Page last updated at 15:01 GMT, Friday, 27 November 2009

What spoiled the party in Dubai?

The opening celebrations for Atlantis, The Palm Resort, and the Palm Jumeirah in Dubai
The Atlantis launched last year with a party rumoured to cost $20m

By Ben Thompson
BBC Middle East business reporter, Dubai

This time last year, Dubai was making headlines for entirely different reasons.

It was the opening party of the Atlantis hotel, the star attraction of the city's man-made palm-shaped island. Organisers spent millions on the fireworks and even more on the celebrities.

As the sky exploded overhead, broadcast live around the globe, it was Dubai's message to the world that it had arrived.

But as Dubai's elite sipped their champagne, the financial crisis was already beginning to take its toll in the West. For Dubai, this was the last night of extravagance before the credit crunch came knocking.

And so, 12 months on, the headlines are very different. But who spoiled the party, and how?

Perfect storm

Living in Dubai, as I have for the last two years, it seems everyone has a different theory.

Now they've acknowledged the debt, they can actually do something about it
Dubai businessman

Some say it was the perfect storm: a property bubble waiting to burst, with prices rising by the day, fuelled by rampant speculation.

Built on and bought with borrowed money.

No-one asked how, or even if, you could afford to pay it back. Caught up in the euphoria, credit checks and responsible lending could wait. Local media confidently predicted the Middle East was immune.

"Dubai Safe from the Storm" read one headline. Just how wrong it proved to be.

Others suggest the problem was and still is, a lack of transparency.

Mixed messages

Government and business dealings here are done behind closed doors.

Appointments to influential government or corporate positions are more about connections than qualifications.

Dubai skyline
Dubai will soon have the world's tallest building

And with few official statistics to reassure investors, rumour and speculation has filled in the gaps instead.

That's been one of Dubai's biggest problems.

The city took a battering from the international media but rather than fighting back with facts, Dubai opted instead to send the PR machine into overdrive.

'Dubai bounces back' screamed the local newspapers, right next to their foreign counterparts offering the altogether more sobering 'Goodbye Dubai'. With such mixed messages it's no wonder local and international investors have found Dubai so difficult.

So just how worried are people here by the announcement from Dubai World?

On the face of it, not very. It changes little for people's day-to-day lives. Given that it's currently the holiday of Eid, Dubai's notoriously congested roads are calm and quiet.

That is, perhaps, why the government chose this week to make the announcement.

It gives residents and businesses here time to digest the news and work out what it means.

The global impact hasn't gone unnoticed, but look around at the number of people enjoying the sunshine on the beach, and it seems those worries can wait.

Worst has passed?

There's also still the feeling that the worst has now passed.

For those who survived the summer, marked by widescale job losses and falling property prices, there is of course relief.

Those that do remain are willing Dubai to succeed, because for many, the thought that the Dubai dream might be over, is too difficult to bear.

In Dubai's financial community however, the reaction has been altogether more muted.

Partly because many businesses are closed for the holidays, but partly because they knew much of this already.

It was no secret that Dubai was heavily in debt, nor that it was struggling to pay back the money. This week's request to delay the repayment, was simply official confirmation of what was already on the cards.

And to some, the idea that Dubai is 'coming clean' about its debts in this way is a big step forward.

"Now they've acknowledged the debt, they can actually do something about it," says one local businessman.

"Before they were in denial, this is what everyone needed to hear."

Abu Dhabi

But the remaining unanswered question is whether neighbouring Abu Dhabi will come to the rescue.

The oil-rich emirate certainly has the cash but it's already bailed out Dubai to the tune of $10bn. It might be wondering where that money went.

The emirate's flag bearer in global investments
Has a central role in the direction of Dubai's economy
Assets include DP World, which caused a storm when trying to take over six US ports
Property arm Nakheel built the Palm Island and The World developments

Much has been made of the relations between the two city states, both here and abroad. They share much in common, not least the family connection of the two rulers.

But Dubai is the wild child of the two.

It stole the headlines, racked up the debts and has now come cap in hand for a bail-out. It seems it's not quite ready to forgive and forget.

Without real evidence, speculation is already mounting here about its possible motives.

Abu Dhabi could be forcing Dubai to sweat it out.

To put its own affairs in order before throwing more cash at the problem. Altogether more troubling would be that Abu Dhabi needs the cash itself.

Those scenarios are likely to mean short-term pain for Dubai, and in particular its international reputation. But in the longer term it puts Dubai on a more solid footing.

Last year's party was all about telling the world that Dubai had been born.

Now, by putting its financial affairs in order, it's about telling the world that its finally grown up.

Print Sponsor

The BBC is not responsible for the content of external internet sites

Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit


Americas Africa Europe Middle East South Asia Asia Pacific