Dubai's financial crisis caused havoc to stock markets worldwide, and Egypt is no exception, Sherine Nasr reports The most glamorous of all Arab cities, Dubai, is now unable to pay its bills? Dubai World, a government-backed investment company and chief engine behind Dubai's impressive growth, announced Wednesday 25 November that it needed at least a six-month standstill on paying its debts. Fears that the company is in danger of defaulting on $60 billion sent shockwaves around the world. Capital markets worldwide fell sharply Thursday and Friday. According to the Associated Press (AP), the Dow Jones industrial average suffered its biggest drop in nearly a month as it tumbled 155 points in a holiday-shortened session Friday. Asian exchanges also fell sharply while European markets bounced back on confidence that the crisis will not spread to other Gulf economies. In Egypt, the market main index dropped eight per cent on Monday, the first day of trading after a four-day Eid holiday compared to a decline of 7.8 per cent in Dubai's main stock exchange and eight per cent in Abu Dhabi markets. The sharp decline was stirred by UAE officials going public to state that the heavily indebted Dubai World is not guaranteed by the emirate's government. In Egypt, however, the market swiftly picked up by three per cent the following day. Financial experts believe that the market will restore its balance in almost no time. Amr Alfi, director of CI Capital Research, described the abrupt drop in the Egyptian Stock Exchange on Monday as an exaggerated reaction on the part of foreign investors. "The Egyptian Stock Exchange was primarily affected by an unjustified movement of selling, mainly led by Arabs and foreigners," said Alfi who added that this is a typical panic-led reaction by foreign investors who, in incidents of uncertainty, choose to limit their exposure in developing markets for fear that the worse might yet to come. "However, I am positive that the market will go steady in the next few days. As for the UAE, things will also become clearer by the end of the year." Alfi's optimism is shared by Angus Blair, head of research in Beltone Financial, who is assured that the Dubai debt crunch is very specific to Dubai and that it will have but a very limited impact on other markets, including Egypt. "What happened Monday was an overreaction by some Arab investors who were trying to pull out some money, but the market will recover soon," said Blair who added that the market in Egypt is still very attractive to investors. Some experts believe that what happened to the Egyptian market over the week was a much needed shock, allowing hidden liquidity in the market to be rediscovered. According to Ahmed Helmi of Global Capital, although the market experienced a "selling climax" due to a negative shift in the sentiment of investors, "all of the high value stocks have a very consistent buying interest." On Monday, Mahmoud Mohieldin, minister of investment, held a meeting with chairpersons of the Egyptian Financial Supervisory Authority (EFSA), General Authority for Investment and Free Zones (GAFI) and the Egyptian Stock Exchange to overview two detailed reports on the impact of Dubai's financial crisis on the Egyptian economy at various levels. "The UAE's investments in Egypt are mature. Investors from the UAE will resume their activities as planned and the latest progress in Dubai will have but little effect on the UAE investment locally," Osama Saleh, chairman of GAFI, told reporters after the meeting, adding that the immediate impact of the crisis on the Egyptian Stock Exchange is both expected and temporary. In the meantime, Blair expected little impact of the crisis on the UAE's direct investment. "There is little FDI coming from Dubai into Egypt anyway. It is mainly directed to the construction sector which doesn't require heavy investment." In the meantime, seeking to reassure foreign investors, the Central Bank of the UAE said on Sunday that it would back up local banks and Western institutions on generous terms through providing new liquidity measures. The Abu Dhabi-based bank said that it would provide a liquidity scheme for foreign and local banks to cover any short-term losses. According to AP, Dubai officials broke off their Eid celebrations over the weekend to attend meetings in Abu Dhabi. "Reports over the weekend suggest that Abu Dhabi will extract a high price for any help, with the prospect that Dubai might lose control of key assets, possibly including Emirates Airlines. Abu Dhabi officials said that they would 'pick and choose' how to help and that they were unlikely to 'underwrite all of Dubai's debt'." According to Helmi, Dubai will not have difficulty restructuring Dubai World's debts. "Dubai World's sovereign fund is worth $1 trillion, thus, the value of the debts can easily be covered. Moreover, it is unlikely that the government of Dubai would not lend a helping hand to a company of that magnitude," said Helmi. As the main development arm in the UAE, Dubai World has many projects around the world, including a number of port operations, the luxury retailer Barney's in New York, as well as the developer of Dubai's iconic palm- shaped island, Nakheel, the company's real estate arm that shoulders the bulk of the money due to banks.
