Dubai, Downturn & Debtor Prison

[barbaro]

Obviously the downturn is hitting Dubai hard. The concept of debtor prison is a bit interesting. A lot of this goes back to borrowing, and excessive borrowing.

DUBAI, United Arab Emirates — Sofia, a 34-year-old Frenchwoman, moved here a year ago to take a job in advertising, so confident about Dubai’s fast-growing economy that she bought an apartment for almost $300,000 with a 15-year mortgage.
Times Topics: Dubai

Bryan Denton for The New York Times An abandoned car in a parking garage in Dubai. One report said 3,000 cars were sitting abandoned at the Dubai Airport.

Now, like many of the foreign workers who make up 90 percent of the population here, she has been laid off and faces the prospect of being forced to leave this Persian Gulf city — or worse.

“I’m really scared of what could happen, because I bought property here,” said Sofia, who asked that her last name be withheld because she is still hunting for a new job. “If I can’t pay it off, I was told I could end up in debtors’ prison.”

With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield.

The government says the real number is much lower. But the stories contain at least a grain of truth: jobless people here lose their work visas and then must leave the country within a month. That in turn reduces spending, creates housing vacancies and lowers real estate prices, in a downward spiral that has left parts of Dubai — once hailed as the economic superpower of the Middle East — looking like a ghost town.

Link: http://www.nytimes.com/2009/02/12/wo...i.html?_r=1&hp

[ItsRobsLife]

Oh me oh my, those poor rich people.

[EmperorTud]

"Now, many expatriates here talk about Dubai as though it were a con game all along."

[natalie8]

looking like a ghost town.

That's a bit exaggerated.

[Butterfly]

maybe time for bargain ?

apparently that doesn't stop hotels to charge for 300 to 400 USD per night for a standard room,

They are obviously in the Asian Economy School of Thought, that is to charge more when demand is less

[natalie8]

Many hotels have cut their rates to encourage people to come. The situation now has made competition even more intense.

[barbaro]

This could be *possibly* bad. We don't know yet, and it could be just 'restructuring' but we'll hear reports of more detail in the coming month, IMO.

Has debt freeze exposed Dubai mirage?

November 26, 2009 -- Updated 1537 GMT (2337 HKT)


A house on one of the islands of 'The World" created by Nakheel, Dubai World's real estate arm.


(CNN) -- Dubai sent investors reeling Thursday after asking creditors to freeze the debt repayments of one of its biggest holding companies, Dubai World.

The announcement came after the market close on the eve of the Eid holiday and Thanksgiving in the U.S., leaving traders' hands tied over their exposure to investments in the Emirate.

Shares dropped in London and Europe as bankers struggled to gauge the implications of the debt freeze without additional guidance from Wall Street.

With very little information being distributed from Dubai, the market has been left to question the motives of ruler Sheikh Mohammed Bin Rashid Al Maktoum and the financial future of Dubai World and its huge portfolio.


So what happened?

Late Wednesday, the government of Dubai issued a statement saying it had authorised the Dubai Financial Support Fund to "spearhead the restructure of Dubai World with immediate effect."

The first step, it said, was to ask all providers of financing to Dubai World and Nakheel to "standstill" its debt repayments until at least May 30, 2010.

It added, to the market's surprise, that the proceeds of a $5 billion bond issue raised hours earlier wouldn't be used to bail the company out.


Odd timing wasn't it?
Dubai's decision to release its statement just before the Eid holiday in the Middle East, and on the eve of Thanksgiving in the U.S., provoked consternation.

"Dubai have certainly picked their moment to finally own up to a need to restructure their debt. I would imagine the news has ruined a few Thanksgiving dinners today," David Morrsion, a strategist at GFT told the Financial Times.
Read CNN's John Defterios' take on the Dubai debt fears

How did the markets react?
Banking stocks led equity markets lower in London and Europe as traders moved to distance themselves from a potential debt hole in the Middle East.

Technical problems in London halted trade for some time, providing further frustration for traders with exposure to Dubai World's lenders.

