DUBAI. Despite its small size, the United Arab Emirates boasts a large number of airports, harbors, and shipyards. Much duplicate construction is due to the abundance of oil money and the rivalry of governments—not only between neighboring states but also among the semi-autonomous emirates making up the UAE.
Many of the basic investment decisions (e.g., on airport construction) are based on political rather than on economic considerations. There are conflicting pressures, toward a strong central government on one hand, and toward maintaining a strong local autonomy on the other among the various emirates.
With few exceptions most of the other emirates are rather poor and thus easily swayed toward the hegemony of the central government in oil-rich Abu Dhabi. Its ruler, Sheikh Zayed Al Nahyan, is also the President of the federation of the seven emirates constituting the UAE.
More and more of the various powers of the State are being vested in the federation government, which is attempting to unify many of the existing laws of the emirates. As more of the power gravitates towards the center there is less likelihood of duplication of the various major economic projects already undertaken.
Still, such decisions are not likely to be free of political influences. There will merely be a shift from small-scale statism to statism on a larger scale. As far as the local economy is concerned it is less likely to be free and more likely to be regulated. An instance of such control is the newly introduced regulation of food prices.
One of the fastest expanding of the seven emirates had been Sharjah. No longer. With the promise of oil yet to materialize and with a heavy influx of funds from parent emirate Abu Dhabi running dry, the plight of Sharjah is severest and reflects in one way or another the economic malaise affecting the other emirates. Unfinished construction projects, sprawled all over the tiny city state, are left unfinished and with little hope of completion in the very near future. The skyrocketing rents of nearly a year ago are not falling but crumbling, as we expected, and apartments are going begging for tenants. Sharjah, with its chronic electricity shortage, is a ghost town by dusk. Ironically, it is still one of the very few emirates that sells its land to the buyer irrespective of his citizenship.
Now that the influx of immigrants is down, due to recession and Lebanese returning home after their prolonged civil war, the central government in Abu Dhabi, harping on its favorite theme of internal security, is turning away prospective immigrants and encouraging foreign residents to leave. With local citizens constituting only about 10 percent of the current population, xenophobia rides the waves again.
Business bankruptcies are becoming common. Financial institutions are in a tight position, with several banks recently saved from bankruptcy only by government intervention. Where at one time you had to book months ahead for a room at the local Intercontinental Hotel, occupancy is now running at roughly 50 percent.
In general the central government intends to play a heavy role in economic affairs. In politics, no opposition is to be allowed to function according to a recent declaration of intent. The feudalistic character of this emerging modern state will be preserved.
Arabs sense that one day they will not have oil. As a result, all sorts of local industries, from farming to sulphuric acid plants, are being encouraged. For the moment, apart from oil, hardly anything locally produced is being exported. On the other hand, imports are still on the rise and will remain so for quite some time to come.
Businessmen face rising government pressure to seek local partners, whose functions are usually to lend their names to the partnerships and take a cut of the profits. This type of windfall for local partners is one of the welfare measures actively pursued by the central government.
Saudi Arabia, the neighboring big brother, is promoting Islamic fundamentalism in law and social institutions. There are strong moves emanating from Abu Dhabi to outlaw the sale and consumption of alcohol altogether, just like in Saudi Arabia. However, the initial step will probably be limited to complete prohibition of alcohol consumption by Muslims. Offenses are to be punishable by such means as public lashings, etc. The only casino in the emirate of Ras Al Khaimah recently got the axe despite the local emir having a financial interest in its operation.
The libertarian aspects of the UAE are fast fading away, another inevitable victim of the philosophies of its comrades in the Third World. A strong need for pomp and glory is fast replacing the relevant concerns of the State.
On the Palestinian issue the official stand of the government is one of sympathy and support. Every airline passenger leaving the emirates is obliged to contribute toward the Palestinian cause. At the same time, local Palestinians are considered an embarrassment and the government definitely would not like to have them on their soil. All Lebanese Palestinians were recently evicted on the argument that the civil war, which was the cause of several of them landing in these emirates, is now over.
Probably the most encouraging news in the area comes from Israel which is beginning to give free rein to the market. There is hope that some of this will brush off on its new friends in Cairo, which is beginning to get tired of the old socialistic ways of running its economy after the economic mess it finds itself in.
At a time when the local economy is in trouble and the dollar (to which the local Dirham is pegged at a fixed rate) is falling—thus making imports more expensive—there are strange rumors of the Dirham being revalued and of impending exchange controls. Most of these rumors are unfounded. What is true, however, is that the government has decided to dissolve the present currency board and replace it with a central bank, much to the distress of the various local and international banks who are afraid they will lose a considerable amount of business. As for the currency, there are attempts to have it free floating, based on a basket of currencies as yet undefined. The grandiose scheme of having a common currency for all the Gulf countries, has been, for the moment, shelved. On top of all this comes the proposal to raise the duty on most imports from the current three percent to eight percent which will make practically everything sold here still dearer.
As a counter to all this gloom, it is rumored that the Ruler of Dubai, Sheikh Rashid Al Maktoum, who enabled the economy to thrive on free trade, is getting disenchanted with the interference, both political and economic, by the central government in Abu Dhabi. It is difficult to predict what course, if any, he might take to once again liberate Dubai from the strangulation it is currently suffering.
This article originally appeared in print under the headline "Foreign Correspondent: Mideast Doldrums".