Jordan is not Dubai

[Yusuf Mansur]

Two years ago, it would have been odd to use such a title for a column here. But at least for this week, it is most opportune to remind us all that Jordan is not Dubai.

Having said this, we should not write off the Dubai economy, which this analyst believes will rise again.

Dubai, which for over a decade has been making headlines as the model envied worldwide, is back in the limelight, but this time for a different reason: the UAE government asked creditors of Dubai World, a government-backed conglomerate, on November 25, to agree to forestall repayments until May 30, 2010. The reprieve does not include Dubai Ports World, the operator of one of the biggest container terminals in the world, but includes the $4.05 billion due on December 14 to holders of debt to Nakheel (Palm Islands).

Given that the Dubai government and its conglomerates owe a hefty $80 billion, which is a drop in the ocean when compared to the trillions poured by the industrial world to safeguard their economies, the world financial market started a panic that hit most stock exchanges.

Judging from the media calls received daily by this analyst about the impact of such a happening on the Jordanian economy, I believe small Jordanian investors will panic for the wrong reasons and adversely affect the domestic financial market. This means that it is important to remind ourselves that Jordan is not Dubai and our linkages with it, even though complex, are not a source of worry.

Dubai has been working on reform for almost three decades now and it never slowed down; in some years, it did more, to jumpstart even greater growth. Its only flaw was that it never foresaw the global credit crisis, but in its defence, neither did the big players such as the US, UK, Germany and the EU. And when the contagion started, it was the only economy in the region that was expected to be hard hit by the crisis because of the exposure of its financial and credit markets. Such exposure was due to the purveyance of sophisticated credit, heavy involvement of world banks in the Dubai credit market, and the fact that Dubai had been borrowing to finance growth.

Advanced global economies, who many times could not avoid the display of their biased views against this part of the world, were critical. Jordan and other economies tried to emulate Dubai. Even Abu Dhabi tried to copy the Dubai model. But none succeeded like Dubai, whose leadership motto, “we do what others say they will do”, remains true. It seems none of the other countries could combine an enlightened vision for long-term growth and development and an able body of executors of the vision.

Back to Jordan: our banks were never exposed to the credit crisis and, therefore, continue to suffer no external exposure whatsoever. Our valued remittances from Jordanians working in the Gulf economies were never at risk. In fact, after falling by 6.5 per cent in the first nine months of the year, the remittances started to rise again as oil prices took off (currently at $77) with the decline of the dollar. No more than 700 people returned from the Gulf last year. Those who lost their jobs, rationally, sought jobs elsewhere in the Gulf where unemployment is lower and pay is higher than Jordan.

Our tourism receipts have not faltered either. Exports stagnated slightly in value, but not in volume, and the trade deficit narrowed as people became unable to finance trade operations.

In fact, Jordanian banks are more prudent than necessary, and their prudence, in the collective sense, has caused a dangerous slowdown in the economy. When a bank is prudent, it is good; however, when all banks refuse to lend due to prudence, they cause an economic recession. This observation is basic economics and goes back to the early part of last century.

So, the way forward is for government and its pundits to explain to people that we are not Dubai; our financial market is not that of Dubai; we have little or no linkages with Dubai other than those of proximity of culture, tremendous enduring and growing friendship, and admiration.

The government must tell the people in Jordan that the financial market here is safe (way too safe and stagnant in my view), and that money may come from the Gulf looking for a safer haven for their funds, in Jordan. Yes, Jordan can benefit from Dubai’s temporary setback, but only if we act positively, and fast.

JordanTimes, 1 December 2009

[Nadine Toukan]

Public relations machine spins out of control in The National/Dec 15.

I've starting to think through a whole other theory though! Very Machiavellian

[Nadine Toukan]

Because the guys in the UAE do really get it - ok, not their PR :) - this is part of what makes nations great. Doing the right thing! And for those who kept mocking my confidence that AbuDhabi would do this, here you go: Dubai Receives $10 Billion Bailout From Abu Dhabi and
Dubai Financial Support Fund: Statement in full.