What is Dubai World & Nakheel?

Described on its Web site as "Dubai's flag bearer in global investments," Dubai World is a holding company with stakes in everything from ports to real estate and transport.

It includes the world's largest privately held real estate company Nakheel, which is the mastermind behind such architectural feats as the man-made residential islands, "The Palm Islands" and "The World."
Dubai World also invests in global markets through its investment arm Istithmar World, which boasts a "global footprint" in finance, capital, leisure, aviation and other business ventures.

How severe is the debt?

Dubai World is said to account for some $59 billion of Dubai's $80 billion debt burden. Nakheel had been due to pay a $3.5 billion convertible loan which expires on December 14. More debts were due to be repaid next year.

"This is not just a couple of billion story," Turker Hamzaoglu, EMEA economist at the Bank of America Merrill Lynch Global Research told CNN.

"For instance, Dubai has to service $10 billion including the Nakheel debt in December and $15 billion U.S. dollars by the end of 2010," he added.

How much damage has the announcement done?

That's incalculable at this stage. Markets in the Middle East and the U.S. don't open until Monday so the full impact won't be known until then.
It also depends on Dubai's next move. The surprise announcement has shaken confidence in the Emirate as a place to do business.
"The key here is the communication of this strategy. I guess everybody is on the same page regarding the need for consolidation in Dubai and for the region. But the only market-positive implication would be if this comes with a clearly open and a predictable way," Hamzaoglu said.

"The problem is, here we have a lack of transparency and all these policy reactions are either coming at the last minute, or for example, the recent one just before the long holiday."

"I think this is going to shake some investor confidence which may not be reversed as quickly as people expect. So they have to be careful," he added.

Who will bail them out?
Abu Dhabi has been a lucrative source of funding for its neighbor. The $5 billion bond issue was take up by UAE banks.
The question now is whether it will continue to give its backing to its debt-laden neighbour. It may have the money to do so, but does it have the will?

What comes next?

Ideally, the market wants guidance as to Dubai's debt strategy. It has said that the Dubai World debt freeze is the first stage of a restructuing plan. Investors want to know what comes next.

Right now, the region is seen as a risky bet for cagey investors. Hamzaoglu says there are other options for those want to back similar markets.

"From an investor perspective, if you want to still play for the global backdrop of oil prices, etc. there are some other markets, say Brazil or Russia that investors can be interested in, rather than taking this high.....

Link: Has debt freeze exposed Dubai mirage? - CNN.com

[Muadib]

The cracks are getting larger in the Dubai facade... It will soon come tumbling down, much like a row of dominoes...

It's a good thing the US markets are closed today & tomorrow, giving a bit of time for this to settle... Right now, North American / Latin American market futures are down 1550 points...

----

Stocks Tumble, Bonds Rally on Dubai; Credit-Default Swaps Soar

By David Merritt

Nov. 26 (Bloomberg) -- European stocks fell the most in seven months and bonds jumped as Dubai’s attempt to reschedule its debt rattled investors seeking higher returns in emerging markets. The dollar slid to a 14-year low against the yen.

Europe’s Dow Jones Stoxx 600 Index retreated 3 percent at 3:29 p.m. in London. The Shanghai Composite Index slumped 3.6 percent, its biggest drop since August, and Brazil’s Bovespa Index slipped 2 percent. Credit-default swaps tied to debt sold by Dubai rose as much as 131 basis points to 571 according to CMA DataVision. U.S. markets are closed today for the Thanksgiving holiday.

Dubai World, the government investment company burdened by $59 billion of liabilities, roiled markets around the world yesterday by seeking to delay repayment on much of its debt. The dollar’s slump prompted Finance Minister Hirohisa Fujii to say Japan’s government is watching currencies “very closely,” while traders said the Swiss central bank sold the franc after it climbed to the highest value against the euro since June.

