No, that isn't a typo -- I did say Abu Dubai.
Sitting inside the city that has once again emerged in global press as soon-to-reduced-to-dust, it is certainly interesting to observe from close quarters. To begin with, there has been some muffled words about the ownership of Dubai World. This followed by the magnitude of the default (under $4 billion owed in December as opposed to the commonly thrown $40 billion).
The Dubai Government last week stated under the newly formed Supreme Commission of Fiscal Affairs (chaired by Sheikh Ahmed of Emirates) that Dubai World is a private enterprise, and would not be bailed out. This was in sharp contrast to the global hoopla about Dubai Govt going bust simply because one major group of companies (Dubai World) was defaulting on its debt repayment. The fact that global stock markets were falling as far as Hong Kong and Japan on the basis on Dubai World made very little sense. A good theory making the rounds was that this default was being sensationalized to make other such massive defaults to follow internationally seem less shocking.
Also, as has been pointed out, neither Nakheel not its parent company Dubai World are sovereign-guaranteed enterprises. It is only incidental that these companies happened to be owned by a sole shareholder -- the Dubai Government and/or The Ruling Family. The government is not obliged to assist a private corporation from defaulting. The way the international press lashed out at Dubai was as if the government itself was going bankrupt, which ofcourse is not entirely true.
What has happened in the last 48 hours was half-expected by all of us, regardless. Abu Dhabi has stated, in not as many words, that nobody defaults under its watch. What's funny however, is that Dubai World official statement says its grateful to the 'Dubai' Government's support and timely assistance in this situation. Obviously, from a protocol perspective Abu Dhabi has contributed $10b to the Dubai Financial Support Fund. It is then Dubai Govt's prerogative to use this in any way they see fit.
Two things have come out of this: 1) Dubai has once again received more negative press that it has in the last 12 months for announcing Dubai World's debt default. 2) After all that irrevocable damage, they managed not to default at all due to Abu Dhabi's assistance (who clearly have come out shining out of this situation).
Dubai lost on both fronts -- the loss of investor confidence as well as having paid-up the debt payment on schedule.
On the flip side, it is clear from an unofficial statement from the Dubai Government, that Dubai has essentially lost its 'political independence' by accepting Abu Dhabi's last minute decision to aid. What this means is that any and all political decisions by Dubai will no longer happen without Big Brother signing off. Secondly, Abu Dhabi through third-party conduits seems to have negotiated a series of buy-ins into all of Dubai Govt's sovereign and non-sovereign investment vehicles (which include Dubai Holding, Emaar and Dubai World). In my opinion, this will become more and more evident as global expansion plans will start being announced out of Abu Dhabi rather than Dubai's Emirates Towers -- the existing HQ of Dubai Inc.
As with Russia great default from a few years ago, Dubai's pitfalls too shall be forgotten. It has invested far too much in its strategic position as a trading hub and a financial capital to fail in the long run, in my opinion anyway.
The nay-sayers love to hate Dubai everytime an opportunity arises. If Abu Dhabi really had the prowess to invest and manage its assets without being backed by oil, I doubt they'd have even made a flutter.