Interesting developments in Dubai with Abu Dhabi coming to the rescue.

ALEC HOGG:  In this special Boardroom Talk podcast, we speak with Dr Christopher Davidson, an expert on Dubai.  Christopher, some interesting developments in Dubai today with Abu Dhabi in fact coming to the rescue after many had thought - not you - but many others had thought they would leave them to - well, high and dry...

CHRISTOPHER DAVIDSON:  Yes this was extremely welcome news for Dubai, Abu Dhabi and the whole of this UA (United Arab) federation.  It's great news for the international investor community as well that were worried that they were going to be short-changed if Dubai wasn't able to repay its debt in the next few weeks.  Abu Dhabi faced a difficult decision with this one, but thankfully, they put the overal UAE international brand above all else.

ALEC HOGG:  It's interesting that there was so much speculation in the international media that Dubai would be negotiating with creditors to pay maybe 70 cents in the dollar on this sukuk, as it's called.  Perhaps you can give us a little bit of background and explain what a sukuk is and why there would be that kind of speculation.

CHRISTOPHER DAVIDSON:  Well a sukuk is an Islamic bond.  It's Sharia compliant so the interest is charged in a different way to avoid accusations of usury that might be associated with a western style bond.  The big problem with all this is that about $3.5billion sukuk - the largest that's ever been issued in Islamic banking world was due for repayment today and if Dubai didn't pay that within the next two weeks, then it would be classed as a default which would have had ramifications for the entire Islamic banking industry, let alone Dubai.  So it's speculation that Dubai might try and restructure the debt - as you mentioned, take it down to just 70 cents in the dollar.  But the ratings agencies and other observers were saying that even any attempt to restructure along those lines would be viewed as a default.

ALEC HOGG:  If you look back now at the timing of the debt standstill from Dubai, was there method in that apparent madness?

CHRISTOPHER DAVIDSON:  Yes I think so, Abu Dhabi was reluctant to begin with to come in and bail out Dubai with a completely blank cheque.  We've had this very difficult last few weeks where almost certainly there has been in-depth political wrangling going on behind the scenes, or in this case, behind the palace doors.  We may never know the full story of that because traditional politics in action and obviously an agreement has been reached between the two ruling families.  But it seems good news so far - Dubai with its statement today appears to have committed to a very strong roadmap towards good governance and full transparency from now on.

ALEC HOGG:  Is it likely then that international investors in Dubai securities, bonds and perhaps other loans won't have to take a haircut?

CHRISTOPHER DAVIDSON:  Well it seems that payments will be made now - so this is $10billion not just to refinance the sukuk but also to pay off the contractors that were worried they were going to have to accept reductions in their fee.  So all seems to be well.  The big question is though, will people want to do business with Dubai specifically, in future or not.

ALEC HOGG:  What do you think of that?

CHRISTOPHER DAVIDSON:  I think it will all have to be repositioned as a United Arab Emirates international brand now.  The days of doing business with Dubai and doing business with Abu Dhabi will be over.

ALEC HOGG:  And how are you reading it into the future - perhaps we can start with the Dubai real estate market.  Is that likely to come under a lot of pressure?

CHRISTOPHER DAVIDSON:  It will remain under pressure unfortunately - this horrendous over supply and even more properties due to come to the market soon, not just residential but commercial real estate as well - this to my mind shows no sign of bottoming just yet.  It will probably get to 60% or 70% off the prices we were seeing in 2007.  Abu Dhabi should be OK - there should be a very buoyant real estate market within the next year or so.

ALEC HOGG:  So it's almost as though the focus will switch from Dubai, up the road a little...

CHRISTOPHER DAVIDSON:  Yes there has already been a population shift from one to the other.  A lot of jobs have been created in Abu Dhabi that had been lost in Dubai  - where we're seeing western sections of the city of Dubai, which is closest to Abu Dhabi, becoming something of a commuter dormitory to people now working in Abu Dhabi, which has emerged as the real capital of the United Arab Emirates now.

ALEC HOGG:  What about other apparent extravagances like the horse racing where Dubai has a $10million horse race - the richest in the world.  Perhaps the golf courses that you're seeing in Dubai that are irrigated by desalinated water which has got to be the most expensive system in the world - do you think those will come under some kind of threat?

CHRISTOPHER DAVIDSON:  Yes there will be far greater scrutiny now over prestige personal projects like these.  I would imagine that everything that's begun will be completed, but new projects will have to come under a much more intense spotlight.  There's a question here - is that the personal prestige of the ruling family was rather telling that throughout the crisis the only major project that was going ahead was the giant horse racing stadium, Meydan.

