The Economist ponders the robustness of Dubai the UAE’s political system and the future of Sheikh Mohammed bin Rashid al-Maktoum.

The article encapsulates much of the chatter and questioning currently making the rounds in Dubai (whilst mistakenly generalizing across the UAE). Alongside the existential-soul-searching, there is plenty of concern about the economic and political fall out from the slowdown.

Many of the prime issues facing Dubai and the UAE are discussed:

Conflicts of interest.
The Economist rightly points out the pervasive and systemic failures of corporate governance while also touching on the nebulous boundaries between the state, business and the rulers.

In the words of a longtime adviser to the government, “you have a confusion between government and commercial operations. There is nobody in Dubai in government who isn’t first and foremost a businessman.” There are “massive conflicts of interest” across the board. “There are no checks and balances…the incentives for saying nothing are great.”

It wasn’t that long ago that the leading regulator of business in Dubai was also chairman of the city’s biggest public firm. The over-stretched and over-chummy boards of Dubai’s leading firms all featured the same handful of local businessmen and technocrats (a mistake Abu Dhabi seems to be repeating). It used to be argued that this was due to a lack of qualified locals but this has long since ceased to be the case (and besides what’s the use of a qualified but over-stretched board?).
The negative effects of this set-up are serious and materially under-reported.

Transparency.
The Economist:

Abu Dhabi is ahead of Dubai in terms of government openness and efficiency. But in both the emirates all the big decisions are still taken behind closed doors.

It is notable that almost nobody in business or government is prepared to talk publicly.

I am always going on about the need for Dubai to take a more transparent approach, unfortunately secrecy still seems to be in its DNA- a relic from another far less prominent and far more isolated era. Dubai now more than ever depends on foreign capital, debt and talent all of which reward openness and transparency.
One of the glaring and most hurtful opacity examples given concerns the confusion surrounding Dubai’s debt figures:

Earlier this year a leading Dubai figure said that the statelet’s consolidated debt was around $80 billion, but no one has issued a detailed breakdown of accounts; only a minority of Dubai companies are listed. Others say that the true sum of debt may be closer to $120 billion.

I think the difference of the figures may pertain to total foreign debt vs. total debt but it’s impossible to tell as the authorities have been deafeningly quiet since Mohammed Al Abbar‘s comments referred to above (He claimed Dubai had US$100 billion in assets without elaborating on what exactly those assets were). I really think Dubai is shooting itself in the foot with this deny and obfuscate strategy. All this segues nicely into the next issue.

Souk Al Bahar by Momentary Awe

It is not clear who is in charge—apart from Sheikh Mohammed bin Rashid al-Maktoum
He appointed a respected local man, Nasser al-Shaikh, to take over the department of finance and sort out the crisis.
But in May he was summarily and mysteriously sacked.

This has been one of the most puzzling and unexpected developments for me. I can understand how the government was initially caught off guard by the severity of the global event and its amplified consequences for the city, but there has been a conspicuous lack of leadership since. Where is the customary Dubai ‘take the bulls by the horn’ approach?
No doubt there is intense in-fighting and finger-pointing amongst Dubai’s leading triumvirate and its prominent families but nine months later there’s still nobody stepping up to coordinate the city-state’s plans and interface with the press, expatriates and investors.

What’s next?
The Economist:

Indeed, the Dubai disaster may prompt Dubai’s Maktoum family and Abu Dhabi’s ruling Nahyans to strengthen the federation and work towards a system of greater accountability and openness.

This has perhaps already started to happen post-bailout with the cabinet reshuffle that saw two Abu Dhabi royals appointed as Deputy Prime Ministers (a post that did not previously exist I believe). A friend tells me a partner at one of the consulting firms says the crisis ‘Put the united back into the United Arab Emirates‘. Further political reform and federal centralization is likely.

It is inevitable that Abu Dhabi will have more say over the financial management of the other emirates as its role as ultimate underwriter of liabilities always implicitly assumed seems to have been made explicit with the Dubai bailout.

The Economist signs off with:

If the economy gets stuck, the glory days, at least of the Maktoums, may be numbered.

This sounds like baseless, mild shit-stirring. The Maktoums’ position is as entrenched as it ever was and Sheikh Muhammad as far as I can see remains a very popular leader amongst locals and expatriates. But obviously if we get a Roubini-esque full scale and prolonged depression in Dubai that hurts the ruler’s local consitituencies, all bets are off.

Benevolent Dictatorship v Democracy.
My admittedly far from objective opinion is that the leaderships in both Dubai and Abu Dhabi have been qualified successes. When taken within the uninspiring Middle Eastern context, the verdict is positively promoted to ‘beacon of hope’ levels. My own baseless take is that the UAE’s leaders are genuinely well-intentioned and will cautiously open up to more institutional-based, democratic in nature reforms in the country’s politics.

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