Page last updated at 08:54 GMT, Wednesday, 2 December 2009

A rollercoaster ride: the UAE 38 years on

A man walks in front of the Dubai skyline
Dubai, and the other members of the United Arab Emirates have changed beyond all recognition in 38 years

By Roger Hardy
BBC Middle East Analyst

As the United Arab Emirates - a federation of seven Gulf sheikhdoms - marks its 38th birthday, has the Dubai debt crisis tarnished one of the Arab world's more notable success stories?

The UAE has survived for the better part of four decades. That in itself is an achievement.


When the federation was born on 2 December 1971, there was a good deal of uncertainty about its future.

The British decision to withdraw from the Gulf - announced a few years earlier - had made the rulers of the sheikhdoms distinctly nervous.

They reportedly told the British they were ready to pay for their troops to stay - an offer the government in London declined.

Pearls to petroleum

The Gulf had been a British lake for 150 years.

Britain had protected the local rulers from their more powerful neighbours, Iran, Iraq and Saudi Arabia.

Now they had to fend for themselves.

Ruler of Abu Dhabi Sheikh Shakbut bin Sultan [l] and members of the London Chamber of commerce
Britain once shielded Gulf leaders from their more powerful neighbours

Most observers would say the UAE's survival as a federation and its rapid progress towards modernisation have been remarkable.

Sheikhdoms which, before the age of oil, had relied on pearling and fishing now have glittering schools, hospitals, airports, hotels and high-rise apartment blocks.

The hardship, disease and illiteracy of a couple of generations ago are now a distant memory.

But the UAE's success has come at a price.

From the start, the federation has been dependent on the huge oil wealth of Abu Dhabi - and a large army of imported workers, mostly from South Asia.

The UAE was held together by the personality and largesse of the ruler of Abu Dhabi, Sheikh Zayed Al Nahyan - who was UAE president for more than 30 years.

Dubai, under Sheikh Rashid Al Maktoum, lacked Abu Dhabi's oil riches and so built itself up as a thriving trading centre.

Breakneck speed

Sheikhs Zayed and Rashid were very different characters - the one a bedouin chief, the other a merchant prince - but they were exceptionally able.

Sheikh Zayed al-Nayan
The first president of the UAE, Sheikh Zayed Al Nahyan, died in 2004

There was always a certain tension between conservative Abu Dhabi and brash, go-ahead Dubai - but despite the stresses and strains, the federation survived.

Sheikh Rashid died in 1990; Sheikh Zayed in 2004.

Under their successors, the problems became harder to manage.

Dubai's breakneck rush to modernity accelerated. It borrowed extensively as it embarked on a property boom designed to draw in business people, investors and tourists from all over the world.

"One could admire the material achievements," says Ivor Lucas, a former British diplomat with long experience of the Gulf, "and still feel this bubble was going to burst."

Dubai became heavily dependent on foreign labour and expertise.

Of a population of close to two million, over 80% are expatriates.

Emirati President Sheikh Khalifa bin Zayed Al Nahayan [l] and Dubai ruler Sheikh Mohammed bin Rashed Al Maktoum [r]
Population: 4,764,000
Gross Domestic Product: $199bn (£119bn)
GDP per head: $44,276 (£26,683)
Oil: Eighth largest world producer, 2.79 million barrels per day
Source: IMF

For many young Arabs and young Asians, Dubai was a dream world - a place where they could fulfil their ambitions and live the high life.

But others worried that, in becoming an international playground, it had lost its soul - "all lagoon estates and Russian hookers", as the author Robert Lacey remarked.

Over the last year, the dream turned sour under the impact of the global financial crisis.

Property prices slumped. Hundreds of building projects were put on hold.

Thousands of foreign workers were laid off - white-collar professionals as well as construction workers.

Even so, nothing had prepared the outside world for the magnitude of Dubai's debt crisis.

Hence there was widespread shock when, at the end of November, the state-owned conglomerate Dubai World announced it was freezing repayment of debts of almost $60bn.

Swallowing pride

The big question now is whether Abu Dhabi will bail out its spendthrift neighbour.

Fishermen in Bahrain search their oysters for pearls
Pearls were the region's main export until oil was found

"Abu Dhabi," writes Roula Khalaf of the Financial Times, "is caught in a trap."

Though worried by the impact of the debt crisis on the UAE's economy and reputation, it "has insisted it will not be rushed into action".

The old tensions and rivalries between the two emirates have not disappeared.

Many experts think Abu Dhabi's help will come at a price.

The Maktoum family - long used to promoting Dubai as a glittering role model - may have to change their ways and lose some of their much-cherished autonomy.

That will mean swallowing their pride.

For 38 years, the UAE has survived as the only federated state in the Arab world.

Its continuing survival is not in serious doubt.

But 2009 may be remembered as a turning-point in its rollercoaster ride to modernity.

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