So let's see how good news shakes things up. Hopefully the critics will spread the positive convo as wide as they do the negative. Today AbuDhabi's big fat check to Dubai is a good story to spread!

[Nadine Toukan]

And Dubai is not the center of the universe :)

I've been fascinated by the Dubai World communication fiasco. And that's all it is. Investments fault on their debts time and time again, banks reschedule loans, and visionary investors work on the day after - that's the market, yesterday, today and tomorrow. Dubai World is just having a bad year. What they did fail big time at was the way in which they chose to share their story. They neglected the absolute power of timing, place and semantics when telling your story.

A fragile audience, frayed marketplace, and cultural shutdown for days at uber viral times is hardly the right stage to stand on and tell the world of your woes.

I found this announcement interesting - it really doesn't say anything new or anything we don't know, but the WB and others have to roll out such statements to counter DW's lousy storytelling skills :)

Agencies, Sunday, December 06, 2009
'Dubai World debt is manageable'
World Bank President Robert Zoellick and Saudi Arabian Monetary Agency Governor (Sama) Muhammad Al Jasser reassured investors and played down the impact of Dubai World debt issue and said it is manageable.

The Dubai World debt crisis is manageable and will be contained, said Zoellick in India yesterday.

"There is no danger for the banking sector in the kingdom," Al Jasser said, adding it would be up to the banks to decide on provisions they may need in the future.

He said investors should not sell shares and exit the market.

He said Saudi banks investments in Dubai World is very small, around just 0.2 per cent of the balance sheet.

"What happened in the markets outside of the Arab region is much worse than what has happened and what will happen in the Arab region... there are no risks [and no reason] to exit the market or sell any shares because of this problem," he added. Saudi Arabia's index is the best performing market in the Gulf this year.

The World Bank's Zoellick said he is encouraged by India's economic rebound and may look at financing bigger projects in the nation. source EmiratesBusiness 24/7

[Yusuf Mansur]

Moreover, just read this: the Arab Bank stated that its exposure to the Dubai debt crunch is US$100 million, hardly worth a mention given the arab bank's financial resources and assets. So, back to my main message: we need not to worry too much, pessimism can create the worst crisis even if all the fundamentals are strong. Hope the government will allay fears through proactive statements which should have emerged a few days back. Unfrotunately, the Amman Stock Exchange has been more hit than the global markets which carry most of the Dubai debt. In other words, we are not investors in Dubai, the reverse is true.

India took over the Smart City from teCom, a Dubai telecom firm, and assumed management of the project and is promising investors an even better model. India, whose owrkforce in the UAE remits US$10 billion per annum is not as badly panicked as we are.

Please pass the message around.

[Yusuf Mansur]

Yes, Dubai does have some investments in Jordan and they are very small in comparison with Kuwaiti, Iraqi and Saudi investments. Their investments are safe here and hence are not subject to contagion. So, given that Dubai is not a major investor in Jordan , and Dubai is not bankrupting either, we should not worry.

I truly believe that the rgeatest asset of any economy is its managment team. Dubai has an excellent executive office manned and womaned by Jordanian talent. We don't have a good economic management team. And yes, the Central Bank here has not been doing well vis the economy, hence the downward slide. The PM is not speaking and this will let speculation turn into a scare--look at the Amman Stock Exchange; in spite of global and Gulfi assurances that the Dubai economy is safe and sound, we react negatively because those who manage us were on vacation--may be they should have stayed there.

[Razan Khatib]

Thanks Yusuf for the analysis, I was just trying to see if you have written anything on the subject as you are one of the few honest and transparent economists around!

I agree with you that the Jordanian banks are more prudent than necessary, still as small business owners we face negligible support from Jordainan banks or international banks operating in Jordan. But this is more related to Central Bank strict policies, no?

I join Deena is her quest regarding all Dubai financed investment projects in Jordan.

[Deena Dajani]

but what about the UAE-financed investment projects in Jordan? wouldn't these be affected?