Diapositive 1

The Emirates and the credit crisis
Ambassade de France aux Emirats Arabes unis
Mission Economique pour le Moyen-Orient
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
Ambassade de France aux Emirats Arabes unis
Mission Economique pour le Moyen-Orient
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
Ambassade de France aux Emirats Arabes unis
Mission Economique pour le Moyen-Orient
Important financial resources
Forecasts for 2008
9 GDP : $ 228 billion;
9 GDP/capita : 43 850 dollars ;
9 Petroleum : World’s fifth largest oil and gas resources;
9 Crude production : 2,8 Mb/d ;
9 Gas production : 200 Mm3/d;
9 Petroleum exportation revenues : 70 billion dollars/y;
9 Trade balance : $71 billion;
9 As part of GDP : 27.6%;
9 Foreign exchange reserves : $40.4 billion;
9 Net foreign assets : about $1.500 billion.
An overall comfort
Ambassade de France aux Emirats Arabes unis
Mission Economique pour le Moyen-Orient
No imminent crisis
9 $70 bn in net revenues
9 Prosperity via the general budget
9 Large surpluses in the economy
9 Equals 27.6% of GDP
9 Abu Dhabi SWF: World’s biggest, probably $1.000 billion
9 Savings and diversification ease impact of crisis
9 50% of revenues are saved
9 Petroleum 1/3 of GDP:
9 Oil financing industrial development
9 Regional aluminum hub: 25% of GDP
9 Research and technology important
An outward looking regional player…
Ambassade de France aux Emirats Arabes unis
Mission Economique pour le Moyen-Orient
Services: strategic sector in the Emirates
9 Annual growth: 7-10 percent
9 Infrastructures are underpinning economic prosperity
9 Regional hub for transport, by air and sea
9 Shipping: Dubai to increase control over world’s petroleum route
9 World’s third
largest centre for
re-exportation
9 Region’s premier
centre for
conventions
…in strong expansion
Ambassade de France aux Emirats Arabes unis
Mission Economique pour le Moyen-Orient
Local specialization give overall diversification
9 Development founded on petroleum and financial services
9 Abu Dhabi: The major oil producer, prudent developer
9 Dubai: The financial hub between London and Singapore
9 The Emirates: an attractive capital destination
9 100% foreign ownership in special zones
9 A favorable fiscal system (no taxes)
9 Rule of law
9 High quality of services
9 Infrastructure well developed
A new financial powerhouse
Ambassade de France aux Emirats Arabes unis
Mission Economique pour le Moyen-Orient
…with galloping prices
9 Risks of overheating
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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
Ambassade de France aux Emirats Arabes unis
Mission Economique pour le Moyen-Orient
Crisis revealing weak point
9 Dubai’s force…
9 Continuous brand-building:
9 …driven by logic of « the
higher and bigger, the better »
9 A global shopping centre
9 Early diversification from oil
9 Hub for
9 Innovation
9 Tourism
9 …is also its weakness
9 High debt ratio, shares in freefall
9 Crude reference price too
ambitious ($80/b)
9 No rating
9 GDP: property a driving force
9 Bubble created
9 Speculative market
Turmoil in UAE financial market
Ambassade de France aux Emirats Arabes unis
Mission Economique pour le Moyen-Orient
The crisis: spread through the banks
9Local banks’ weaknesses highlighted
9 Too many, short of money
9 Loans to negative interest
9 Smaller banks exposed to property bubble
9Foreign investors pulling out
9 €40 billion outflow
9 Low liquidity in circulation, interbank lending drying up
9Mergers on the brink
9 Mortgage giants (Amlak and Tamweel) to fusion in Dubai
9 Developers and banks to follow suit?
Abu Dhabi’s rescue pack…
Ambassade de France aux Emirats Arabes unis
Mission Economique pour le Moyen-Orient
Capital flexing financial muscles
9 Governmental emergency measures
9 All deposits guaranteed by central banks
9 Dedicated credit facilities for banks facing financial difficulties
9 Slashing interest rates
9 Sovereign Wealth Funds mobilized
9 Internationally, as financial assets are offered cheaply
9 Domestically, as Dubai will sell to refinance debt
9 Buys into crippling property market?
Less credit, more scrutiny
Ambassade de France aux Emirats Arabes unis
Mission Economique pour le Moyen-Orient
Savings to secure soft landing
9 Strategic sectors given priority
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Less housing and office space
More transport
Energy (especially nuclear)
Water treatment
9 From risk takers to prudent developers
9 Occasion to reform financial system, regulation to be reinforced
9 More transparency to be introduced?
9 Speculator’s market to weaken
9 The reinforcement of federal authorities
9 Rescue pack will make Dubai more dependent on capital
9 Less autonomy for local decision makers?
9 End to public-private development model?