Fallout from Dubai crisis will spare Lebanese economy

BEIRUT: Lebanon will not be drastically affected by the looming financial crisis in Dubai but Beirut should derive news lessons from the experience of the once-thriving emirate, economists and bankers said on Sunday. There was also a consensus that one should wait to see what kind of action the oil-rich Abu Dhabi will take to help its neighbor Dubai. 

“It is premature to assess the impact of the crisis in Dubai on Lebanon. But I don’t think the country will be gravely affected,” Jihad Azour, former finance minister and presently a senior executive at Booz & Allen company, told The Daily Star. 

But Azour warned that in the short run, the markets will be nervous until things in Dubai become clearer. 

Almost every stock market in the world was hit by the shocking news that Dubai World has notified its creditors that it would default in the payments of its $59 billion loan. 

Financial analysts agree that Dubai’s image as one of the leading financial hubs in the world has been badly tarnished by reports that the emirate is in dire need of massive cash injection to bail out its economy. 

It is estimated that close to 80,000 Lebanese are working in the Unitd Arab Emirates (UAE), and nearly 30,000 of them in Dubai emirate alone. 

Most of the Lebanese expatriates are white-collar employees with professions ranging from engineers to top managers in leading firms. 

The global financial crisis less than two years ago has left its traces on Dubai’s booming real estate sector. 

But despite this crisis very few Lebanese have been laid off so far by their companies in Dubai, Abu Dhabi, Qatar and Saudi Arabia. 

There was also some concern that the size of the remittances sent by Lebanese in the UAE in general may decline if some companies started dismissing their expatriates’ workforce. 

The central bank said recently that up to $7 billion in remittances have entered Lebanon in the first 10 months of 2009, representing 25 percent of the country’s GDP. 

Azour said the Lebanese market has rallied after the formation of the Cabinet but has no noticed any big improvement in the size of assets. 

Analysts seem to agree that even if Abu Dhabi rushed to the rescue of Dubai, the era of mega projects which some describe as a white elephant project in the emirate will be over. 

“Now we are in a period of consolidation as this measure will reduce the risk,” Azour said. 

Joe Sarrouh, adviser to the chairman of Fransabank, said that Abu Dhabi is expected to help Dubai in its economic crisis but this assistance will most likely be conditional. 

“The initial market reaction to Dubai news was more spontaneous than thought for. Now there are many things in Dubai than need to be brought back to harbor if Abu Dhabi decided to help the emirate,” Sarrouh said. 

He added that Dubai needs more transparency and good governance. “Do we really know who owns Dubai. Is it 15 to 20 families? All these things need to be clear,” he said. 

Sarrouh said that the recent events in Dubai should serve as  a wake-up call for everybody. 

He doubts that Gulf real estate firms will pull out from Lebanon due to the crisis in Dubai. 

“Lebanon is a money maker for these Gulf companies and I don’t think they are ready to drop this business,” he said. 

Elie Yashoui, an economist, argues that Lebanon and other countries should learn lessons from the collapse of the markets in Dubai. 

“Most of the projects in Dubai were enormous and frankly unrealistic. The planners of these projects hoped that investors will rush to buy a stake in these properties but their dreams were quickly dashed by the global financial crisis,” Yashoui said. 

He expressed confidence that Abu Dhabi will not leave Dubai alone at this critical moment.

“But this assistance will beattached to rough conditions such as more conservative spending, more transparency and above all limiting social liberalism in Dubai,” Yashoui said. 

Others pointed out that two Abu Dhabi based Islamic banks have issued $5 billion in bonds to help Dubai in its crisis. 

But observers believe Islamic banks and financial institutions may ask Dubai to apply Islamic principles in the liberal emirate. 

“But it is wrong to assume that Dubai is finished. One should remember that Dubai has huge infrastructures that are worth billions of dollars,” Yashoui said. 

He added that Lebanon should not venture into unrealistic projects or it will have the same fate of Dubai in the future. 

“In the short term, Lebanon may see some Lebanese return home from Dubai. There are 30,000 Indians in the emirate waiting to be laid off and this may pave the way for more layoffs,” Yashoui said. 

He stressed that the new government must come up with bold economic policies in order to create jobs and achieve growth. 

“The ministerial statement has nice titles but they lack proper mechanism to implement these thoughts in order to achieve real economic growth,” Yashoui said.