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Peter Cooper is the editor and publisher of the ArabianMoney Investment Newsletter and website. He was formerly a partner in, sold in a private equity deal in 1996. His book 'Opportunity Dubai: Making a Fortune in the Middle East' was a best seller, and his latest... More
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  • How badly has the debt crisis damaged the reputation of Dubai? 0 comments
    Dec 22, 2009 4:30 AM

    Looking back over the past couple of months you have to wonder how much Dubai has damaged its reputation as a growing global financial centre. The headlines suggesting that the city is drowning in debt are not positive, and the reality that has emerged is not that great either.

    Before the debt crisis the reputation of the Dubai International Financial Centre was definitely rising fast. A report commissioned by the DIFC from KPMG, and published today but presumably with field work from before the Dubai debt crisis, showed Dubai seventh ahead of Frankfurt in a competitiveness league table of financial centres:

    1. Singapore
    2. London (NASDAQ:UK)
    3. New York (NYSE:USA)
    4. Hong Kong
    5. Zurich (Switzerland)
    6. Tokyo (Japan)
    7. Dubai International Financial Centre (NASDAQ:UAE)
    8. Frankfurt (Germany)
    9. Luxembourg
    10. Dubai (UAE)
    11. Paris (France)
    12. Dublin (Ireland)
    13. Doha (Qatar)
    14. Manama (Bahrain)
    15. Riyadh (Saudi Arabia)

    High ranking

    A press release from the DIFC said it was ranked this highly ‘on the strength of its world-class legal and regulatory standards; independent regulator and judiciary system; and strong value offering for financial businesses. DIFC’s infrastructure and business environment, custom-designed for the financial industry, also helped Dubai receive an overall competitiveness score higher than global centres like Paris and Dublin.

    ‘The report assesses the competitiveness of financial centres using an evaluation model that measures both ‘capability’ factors or immediate benefits provided by a financial centre, and ‘performance’ factors, which reflect historical or long-term results. The focus on ‘competitiveness’ puts the spotlight on the potential of a centre to excel in the future and not just on its current status.

    ‘The final rankings were based on a composite score derived from three pillars – Industry Opinion, Industry Performance, and Capability Measurement – that determines overall competitiveness.

    ‘The Industry Opinion pillar is based on the Global Financial Centres Index 6 published by the City of London, while the Industry Performance pillar is based on the Financial Development Index 2009 published by the World Economic Forum.

    ‘The Capability Measurement pillar is based on an assessment model developed to measure the growth potential of a financial centre in the future based on a three factors including business environment, cost of doing business and cost of living.’

    Reputation damaged

    However, any observer from the financial sector is bound to ask whether the ‘Industry Opinion pillar’ is not likely to have changed significantly in the wake of the Dubai debt crisis of the past two months. Certainly the risk perception of lending to Dubai must have been transformed.

    But the global financial community are pragmatic folk. Dubai did not actually default on its Islamic bond this month. There is a rescheduling of $22 billion in debt owed by Dubai World subsidiaries Nakheel and Limitless now in progress. That is probably the biggest debt problem facing Dubai but there will be others.

    So whether the Dubai debt crisis does significant long-term damage to its global financial reputation is likely a matter of how it proceeds from here. Greater transparency and openness and a willingness to discuss past mistakes is a step forward, so too is the merger of the two Dubai stock market trading floors announced today.

    Dubai will also have to learn how to handle the global media with effective public relations and abandon its high-handed approach to the press. But all is not lost. The same banks that suffered in the Russian default of 1998 were back lending again within a few years. Reputations can be mended pretty fast when there is business to be done. 

    Disclosure: No stocks mentioned
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