Sandstorm at Dubai, or the rebirth of Ny-Lon-Kong-Mum | india | Hindustan Times
Today in New Delhi, India
Apr 24, 2017-Monday
New Delhi
  • Humidity
  • Wind

Sandstorm at Dubai, or the rebirth of Ny-Lon-Kong-Mum

india Updated: Nov 29, 2009 20:44 IST

In September 2004, Dubai was positioning itself as an international financial centre (IFC) aspiring for a status not very different from Nylonkong (New York, London, Hong Kong). Its goal was to become a financial centre in a vast time zone between Hong Kong and London and offer the entire bouquet of financial services —banking, capital markets, asset management, reinsurance, Islamic finance and back office.

Five years later, its real economy in a shambles, what the world (financial and real) is seeing is the 1.9 million square km of a desert that surrounds this Emirate, one of seven that comprise United Arab Emirates (UAE). The only visible sign of the go-go speculative activity, led notably by adventurers in finance who created the world’s largest finance-driven real estate bubble, are camels chewing grass. Somewhere in this financial sandstorm, I see the rebirth of Mumbai as an IFC (the idea was first born in February 2007).

With the fall of its climatic opposite Iceland barely 12 months behind us, we all know what happened. Here’s a land that has no natural resources. It has no intellectual or human capital that could help it turn into a service centre — less than one in four is a citizen of UAE; two out of five are Indians. All it has is money. And it had a huge aspiration to use that money to become one of the global hubs of money flows and morph the area into an oasis of buildings that would leave Manhattan behind.

Through Dubai World, a company set up in July 2006 by Dubai’s ‘Ruler’ Sheikh Mohammed bin Rashid Al Maktoum, also Prime Minister of UAE, the city accelerated its leverage — you have a rupee, you use that to borrow 10, invest that, and multiply returns on what you have. While developing the city Dubai also became a sovereign wealth fund and began investing, through Istithmar World, set up in 2003 with $12 billion (Rs 56,000 crore).

But Istithmar (Arabic for “investment”), was in turn held by Dubai World and through it by Maktoum. When private fortunes run the economy of a state, the fate of nations affect that wealth. How could Maktoum’s wealth remain protected when the world fell of the cliff in September 2008 following the fall of Lehman Brothers and entered its biggest recession-slowdown since the Great Depression?

There are three reasons why the world will save this king. One, the financial world is teetering on a tightrope and the smallest of jerks will throw it into a deep void of uncertainty, something it can’t afford. Two, there is enough money sloshing around the world, the result of low interest rates in developed economies. Three, there is the issue of livelihoods — three-fourths of UAE’s population is from across the world, a number that leaders will not ignore.

I believe, the solution to Dubai is around the corner. Abu Dhabi has already agreed to providing case-by-case aid and the IMF that carries the stakes of the world and powered by a $500 billion transfusion earlier this year gets ready to loosen its purse strings. As market indices begin to resemble heart seizures, a lot of people in a lot of financial centres will be making money.

Oh, and with competition reducing between the London-Hong Kong time zone, the end of Ny-Lon-Kong-Dub could mean the rebirth of Ny-Lon-Kong-Mum.