“Dubai isn’t doing risk appetite any favors at all and the markets remain in a vulnerable state of mind,” said Russell Jones, head of fixed-income and currency research in London at RBC Capital Markets. “We’re still in an environment where we’re vulnerable to financial shocks of any sort and this is one of those.”
Sovereign Debt

The Dubai announcement drove up the cost of protecting emerging-market sovereign debt against default. Contracts linked to Saudi Arabia climbed 18 to 108, while Bahrain rose 30.5 to 225, CMA prices show. Debt swaps linked to Abu Dhabi government bonds increased 18.5 to 155, Vietnam rose 39 to 252, Indonesia climbed 27 to 229 and Russia added 13 to 205. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

Vietnam’s dong, the world’s worst-performing currency, declined to a record low against the dollar after the central bank devalued the currency to curb inflation. South Africa’s rand weakened 2 percent versus the U.S. currency as gold declined. The Turkish lira slumped 2.1 percent against the greenback, and Hungary’s forint lost 1.3 percent per euro.
Brazil’s real slid 1.4 percent versus the dollar, while Mexico’s peso slipped 0.8 percent.

The MSCI Emerging Markets Index lost 1.9 percent, while Russia’s Micex Index fell 3.5 percent as commodities retreated. Brazil’s Bovespa slipped for the first time this week and Mexico’s Bolsa Index retreated 1.5 percent.
Vale, Gerdau

Vale SA, the world’s biggest iron-ore miner, dropped 2.2 percent in Sao Paulo, while Petroleo Brasileiro SA, Brazil’s state-controlled oil company, fell 1.8 percent as metals and oil decreased. Gerdau SA, Latin America’s largest steelmaker, slid 2.1 percent as Chief Executive Officer Andre Gerdau Johannpeter said it’s too soon to raise prices in the Brazilian market.

Dubai, which borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub, suffered the world’s steepest property slump in the global recession. Home prices fell 50 percent from their 2008 peak, according to Deutsche Bank AG. Banks around the world have written off more than $1.7 trillion as the credit crisis trashed the value of their assets.

Stocks fell from Shanghai and Tokyo to London and Toronto. The MSCI Asia Pacific Index retreated 0.5 percent as Chinese banks dropped on concern they need to sell more shares to fund demand for loans. Bank of China Ltd., which said this week it’s studying options to replenish funds, declined 2.9 percent.
China Minsheng

China Minsheng Banking Corp. became the first Chinese lender in four years to fall in its Hong Kong trading debut. The nation’s first privately owned lender slipped 3.1 percent after raising HK$30.1 billion ($3.9 billion) this month in the territory’s biggest public share sale since April 2007.

Japan’s Nikkei 225 Stock Average fell to a four-month low as the dollar’s decline against the yen dimmed the earnings outlook for makers of electronics and cars. Canon Inc., the world’s largest maker of cameras, fell 2.1 percent in Tokyo. The company gets 28 percent of sales from the Americas. Toyota Motor Corp., the world’s biggest carmaker, slid 1.2 percent.
European Aeronautic, Defence & Space Co., which is part- owned by Dubai, fell 2.6 percent in Paris. Porsche SE, which is merging with Volkswagen AG, tumbled 5.4 percent and VW fell 3.9 percent in Frankfurt. Qatar owns 10 percent of the voting rights of Porsche and will hold 17 percent of the combined carmaker.
Banks Fall

Dubai World’s lenders include Credit Suisse Group AG, HSBC Holdings Plc, Barclays Plc, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc, according to a person familiar with the situation. Credit Suisse fell 4.7 percent in Zurich, HSBC slid 4.5 percent, Lloyds sank 3.8 percent and RBS retreated 7.7 percent in London, where a trading glitch earlier halted trading in many stocks for more than three hours.

Marfin Investment Group SA, the investment fund backed by Dubai Financial LLC, plummeted 12 percent in Athens.
Canada’s Standard & Poor’s/TSX Composite Index slipped 1.3 percent. Futures on the Standard & Poor’s 500 Index retreated 2 percent. The U.S. stock market will be open for a half day of trading tomorrow.
Bonds rose as investors fled to the relative safety of government debt. The yield on the 10-year U.K. gilt dropped 9 basis points to 3.54 percent. The 10-year German bund yield declined 8 basis points to 3.17 percent.
Brazil, Mexico Bonds

The yield on Brazil’s real-denominated, zero-coupon bonds due in July 2011 climbed nine basis points to a one-month high of 11.25 percent, according to data compiled by Bloomberg. Yields on Mexico’s benchmark peso-denominated bonds due in 2024 rose four basis points to 8.12 percent.

