The Emirates and the credit crisis Hard times in the land of plenty? Pierre Mourlevat Head of Regional Economic Department of the French Embassy November 2008
From «chaotic» development to increased regulation 1/ The Emirates: recent success 2/ But vulnerable to external turmoil 3/ Dubai s fragility and Abu Dhabi s rescue pack 4/ Towards new strategies
A rich corner of the world Important financial resources Forecasts for 2008 GDP : $ 228 billion; GDP/capita : 43 850 dollars ; Petroleum : World s fifth largest oil and gas resources; Crude production : 2,8 Mb/d ; Gas production : 200 Mm3/d; Petroleum exportation revenues : 70 billion dollars/y; Trade balance : $71 billion; As part of GDP : 27.6%; Foreign exchange reserves : $40.4 billion; Net foreign assets : about $1.500 billion.
An overall comfort No imminent crisis $70 bn in net revenues Prosperity via the general budget Large surpluses in the economy Equals 27.6% of GDP Abu Dhabi SWF: World s biggest, probably $1.000 billion Savings and diversification ease impact of crisis 50% of revenues are saved Petroleum 1/3 of GDP: Oil financing industrial development Regional aluminum hub: 25% of GDP Research and technology important
An outward looking regional player Services: strategic sector in the Emirates Annual growth: 7-10 percent Infrastructures are underpinning economic prosperity Regional hub for transport, by air and sea Shipping: Dubai to increase control over world s petroleum route World s third largest centre for re-exportation Region s premier centre for conventions
in strong expansion Local specialization give overall diversification Development founded on petroleum and financial services Abu Dhabi: The major oil producer, prudent developer Dubai: The financial hub between London and Singapore The Emirates: an attractive capital destination 100% foreign ownership in special zones A favorable fiscal system (no taxes) Rule of law High quality of services Infrastructure well developed
A new financial powerhouse with galloping prices Risks of overheating High inflation: 15% Up to 40% for some basic commodities Peg to dollar has negative impact Price controls are implemented Growth is driven by low-income expatriates, vulnerable to downward trends
Dubai: more exposed than others Crisis revealing weak point Dubai s force Continuous brand-building: driven by logic of «the higher and bigger, the better» A global shopping centre Early diversification from oil Hub for Innovation Tourism is also its weakness High debt ratio, shares in freefall Crude reference price too ambitious ($80/b) No rating GDP: property a driving force Bubble created Speculative market
Turmoil in UAE financial market The crisis: spread through the banks Local banks weaknesses highlighted Too many, short of money Loans to negative interest Smaller banks exposed to property bubble Foreign investors pulling out 40 billion outflow Low liquidity in circulation, interbank lending drying up Mergers on the brink Mortgage giants (Amlak and Tamweel) to fusion in Dubai Developers and banks to follow suit?
Abu Dhabi s rescue pack Capital flexing financial muscles Governmental emergency measures All deposits guaranteed by central banks Dedicated credit facilities for banks facing financial difficulties Slashing interest rates Sovereign Wealth Funds mobilized Internationally, as financial assets are offered cheaply Domestically, as Dubai will sell to refinance debt Buys into crippling property market?
Less credit, more scrutiny Savings to secure soft landing Strategic sectors given priority Less housing and office space More transport Energy (especially nuclear) Water treatment From risk takers to prudent developers Occasion to reform financial system, regulation to be reinforced More transparency to be introduced? Speculator s market to weaken The reinforcement of federal authorities Rescue pack will make Dubai more dependent on capital Less autonomy for local decision makers? End to public-private development model?