Sunday, September 28, 2008

Dubai loses its lustre!

The emirate's elites are preparing for a tougher government line on corruption in the wake of a string of scandals.

It's been a hot summer in Dubai, and not just temperature-wise. Cracks appeared in the emirate's shiny facade – from construction projects delayed to embezzlement scandals – and the ruler, affectionately known as Sheikh Mo, has decided to crack down in order to make sure that Dubai Inc will continue to prosper.

Two scandals dominated this summer and the scale of involvement by Dubai's government points toward something close to a policy shift that will have long-term effects.

On July 28, Lebanese pop singer Suzanne Tamim was brutally killed in her Dubai apartment. The murder trail led to Egypt, where an ex-policeman was arrested and charged with the crime. A Cairene newspaper then alleged that "an important Egyptian figure" had been involved and supposedly paid the killer. State authorities immediately seized on that issue and made it clear that the topic was closed for reporting. Usually, that would then have been the end of the case. A culprit – in this case the arrested ex-cop – would've been announced and sentenced.

But this time things went a bit differently. On September 2, the Egyptian real-estate tycoon Hisham Talat Mustafa, member of the ruling party and the parliament's upper house, was arrested and charged with having paid $2m for the killing of Suzanne Tamim.

In a country where big business and big politics are intertwined as much as in Egypt, such an arrest and charge is quite extraordinary. According to Egyptian sources, the local authorities received massive pressure from the Dubai government – and important friend and major investor in Egypt – to follow the investigation all the way through, regardless of where it might lead. Whoever in Dubai sent word to Cairo was clearly rather upset at some Egyptian big-shot daring to have his ex-girlfriend butchered in one of the emirate's poshest residences. A billionaire like Mustafa might've gotten away with such an act in his hometown, but Dubai wouldn't tolerate it.

Tolerance, or rather the lack of it, also features prominently in the second scandal, which has continued to rock Dubai since earlier this year and shows no sign of abating. Starting in April, a number of senior managers and executives at some of the emirate's most prestigious real-estate developers and financial institutions have been called in for questioning or even arrested on charges of embezzlement and bribery.

Corruption in the construction industry is a worldwide problem, and the Gulf is no exception. If you want to close deals, you "facilitate" matters through gifts. But this year, Sheikh Mo gave orders for law enforcement to investigate and, if necessary, make arrests even at the highest levels of management. In August he stated that "There will be no tolerance shown to anybody who tries to exploit his position to make illegal profits."

Among those investigated and arrested are managers from property developers like Sama Dubai, part of state-owned Dubai Holding; Deyaar and Nakheel – the company that brought us the can-be-seen-from-space palm islands; Tamweel, the country's biggest mortgage provider and even the head of JP Morgan's Islamic banking unit.

Again, a few years ago, the institutions under suspicion would've found, and the authorities agreed to accept, some mid-level fall guy, but never a high-ranking manager.

What has changed?

In short, today Dubai is in danger of loosing its lustre and has to work to maintain its brand reputation. Inflation is in double digits, regional competitors – like Qatar or Kuwait – are growing stronger, and India – which supplies thousands of low- and mid-level employees – is providing ever more well-paid jobs domestically. As a result, Dubai has increasing difficulties recruiting and retaining the first-class workforce it needs to make its plans and projects succeed.

Where 10 years ago people moved to Dubai to work for a few years and make loads of money, today expats groan about high prices eating up salaries. Add to that increasingly long commutes and the fact that Dubai is (still) not exactly a "fun" place to live, and you get the picture.

Next year, the emirate will introduce VAT, officially ending the "no taxes, ever" situation and causing many to wonder just what other taxes are going to follow.

With all that in mind, it is little wonder that the government is now focusing on those who, so far, have been literally able to get away with murder – the rich and powerful executives and business magnates. If Dubai wants to make sure that its lower and middle management doesn't look for better opportunities elsewhere, it will have to at least show that everyone is equal before the law – because the less opportunity there is to get rich quick, the more its expats will be bothered by the inequalities that they have, until now, been willing to ignore.

From The Guardian, Sept 28, 2008.

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