The yen climbed as high as 86.30 per dollar, the strongest since July 1995, before trading at 86.70. The U.S. currency strengthened against all but the yen among its 16 most-traded counterparts, appreciating 2.2 percent versus the New Zealand dollar and advancing 2.1 percent against the South African rand.

The Swiss franc weakened as much as 0.3 percent per euro, falling from the highest level since June, on speculation the Swiss National Bank sold the currency to curb its gains. The franc dropped 0.4 percent to 1.0004 against the dollar after yesterday reaching parity for the first time in 19 months. The SNB declined to comment.

Crude oil for January delivery fell 2.1 percent to $76.30 a barrel in electronic trading on the New York Mercantile Exchange after a government report yesterday showed rising inventories. Gold for immediate delivery declined 0.7 percent to $1,183.22 an ounce in London, after touching an all-time high earlier today.

[StrontiumDog]

Interesting...I wonder who's going to be exposed if this falls over..?

[barbaro]

Muadib,

Lots of pertinent info in your article above.

VN Dong devalued - that's what I get paid in.

Dollar at a 14-month low against the Yen.

Futures down.

and

Dubai, which borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub, suffered the world’s steepest property slump in the global recession. Home prices fell 50 percent from their 2008 peak, according to Deutsche Bank AG. Banks around the world have written off more than $1.7 trillion as the credit crisis trashed the value of their assets.

We just posted about the SHTF scenarios in the next 18-24 months.

Interesting times, indeed.

[Muadib]

^ That's a 14 year low against the Yen...

It will not take many announcements such as this to drive the world financial markets into a tailspin, starting a downward spiral causing another huge loss in net wealth and devaluation of the weakest currencies... Investors moving out of equities and into bonds & commodities is telltale... Seems Jim Rogers has been on target once again with his professing to move assets into basic materials and agriculture... But what do I know...

It will be interesting to watch gold...

[barbaro]

^ That's a 14 year low against the Yen...

Thanks for the correction. This is another sign, I think.....

It will not take many announcements such as this to drive the world financial markets into a tailspin, starting a downward spiral causing another huge loss in net wealth and devaluation of the weakest currencies... Investors moving out of equities and into bonds & commodities is telltale... Seems Jim Rogers has been on target once again with his professing to move assets into basic materials and agriculture... But what do I know...

It will be interesting to watch gold...

Gold? It's nearing $1,200 per oz.

Yes, I think Rogers (and Schiff) are turning out to be right - again.

I wish they weren't, but it seems like (for now) they are.

[slackula]

Too much Dubai and not enough Dusell

[barbaro]

Note: this is long. But worth of a read, browse or skim for those with some interest.

Dubai was meant to be a Middle-Eastern Shangri-La, a glittering monument to Arab enterprise and western capitalism. But as hard times arrive in the city state that rose from the desert sands, an uglier story is emerging. Johann Hari reports

Tuesday, 7 April 2009

The wide, smiling face of Sheikh Mohammed – the absolute ruler of Dubai – beams down on his creation. His image is displayed on every other building, sandwiched between the more familiar corporate rictuses of Ronald McDonald and Colonel Sanders. This man has sold Dubai to the world as the city of One Thousand and One Arabian Lights, a Shangri-La in the Middle East insulated from the dust-storms blasting across the region. He dominates the Manhattan-manqué skyline, beaming out from row after row of glass pyramids and hotels smelted into the shape of piles of golden coins. And there he stands on the tallest building in the world – a skinny spike, jabbing farther into the sky than any other human construction in history.

