By Tensing Rodrigues*
That’s the image that Mir Mohammad Ali Khan, internationally renowned investment banker and one time federal advisor to the government of Pakistan, uses to describe the current state of Dubai’s economy: Ice cone in a hot summer day near Jumeirah beach.
This beautifully written report titled ‘Dubai’s Economy Is Melting like a Glacier in the Desert’ is both gripping and thought provoking. I am sharing it here for two reasons. One, a lot of our investor readers may have a stake in that economy, two, Dubai is a good example of what can happen to a country that lives on borrowed money (and therefore on borrowed time). Many cemeteries in Goa have an onerous quote on their main gate: ‘Aiz mhaka, faleam tuka’.
Dubai is in a deep trouble for a simple reason it does not produce anything. It was living on the money that sloshed through its banks and business houses. Surrounded by once super rich oil sheikhdoms, it was where the spoilt children from the gulf played and squandered the easy gotten wealth. Wealth breeds wealth; the oil money generated income for Dubai, making it wealthy. And people from all over flew to it to share in that wealth: fabulous hotels, exotic camel races, and for the world’s thick walleted shopping; the gold souk was the icon of Dubai.
But it no longer may be. Gold souk has empty stores for the first time in 35 years. One could not find a single empty store to rent or buy earlier. Mir Mohammad Ali Khan paints a vividly macabre picture of the devastation that has been wrought in the recent time: “Arabian Center, Sunset Mall and Al Ghurair have stores shutting down every week. Emirates Towers with the most chic restaurants is witnessing a closure upon closure of restaurants. Hotels have cut their average price to 30 per cent of what they used to charge and last month alone (June 2018) 18 hotels shut down, including Savoy, Ramada, Richmond, Crest and Jarmond.”
At the heart of the crisis lies the ‘postdated cheque.’ I issue you a postdated cheque for a payment on the strength of a similar cheque I have received for my dues. I am referring to the business to business payments. The cheque that I have received has been issued on the basis of another cheque that my payer has received. And based on my cheque, you issue a cheque to someone else. And so on, and on…..either side. As long as the music plays, the magic hat keeps going from hand to hand, spelling prosperity for everyone who participates in the game. But when the music stops, that is, when one cheque bounces, the whole series of cheques bounce and the mirage of prosperity vanishes in the desert air.
From January 2018 to the end of May 2018, 26 billion Dirhams worth of cheques have bounced; 1.2 million cheques in total. This constitutes more than one third of all cheques issued in 2017 which were to come due in 2018. Now you can imagine the force of the tornado that the postdated cheque has unleashed.
In comparison the ceasing of mining in Goa looks chicken wings. But Dubai’s current predicament is just apt to understand the tragedy that lies hidden behind mining. Note I have not said ceasing of mining. Both mining and tourism just like Dubai’s financial business make Goa’s prosperity too ephemeral. The ceasing of mining is only an advance alert of the bomb ticking underneath the gold foil. Mining, irrespective of whether it resumes or not, is now only the fag end of a dream and so is tourism. Costas del mierda are already upon us costas de la muerte could soon be with us. What do we do then?
As rats flee the sinking ship, the cheque bouncers are fleeing Dubai. That makes the fall even faster; as the authorities have then no recourse; the chance of making good the loss at least in part, disappears totally. 32,000 connections of Etisalat, the best known phone company of Dubai, were cancelled between March and April of 2018; the owners have fled Dubai. And they have fled with their families, never to return; in the last month or so 28,000 children were withdrawn from schools without registering themselves for the end of summer sessions. Thanks to the detailed information that Mir Mohammad Ali Khan’s report contains.
As long as the music lasted we have enjoyed mining and tourism; what when the music stops ? Don’t we need something more real ? Remember, when the hull springs hole, the rats will be the first to flee; we will be the ones left to accompany the ship to the bottom.
* The author is an investment consultant. Readers can send their comments and queries to email@example.com