Tuesday, Oct 26, 2010

(This story was originally published Monday.)

ZAWYA DOW JONES

The United Arab Emirates, the Arab world's second-largest economy, fell two places on an index ranking its competitiveness against economies at the same level of development, as debt problems at state-owned conglomerate Dubai World called into question Dubai's sustainability model, a report said Monday.

The World Economic Forum's Global Competitiveness Index for 2010-2011 ranked the U.A.E. 23rd out of 40 "innovation driven economies"--which also include the U.S., the U.K., and Switzerland--down two positions from its ranking last year.

"The difficulties of Dubai World raised doubts about the sustainability of the development model of Dubai, which has since been reoriented towards a more traditional role as [a] commercial and logistics hub and away from property development," said authors Margareta Hanouz and Sofiane Khatib in the report. The city-state needs structural reforms, mostly in health and education, to keep the economy growing, they added.

"Over the past year, there has been [a] deterioration in the assessment of institutions overall, and in particular, of private institutions where accountability standards and the efficacy of corporate boards are evaluated less positively than before," according to the report. The lower assessment is "likely related" to Dubai World's debt-repayment difficulties, the authors said.

Dubai World, the sprawling government-owned conglomerate, last month gained the approval of 99% of its creditors on a restructuring plan for about $25 billion of debt. The company roiled international markets last year when it said it would seek to delay debt repayments. Its property unit Nakheel, builder of Dubai's palm-shaped islands, narrowly avoided default on a bond payment late last year, and had its board re-shuffled earlier this year as the developer coped with a 50% decline in property prices in Dubai.

The UAE now ranks just below Israel and just above Ireland in the ranking of peer economies. It is ranked number 25 out of 139 countries in the index's total survey sample, with recent investments in infrastructure and macroeconomic stability boosting its overall competitive advantages, according to the report.

-By Nour Malas, Dow Jones Newswires; +9715 0 2890223, nour.malas@dowjones.com

(END) Dow Jones Newswires

26-10-10 0351GMT