But something has flickered in Sheikh Mohammed's smile. The ubiquitous cranes have paused on the skyline, as if stuck in time. There are countless buildings half-finished, seemingly abandoned. In the swankiest new constructions – like the vast Atlantis hotel, a giant pink castle built in 1,000 days for $1.5bn on its own artificial island – where rainwater is leaking from the ceilings and the tiles are falling off the roof. This Neverland was built on the Never-Never – and now the cracks are beginning to show. Suddenly it looks less like Manhattan in the sun than Iceland in the desert.

Once the manic burst of building has stopped and the whirlwind has slowed, the secrets of Dubai are slowly seeping out. This is a city built from nothing in just a few wild decades on credit and ecocide, suppression and slavery. Dubai is a living metal metaphor for the neo-liberal globalised world that may be crashing – at last – into history.
Related articles

* More Johann Hari Articles

I. An Adult Disneyland

Karen Andrews can't speak. Every time she starts to tell her story, she puts her head down and crumples. She is slim and angular and has the faded radiance of the once-rich, even though her clothes are as creased as her forehead. I find her in the car park of one of Dubai's finest international hotels, where she is living, in her Range Rover. She has been sleeping here for months, thanks to the kindness of the Bangladeshi car park attendants who don't have the heart to move her on. This is not where she thought her Dubai dream would end.

Her story comes out in stutters, over four hours. At times, her old voice – witty and warm – breaks through. Karen came here from Canada when her husband was offered a job in the senior division of a famous multinational. "When he said Dubai, I said – if you want me to wear black and quit booze, baby, you've got the wrong girl. But he asked me to give it a chance. And I loved him."

All her worries melted when she touched down in Dubai in 2005. "It was an adult Disneyland, where Sheikh Mohammed is the mouse," she says. "Life was fantastic. You had these amazing big apartments, you had a whole army of your own staff, you pay no taxes at all. It seemed like everyone was a CEO. We were partying the whole time."

Her husband, Daniel, bought two properties. "We were drunk on Dubai," she says. But for the first time in his life, he was beginning to mismanage their finances. "We're not talking huge sums, but he was getting confused. It was so unlike Daniel, I was surprised. We got into a little bit of debt." After a year, she found out why: Daniel was diagnosed with a brain tumour.

One doctor told him he had a year to live; another said it was benign and he'd be okay. But the debts were growing. "Before I came here, I didn't know anything about Dubai law. I assumed if all these big companies come here, it must be pretty like Canada's or any other liberal democracy's," she says. Nobody told her there is no concept of bankruptcy. If you get into debt and you can't pay, you go to prison.

"When we realised that, I sat Daniel down and told him: listen, we need to get out of here. He knew he was guaranteed a pay-off when he resigned, so we said – right, let's take the pay-off, clear the debt, and go." So Daniel resigned – but he was given a lower pay-off than his contract suggested. The debt remained. As soon as you quit your job in Dubai, your employer has to inform your bank. If you have any outstanding debts that aren't covered by your savings, then all your accounts are frozen, and you are forbidden to leave the country.

"Suddenly our cards stopped working. We had nothing. We were thrown out of our apartment." Karen can't speak about what happened next for a long time; she is shaking.

Daniel was arrested and taken away on the day of their eviction. It was six days before she could talk to him. "He told me he was put in a cell with another debtor, a Sri Lankan guy who was only 27, who said he couldn't face the shame to his family. Daniel woke up and the boy had swallowed razor-blades. He banged for help, but nobody came, and the boy died in front of him."

Karen managed to beg from her friends for a few weeks, "but it was so humiliating. I've never lived like this. I worked in the fashion industry. I had my own shops. I've never..." She peters out.

Daniel was sentenced to six months' imprisonment at a trial he couldn't understand. It was in Arabic, and there was no translation. "Now I'm here illegally, too," Karen says I've got no money, nothing. I have to last nine months until he's out, somehow." Looking away, almost paralysed with embarrassment, she asks if I could buy her a meal.

She is not alone. All over the city, there are maxed-out expats sleeping secretly in the sand-dunes or the airport or in their cars.

