tim Clark, who has been
with the airline since its first flight – to Karachi – in 1985.

British banks, including the Royal Bank of Scotland, Lloyds and Barclays, have
also traditionally played an important role in Dubai and were at the
forefront of some of the debt restructurings needed five years ago.

Although he is now focused on moving Dubai’s economy forward, Shaibani
continues to deal with some of the legacy issues that are related to the
pile of debt that still remains. Banks have recently expressed concerns
about Dubai’s ability to finance new projects while meeting its schedule for

Some analysts have said that Dubai and its GREs still hold total debts of
$100bn, a figure that Shaibani says is too high. According to his figures,
the government’s direct liabilities are closer to a third of GDP,
approximately $25bn, which is more manageable.

“We honoured all of our commitments. We delivered every single project on
time. We did not miss a deadline from the beginning of the crisis except
those two entities [Dubai World and Dubai Holdings],” he said.

“Some of these companies that we stepped in to assist during the so-called
‘financial crisis’, they’re literally too big to fail so we had to support
them because they had an impact on the financial institutions. This is
something that any government would do – we stepped in.”

Recently, an agreement has been reached in principle with the Central Bank of
the UAE to roll over a $10bn bond facility at a lower rate of interest. The
bond fell due this month and settling the issue has cleared any immediate
shortfall concerns.

“We can choose to pay or to extend, but we have chosen to extend,” said
Shaibani, stressing that the terms of the new agreement are at a rate of
interest lower than the 4pc set out in the original deal. Greater
co-operation with Abu Dhabi has been one of the more positive changes to
come from the crisis after initial fears that it would mean Dubai losing
much of the autonomy it has traditionally enjoyed.

Each individual emirate has historically retained control of its own finances,
but since 2009 the country has increasingly appeared more federal under the
leadership of Abu Dhabi and its ruling Al Nahyan family.

The virulent pace of the financial crisis in Dubai, which saw property prices
fall by 50pc overnight and even the volume of the normally bumper-to-bumper
traffic on the emirate’s main Sheikh Zayed motorway dwindle, raised concerns
that the government had little choice other than to go cap-in-hand to Abu
Dhabi. However, Shaibani insists that at no point were Dubai’s finances too
stretched to cover its immediate liabilities.

“The facility that we got, that was agreed with Abu Dhabi. We did not go and
ask for any facilities,” he said.

“We went to the market in the middle of the crisis. We were oversubscribed. We
never really had a problem at all in raising [finance].”

According to Shaibani, most of the problems were directly linked to Dubai
World and Dubai Holding, which both had to be restructured. “Everybody has
debts, in reality the whole world has some kind of a debt,” he said.

Shaibani also believes that the World Expo, which was strongly backed during
the bidding phase by the country’s influential foreign minister, Abdulla bin
Zayed Al Nahyan, will create a “huge synergy” between Dubai and Abu Dhabi.

Iran is another neighbour in the region with whom Dubai has historic economic
ties – ties that could soon be revived. Trade with Iran was a major
contributor to the emirate’s economy before the imposition of tough
international sanctions against Tehran. Overnight, the volume of goods
shipped from Dubai to Iran on trading dhows moored along the Dubai Creek
dropped. Foreign exchange and banking transactions also fizzled out, as
total trade fell by a third.

Dubai’s tolerance of trade with Iran has always been a sensitive issue within
the UAE, ever since the Islamic republic seized control in the early 1970s
of some disputed islands in the Persian Gulf. However, a warming of
relations between the US and Tehran could soon see a return of this business
to the emirate at a vital time.

“The business community in Dubai paid a heavy price because of sanctions
against Iran,” said Shaibani. “If Iran opens up again, that will boost
everything that we do.”

During the “Arab spring”, Dubai and the UAE in general avoided the kind of
political unrest seen elsewhere in the Gulf, such as Bahrain and Oman.
Although the UAE has been criticised by Human Rights Watch for cracking down
on freedom of expression and detaining dissidents that it suspects of being
linked to Islamist groups, some parts of the economy, such as real estate,
may have benefited from the “flight of capital” away from countries that
faced political turmoil. Shaibani gives the example of Libyans coming to
Dubai to buy items they cannot get back in the war-torn North African

“It hasn’t been a spring for the countries that went through this process,” he

Despite the clear signs of recovery throughout Dubai – its economy grew by
almost 5pc in the first half of last year – some economists are concerned
that history may be repeating itself. Signs of an overheating property
market, rising living costs and a reliance on debt remain big concerns that
were recently raised by the International Monetary Fund.

“The total cost, pace of execution and financing of the new mega-projects
remain uncertain,” said Harald Finger, head of mission to the UAE at the IMF
following his recent assessment of the country.

“If not implemented prudently, these projects could exacerbate the risk of a
real estate bubble. Moreover, these projects may create additional financial
risks for Dubai’s government-related entities and the banking system in
light of the still considerable debt overhang from the 2009 crisis.”

A recent rally in the Dubai Financial Market general index, which had gained
177pc since 2008, came to a sudden end last week after the fund manager,
BlackRock, said that it had cut its holdings in the emirate’s shares.

The fund acted amid concerns over high levels of speculation on the Dubai
market. Citibank has also questioned the overall economic benefits that will
come from hosting the World Expo.

“We think the government expenditure directed towards the Expo will need
to be diverted, at least in part, from other areas of spending to avoid an
excessive build-up of debt. Finally, the legacy economic value of the event
is highly uncertain, as the unutilised buildings from the Shanghai World
Expo 2010 attest,” wrote Farouk Soussa, Middle East economist at Citigroup,
in a recent note to investors.

To add to these challenges is greater regional competition. With more
progressive leadership, Dubai had a head start over the likes of Doha in
Qatar, and in some respects Abu Dhabi, in terms of opening up its economy.
But they are now both catching up fast.

Qatar is due to host the World Cup in 2022 and Abu Dhabi is now following a
similar path by building world-class airline and tourism projects.
Crucially, in the race to be the region’s pre-eminent city-state, both
sheikhdoms have vast wealth drawn from their oil and gas exports, which is a
luxury that Dubai does not possess. However, Shaibani remains unfazed.

“We see a fantastic seven years coming up,” he said. “We want to be the centre
of this region. I want this expo to last forever.”

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