Dubai Collapses - Lessons For Malaysia

The Gulf emirates (Dubai, Abu Dhabi, Sharjah, Fujayrah, Ras Al Khaymah, Ajman) are facing severe economic duress. 

Dubai has been particularly hard hit. Here is a short YouTube video about the crisis in Dubai :

Link :  https://youtu.be/WMzV-pD9iLA

Dubai's problems began much earlier - even before the oil prices first began to crash SIX years ago in 2014. 

Now with the second oil crash of 2020 plus the Corona Virus the death knell has sounded for Dubai.  (In old Europe a death knell was the sound of a bell that went ding dong when someone was about to be hung or executed.)

Dubai is / was the Golok of the Gulf.  Saudis came to Dubai to drink, party, womanise, have fun and to meet their bankers (including conventional bankers). Dubai has no oil (or very little) so the Emir of Dubai turned to the hospitality industry, banking, shopping, real estate and air travel to cater for his oil rich Arab neighbours.  

Dubai also became the destination of choice for westerners to open their offices in an Arab country without missing any of the comforts of their homes (namely a fairly open society where western men and women could go about as they pleased).

Dubai also had a pulse on the Iranian money where wealthy Iranians who had money to hide made quicks stop in Dubai.  With the increased tensions and sanctions between Iran and the Arabs, US and Israel the Iran money came to a stop. 

Then with the massive economic slowdown in the US and Europe in 2008 (12 years ago) the investors with money to splurge on trinkets like the Palm Jumayrah artificial island, the Jebel Ali artificial island and the now defunct The World artificial islands dried up. 

When oil prices crashed in 2014 (SIX YEARS ago) the ghost city blocks began to appear. Facebook and YouTube showed empty shopping malls, empty office towers, expatriates leaving Dubai and abandoned Ferraris at the airport. Times were bad.

This was from SIX years ago.

Now in 2020 the further crash of oil prices and the Corona Virus appear to be the final nails in the coffin for Dubai. As the video say over 70% of businesses in Dubai are expected to close down over the next seven months. 

Many people do not realise that for quite a few years now the Dubai economy has been propped up by generous cash infusions from Abu Dhabi (UAE). Here is another old headline : 

Throwing good money after bad.

The Middle East is basically a one product economy - oil.  Just like arab restaurants which seem to have just one main dish - mandey rice - a desert version of the Indian briyani. 

So when there is an oil overflow, everyone slips and slides. 

Dubai has grossly overbuilt the real estate sector. The video says that in 1979 the tallest building in Dubai was NINE stories high or something. ALL the skyscrapers that stand now were built AFTER 1998. Including the world's tallest building the Burj Khalifa. That was just 22 years ago.

Abandoned buildings in Dubai - old picture 2017

Real estate becomes overbuilt when there are not enough people to take up the real estate - no matter how low the price. This is the situation in Dubai now.  

In Malaysia only Johor may suffer the same fate but even then if the prices move low enough the excess real estate will be taken up. (Because we have Singaporean and Chinese buyers who do not depend on oil money.) 

I doubt Dubai will ever be able to recover again. And if a war breaks out between Iran and Saudi Arabia or if there is a coup de etat / civil war inside Saudi Arabia  (both are very likely) then the entire Gulf region will collapse into a desert hole. This is not an impossible scenario. Do mark my words on this. 

Hundreds of thousands of expatriate workers (Indians, Pakistanis, Egyptians, Africans) have already left the Gulf countries and returned to their homes. Where they face bleak economic prospects as well. 

What can we learn from this?

To survive a country must be competitive. 

A country must have citizens who can compete and sell useful products and services in an open and free market. 

Baru boleh hidup lama sedikit.