"The thing you have to understand about Dubai is – nothing is what it seems," Karen says at last. "Nothing. This isn't a city, it's a con-job. They lure you in telling you it's one thing – a modern kind of place – but beneath the surface it's a medieval dictatorship."

II. Tumbleweed

Thirty years ago, almost all of contemporary Dubai was desert, inhabited only by cactuses and tumbleweed and scorpions. But downtown there are traces of the town that once was, buried amidst the metal and glass. In the dusty fort of the Dubai Museum, a sanitised version of this story is told.

In the mid-18th century, a small village was built here, in the lower Persian Gulf, where people would dive for pearls off the coast. It soon began to accumulate a cosmopolitan population washing up from Persia, the Indian subcontinent, and other Arab countries, all hoping to make their fortune. They named it after a local locust, the daba, who consumed everything before it. The town was soon seized by the gunships of the British Empire, who held it by the throat as late as 1971. As they scuttled away, Dubai decided to ally with the six surrounding states and make up the United Arab Emirates (UAE).

The British quit, exhausted, just as oil was being discovered, and the sheikhs who suddenly found themselves in charge faced a remarkable dilemma. They were largely illiterate nomads who spent their lives driving camels through the desert – yet now they had a vast pot of gold. What should they do with it?

Dubai only had a dribble of oil compared to neighbouring Abu Dhabi – so Sheikh Maktoum decided to use the revenues to build something that would last. Israel used to boast it made the desert bloom; Sheikh Maktoum resolved to make the desert boom. He would build a city to be a centre of tourism and financial services, sucking up cash and talent from across the globe. He invited the world to come tax-free – and they came in their millions, swamping the local population, who now make up just 5 per cent of Dubai. A city seemed to fall from the sky in just three decades, whole and complete and swelling. They fast-forwarded from the 18th century to the 21st in a single generation.

If you take the Big Bus Tour of Dubai – the passport to a pre-processed experience of every major city on earth – you are fed the propaganda-vision of how this happened. "Dubai's motto is 'Open doors, open minds'," the tour guide tells you in clipped tones, before depositing you at the souks to buy camel tea-cosies. "Here you are free. To purchase fabrics," he adds. As you pass each new monumental building, he tells you: "The World Trade Centre was built by His Highness..."

But this is a lie. The sheikh did not build this city. It was built by slaves. They are building it now.

III. Hidden in plain view

There are three different Dubais, all swirling around each other. There are the expats, like Karen; there are the Emiratis, headed by Sheikh Mohammed; and then there is the foreign underclass who built the city, and are trapped here. They are hidden in plain view. You see them everywhere, in dirt-caked blue uniforms, being shouted at by their superiors, like a chain gang – but you are trained not to look. It is like a mantra: the Sheikh built the city. The Sheikh built the city. Workers? What workers?

Every evening, the hundreds of thousands of young men who build Dubai are bussed from their sites to a vast concrete wasteland an hour out of town, where they are quarantined away. Until a few years ago they were shuttled back and forth on cattle trucks, but the expats complained this was unsightly, so now they are shunted on small metal buses that function like greenhouses in the desert heat. They sweat like sponges being slowly wrung out.

Sonapur is a rubble-strewn patchwork of miles and miles of identical concrete buildings. Some 300,000 men live piled up here, in a place whose name in Hindi means "City of Gold". In the first camp I stop at – riven with the smell of sewage and sweat – the men huddle around, eager to tell someone, anyone, what is happening to them.

Sahinal Monir, a slim 24-year-old from the deltas of Bangladesh. "To get you here, they tell you Dubai is heaven. Then you get here and realise it is hell," he says. Four years ago, an employment agent arrived in Sahinal's village in Southern Bangladesh. He told the men of the village that there was a place where they could earn 40,000 takka a month (£400) just for working nine-to-five on construction projects. It was a place where they would be given great accommodation, great food, and treated well. All they had to do was pay an up-front fee of 220,000 takka (£2,300) for the work visa – a fee they'd pay off in the first six months, easy. So Sahinal sold his family land, and took out a loan from the local lender, to head to this paradise.

