Dubai going Bankrupt

POLITICS - Dubai, the Islamic City of Gold in the United Arab Emirates, is suffering heavily under the drop in oil prices and the American recession. In fact, their economy is so bad they're starting to run out of credit.

Lets start with some statistics:

53% of the new construction in Dubai is now on hold, because investors have either backed out or want their money back. The condo and housing market in Dubai has collapsed. The suspended construction is worth $582 billion USD.

Property values in Dubai have fallen 30% since September 2008, and some sectors have fallen in value by as much as 50%. Values overall have dropped a whopping 40% in the last year.

The Dubai government has gone heavily into debt, reaching $10 billion USD in debt in less than half a year.

Dubai's companies are also going heavily in debt, and combined owe approx. $70 billion USD and is being rocked by financial scandals and Ponzi schemes.

Last week the sheiks who run nearby Abu Dhabi came to the rescue, underwriting half of a $20 billion USD government bond issue aimed at ensuring Dubai will be able to honour large debt obligations that come due this year.

The collapse of Dubai's economy also means that expatriates are leaving the country in droves. 1,500 work visas are being canceled every day as expatriates are being fired from positions that are no longer needed. Many of the expats are from the United States, Canada, Britain and Europe, which means they are now selling the properties they purchased there and are leaving.

Approx. 90% of Dubai's 2 million residents are expatriates, and since the economy has dried up that means a huge chunk of the population is expected to leave and Dubai could very well become the world's first modern "ghost city".

Construction still continues and the economy is still stronger than its neighbours, but the mirage that was Dubai has faded and become more sombre.

The city will continue to build, thanks to its dwindled oil, financial and tourist revenues, but the pace of growth will be significantly smaller.

Some people in Dubai say the city was bound to suffer a comeuppance given the hectic pace of construction here in the past decade, accompanied by annual rates of economic growth exceeding 15%.

Unlike Abu Dhabi – Dubai's oil-rich sister emirate located a short drive along the Persian Gulf coast – the city has few oil reserves and has staked its future on real estate, tourism and financial services, all currently in decline.

Dubai may recover, given time, but the glitter is certainly gone.