Comment | Wednesday, 02 December 2009

Smart City’s trial by fire

Among the many wise-after-the-fact comments to the multibillion potential default in Dubai somebody described what had been going on “as surfing on a bubble”. Fortunes were made in Dubai whether or not the risks were evident. Everyone wanted a piece of the pie. It was what everybody else was doing too. The dynamism was dizzying.
Getting out in time is always the trick. It was a gamble and those who raised the stakes and played on were always the ones more likely to come to tears.
Dubai was doing what the rest of the world was doing. It was doing it better and faster. It might have gone on forever if the rest of the world had not gone into recession. Now that it faces the downturn we witness a far more dramatic spectacle than can be found elsewhere were no surfing on bubbles had been attempted or could be attempted.
In the wake of the Lehman Brothers crash, the world cannot witness the potential default of a such a star player as Dubai World without over-reacting.
Defaulting on a debt of $60Billion cannot be a problem only for Dubai. The far flung assets of Dubai World and its subsidiaries do have a global connotation. If the group were to liquidate them in too much of a hurry the damage from this default would be far greater than the immediate loss which may be suffered by its creditors affecting markets as diverse as its investments ranging from real estate to entertainment.
News of a request for postponement of payments due on bonds of such magnitude could only make an already jumpy market more skittish. Nobody can be sure whether the people he or she deals with will be affected. It was the news we needed least to know.
The truth is that nobody knows what the effect of this potential default will be. Nobody can know. Will Dubai’s oil rich neighbours take up the slack and solve the problem? How soon and to what extent? On what conditions and will these be acceptable? If not?
A Smart City Press release reiterating its commitment to its investment in India was copied to the press in Malta addressing at once the controversy in India and the concerns in India and in Malta about the projects’ prospects. Only the future can tell us whether or not such concerns are well founded. We must interpret the Smart City reassurances as sincere and well-intentioned but project creditors would naturally become ever more cautious and overall expectations dampened.
This may not be all bad for the project. In a scenario in which the UAE sort out Dubai’s troubles, and Smart City stays on course, a climb down from the initial hype and political bombast which ushered it in may be a healthy outcome. The post-Lehman Brothers world will long be suspicious of anything which sells itself hyperbolically. Caution, prudence and steady growth rather than high stakes and spectacular promise will be the winners.
Stock markets took fright at the Dubai World news and with good reason but the region of origin of the tremor may have more than the means necessary to repair the damage done. A quick recovery from panic and a demonstration of substantial financial strength may have the salutary effect of restoring confidence far sooner than any glimpsing of small signs of recovery from the global recession.
For a long time to come we will be looking for real economy factors and eschewing the glittering allure of speculation. Dubai was able to inflate its bubble and surf on it because of its strategic location and its time honoured function as a focus of trade in the region. The basics have not changed. Even with its bubble burst or grievously deflated, the emirate will long continue to serve its neighbours as it always has. Thanks to its bubble gamble, it is better able to serve them than ever before. It has gained skills, resources, significant infrastructure and global fame. Its most recent experience can be expected to benefit it by requiring the institution of greater scrutiny devices to avoid a recurrence in the next few generations. When the dust settles in Dubai it will be a different place, less glamour oriented and far more appreciative of its long-term assets, tangible and otherwise.
So far Smart City Malta has been admired and envied. It has held many of us in awe and sometimes in resentment at the preferential treatment bestowed upon it. If it ploughs through the tough time and begins to deliver it will earn our respect and more of us will be willing to take “ownership” of a project that often seemed a little bit too good to be true.


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02 December 2009


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