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Group members:

1. Geet Sahani 116


2. Aditya Todi 105
3. Vishal Timbawala 115
4. Shivam Mishra 111
5. Anant Pawar 72
6. Dhwanil Patel 85
7/11/2013 Economics Project 1
7/11/2013 Economics Project 2
ABOUT DUBAI
 Located at the cross-roads of Asia, Europe and Africa

 Dubai is well positioned to attract tourists

 Sunshine, shopping, seaside, sports and safety - five of


the key ingredients that have earned Dubai a growing
reputation as one of the world's most attractive and
rapidly developing leisure destinations.

 Trading and commercial hub of the Middle East

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COMPOSITION OF UAE ECONOMY

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SECTORAL COMPOSITION OF GDP
OF DUBAI

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DUBAI FINANCIAL CRISIS
 Dubai was another fallout of the global real estate bubble
 With global financial markets plunging after Dubai World,
the government investment company burdened with $59
bn liabilities, requested for deferment of debt to its
creditors for six months, on 25th Nov 2009.
 Nakheel has a debt of $26bn[ $3.5 bn islamic bond due to
be paid on 14th Dec 2009.
 The Dubai government’s total debt is estimated at $80 bn.
 Indian stock markets also plunged with heavy selling
witnessed in banking, infrastructure and realty stocks.

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REASONS FOR THE CRISIS
• After 2003- Dubai economic model- More debt & less equity.
• Advantage of
– Political and economic openness,
– Better infrastructure,
– Trade mark of regional and world business hub.
• FDI invited-
– Invested in real estate-Infrastructure,
– Tourism- airway
– Trade
• Mismatch between demand and supply.
• Dubai has accrued debts of approximately US$85-100 billion, or around
200% of GDP.
• Government restrictions were low.
• Lax lending standards and low interest rates.
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ROLE OF THE DUBAI GIANTS
• Dubai’s main development engine- Dubai world and
its real estate arm- Nakheel
• Issued Nakheel bonds- investors ready to invest as it
was state owned
• Today many bonds are due and cash flows not enough
to pay them back.
– Restructuring effect-
– It has a reported US$60 billion in liabilities, offset
by a calculated US$40 billion in assets
– There is a maturity mismatch- the expected
revenue is in the future while liabilities, including
to contractors and suppliers, are piling up today.
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WHY NOT ABU DHABI

• It has oil backing and is loaded with


liquid assets.

• It has a diversified portfolio- investment


not locked up in one sector.

• In real estate, demand is there so


construction is done.
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MAJOR IMPACTS OF DUBAI CRISES

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Explanation
1) Impact on Banking.:- 2) Fall in real estate
prices:-
 Those banks which
provided finance to  Building dream projects
various projects are like the Palm shaped
feeling pinch of Dubai islands, a new urban
crises . metro, the world's
 Understandably their largest tower, a
shares have fallen since. waterfront to the size of
Hong Kong, a leisure
park called 'Dubai land‘.
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3)Layoffs:- 4)Drop in demand of
 The already reeling Gold:-
construction industry is  Dubai does not produce
seeing a major freefall. Gold on its own, it seeks
Laborers are asked to exports from countries
go home and whatever like India and re-exports
little construction them to other
projects were on the countries.
anvil, are shelved.

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5)Immediate drop in oil prices:- 6) Depreciation in Dirham:-

 There was slight drop in oil prices  The valuation of AED (The local
as oil contributes to 6 % in Dubai currency of Dubai) saw a drop.
economy. This means the strengthening of
 This crisis is a setback pushing the Dollar, by a bit.
Dubai to rely more on oil
revenue. Dubai has to pump
more oil out to finance its debt.
and as OPEC is not expected to
increase the production quotas,
expecting oil prices to go even
lower.

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IMPACT ON STOCK MARKET
Across Asia banking shares plunges down.

 Hangsang 3.1%
 Nikkei 1.8%
 Shanghai composite index 2.36%
 Australian stock exchange 3.0%
 BSE 2.0%

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IMPACT ON REMITTANCES
 About 4.5 M Indians stay and work in Gulf.
 Annually remittances coming out around
$10b.
 Biggest source of capital inflows into India
 Dubai is the second largest state, accounts
for around 10%-12% of India's inward
remittances.

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IMPACT ON INDIA
• A large number of Indian workers, especially from
Kerala, work in Dubai.
• Some construction workers are likely to lose their
jobs in Dubai. It may have some repercussions on
Kerala’s economy, which is substantially dependent
on Gulf money.
• Since the global financial meltdown, many low-paid
workers in the Middle East have already lost their
jobs.
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EFFECTS ON REAL ESTATE
 Present condition of property buyers and realtors.
 The Dubai debt crisis may further worsen their
woes. India’s property markets have deeper links to
Dubai and Indian real estate may bear the brunt of
Dubai’s financial woes.
 Construction companies which carry out contract
jobs in Dubai may suffer heavy losses.
 New investors are trying to buy properties.

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EFFECT ON IMPORT EXPORT ESTATE

• Even gems and jewellery industries


may be impacted negatively with
many Indian firms having links to
Dubai’s world-famous bullion
markets.
A substantial portion of India’s inward
NRI remittances come from UAE.
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IMPACT ON EXPORT
India’s Export to UAE 13.1% in FY09 -
 Gems And Jewellery - 38.38%
 Petroleum products - 17.53%
 Non ferrous metals - 17.42%
 Basmati Rice - 29.4%
 Machines - 16.34%

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INDIAN BANKS IN DUBAI

B.O.B S.B.I

Axis ICICI

HDFC
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INDIAN BANK EXPOSURE
 Indians bank have a Rs 6500 cr exposure
in middle east city.
 BOB – 10000 cr. for Gulf countries.
 Counts for 7-8% of total loan book
accounts.
 Dubai having a half of the exposure .
 But these accounts are well maintained.
 SBI – 1500 cr.
 Such loans are issued for very short
periods (3-6 months).

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ROLE OF ABU DHABI AS A SAVER

• Dubai asked Abu dhabi to bail out from this


crises.
• However , it up to Abu Dhabi, the wealthy capital
of the United Arab Emirates how it would like to
assist Dubai.
• Analysts are expecting Abu Dhabi (the senior and
controlling Emirate in the UAE) to help soften the
blow of this crisis.
• A recent report by HSBC confirms that Abu Dhabi
has the cash liquidity to support its own banks
and property companies
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• Therefore, Abu Dhabi is likely to use some of
this liquidity and stability to help prevent a
complete collapse of markets in Dubai.
• The UAE Central Bank has already confirmed
that it´s board has discussed plans to launch
facilities for supporting real estate lending in
Dubai, as well as in the rest of the UAE.

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RAY OF HOPE

• Inspite of all these, experts hope that it is


possible to recover.It comes out of past
experience. Dubai had faced similar economic
crisis in 1999.Then Abu dhabi, another
emirette in UAE, had helped Dubai by lending
a loan of $1,00,000. Abu dhabi is a financially
stable country.

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3 LESSONS FROM DUBAI
CRISIS
 Diversification is not just a buzzword

 Debt does matter ... Eventually

 Foreign investing can be risky

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“Destroyed the confidence between
borrowers and lenders and it has also
shaken the confidence about the pace
of a global economic recovery."

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