ALEC HOGG:  So that is not likely to be put on ice?

CHRISTOPHER DAVIDSON:  No, I think the Meydan circuit will be completed - as far as I know, the cranes never stopped moving.  Unfortunately, the cranes did stop moving on all the real estate projects where investors were losing out.

ALEC HOGG:  Does this tell the rest of the world something about the minds and the philosophy of the Bedouins.

CHRISTOPHER DAVIDSON:  Certainly the announcements today proved that the Bedouin mentality is extremely resilient,  it's private - the political culture is extremely private and behind closed doors - the rest of the world doesn't need necessarily to know.  But on the other hand concessions have been made to the realisation that the international markets - investors have to be appeased with information and the statements we had coming today - the new reorganisation law that was announced, are very welcome steps forward in opening up that old Bedouin political culture.

ALEC HOGG:  And the look or the shape of things to come - you did say earlier that the whole region is likely to be branded as UAE rather than Dubai.  Would Abu Dhabi then also take a bigger role?

CHRISTOPHER DAVIDSON:  Yes, Abu Dhabi is of course the wealthiest and most powerful of all the seven emirates in the UAE now, but it's in Abu Dhabi's interests that they push forward this federal brand too - I believe they've always wanted to but it's been tricky when you've had one of the emirates, Dubai trying to position itself as an autonomous international city/state.  Now that its dreams are rather spectacularly vanquished, we can expect to see this UAE brand resurrected now.

ALEC HOGG:  The assets the Dubai Worlds has in other parts of the world - we know that the V&A Waterfront in Cape Town is one - there are some other prestige assets elsewhere  - are they still likely to be sold?

CHRISTOPHER DAVIDSON:  Yes I think so - we saw a big hotel in New York being sold the other week - it was a rather unfortunate foreclosure and it only sold for a few million dollars.  Now that Abu Dhabi has stepped in, it's reduced the likelihood of these assets being seized if there was a default and the creditors moved in so I think that scenario is over.  But there still remains the question of the restructuring of Dubai World - the company - and to my mind, it will involve selling off their oversees assets.

ALEC HOGG:  There have been a lot of South African construction companies interested in Dubai  they've built much of what goes on there.  If they were smart, I guess from listening to the way that you're seeing the way ahead, they would perhaps be courting the Abu Dhabi royal family.

CHRISTOPHER DAVIDSON:  Yes - at the moment all roads certainly lead to Abu Dhabi - that certainly seems to be the way it's going.  To my mind, that's no bad thing.  The Abu Dhabi leadership has proved itself cautious and careful over the last several years.  They've been building up a very vibrant, diversified economy, which does seek a future beyond oil, but wants to do so while keeping the risks to an absolute minimum.

ALEC HOGG:  But it has also been painted as being a lot more conservative - Islamic-wise conservative - than Dubai is.

CHRISTOPHER DAVIDSON:  Yes but in the greater scheme of things compared to its neighbours, Saudi Arabia in particular, Abu Dhabi is by comparison weighted to freedom - it's an extremely moderate place that just didn't quite go to the length that Dubai did to court its foreign investors and tourists.  In Dubai, it was always somewhat uncomfortable that you'd have larger beech resorts catering to western tourists drinking alcohol and wearing bikinis right alongside neighbourhoods for local people.

ALEC HOGG:  So if we look ahead, it isn't the end of the Arab dream...

CHRISTOPHER DAVIDSON:  It's not the end of the Arab dream, it just means the Arab dream will be taking a different course now and Dubai will not be the poster boy for it.

ALEC HOGG:  And Sheikh Mohamed, his prestige in the region?

CHRISTOPHER DAVIDSON:  Well his prestige is certainly taking a battering not least in the British press where he was hauled over the coals for the last few weeks when there was a worry that the British banks were going to lose out and taxpayers too.  I don't think too many people are too happy with them  this is rather a sad end to a story of trying to build a post-oil economy but unfortunately, it's building on sand.

ALEC HOGG:  And if you look at Dubai as we said in our last interview, perhaps ten years hence... still be around but perhaps not as vibrant as it is today.

CHRISTOPHER DAVIDSON:  Yes and I think Dubai will always be a very important port city and a very important thoroughfare with airport and trade and shipping, commercial sector because of its geography.  It has a natural water inlet and all of the infrastructure, but I think it will end up becoming the uae's main port city rather than this Hong Kong or Singapore like city/state...

ALEC HOGG:  Dr Christopher Davidson, the author of "Dubai, the Vulnerability of Success".

The SAfm Market Update with Moneyweb is broadcast on SAfm 104-107fm, weekdays at 18:00 to 18:30.

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