As soon as he arrived at Dubai airport, his passport was taken from him by his construction company. He has not seen it since. He was told brusquely that from now on he would be working 14-hour days in the desert heat – where western tourists are advised not to stay outside for even five minutes in summer, when it hits 55 degrees – for 500 dirhams a month (£90), less than a quarter of the wage he was promised. If you don't like it, the company told him, go home. "But how can I go home? You have my passport, and I have no money for the ticket," he said. "Well, then you'd better get to work," they replied.

Sahinal was in a panic. His family back home – his son, daughter, wife and parents – were waiting for money, excited that their boy had finally made it. But he was going to have to work for more than two years just to pay for the cost of getting here – and all to earn less than he did in Bangladesh.

He shows me his room. It is a tiny, poky, concrete cell with triple-decker bunk-beds, where he lives with 11 other men. All his belongings are piled onto his bunk: three shirts, a spare pair of trousers, and a cellphone. The room stinks, because the lavatories in the corner of the camp – holes in the ground – are backed up with excrement and clouds of black flies. There is no air conditioning or fans, so the heat is "unbearable. You cannot sleep. All you do is sweat and scratch all night." At the height of summer, people sleep on the floor, on the roof, anywhere where they can pray for a moment of breeze.

The water delivered to the camp in huge white containers isn't properly desalinated: it tastes of salt. "It makes us sick, but we have nothing else to drink," he says.

The work is "the worst in the world," he says. "You have to carry 50kg bricks and blocks of cement in the worst heat imaginable ... This heat – it is like nothing else. You sweat so much you can't pee, not for days or weeks. It's like all the liquid comes out through your skin and you stink. You become dizzy and sick but you aren't allowed to stop, except for an hour in the afternoon. You know if you drop anything or slip, you could die. If you take time off sick, your wages are docked, and you are trapped here even longer."

He is currently working on the 67th floor of a shiny new tower, where he builds upwards, into the sky, into the heat. He doesn't know its name. In his four years here, he has never seen the Dubai of tourist-fame, except as he constructs it floor-by-floor.

Is he angry? He is quiet for a long time. "Here, nobody shows their anger. You can't. You get put in jail for a long time, then deported." Last year, some workers went on strike after they were not given their wages for four months. The Dubai police surrounded their camps with razor-wire and water-cannons and blasted them out and back to work.

The "ringleaders" were imprisoned. I try a different question: does Sohinal regret coming? All the men look down, awkwardly. "How can we think about that? We are trapped. If we start to think about regrets..." He lets the sentence trail off. Eventually, another worker breaks the silence by adding: "I miss my country, my family and my land. We can grow food in Bangladesh. Here, nothing grows. Just oil and buildings."

Since the recession hit, they say, the electricity has been cut off in dozens of the camps, and the men have not been paid for months. Their companies have disappeared with their passports and their pay. "We have been robbed of everything. Even if somehow we get back to Bangladesh, the loan sharks will demand we repay our loans immediately, and when we can't, we'll be sent to prison."

This is all supposed to be illegal. Employers are meant to pay on time, never take your passport, give you breaks in the heat – but I met nobody who said it happens. Not one. These men are conned into coming and trapped into staying, with the complicity of the Dubai authorities.

Sahinal could well die out here. A British man who used to work on construction projects told me: "There's a huge number of suicides in the camps and on the construction sites, but they're not reported. They're described as 'accidents'." Even then, their families aren't free: they simply inherit the debts. A Human Rights Watch study found there is a "cover-up of the true extent" of deaths from heat exhaustion, overwork and suicide, but the Indian consulate registered 971 deaths of their nationals in 2005 alone. After this figure was leaked, the consulates were told to stop counting.

At night, in the dusk, I sit in the camp with Sohinal and his friends as they scrape together what they have left to buy a cheap bottle of spirits. They down it in one ferocious gulp. "It helps you to feel numb", Sohinal says through a stinging throat. In the distance, the glistening Dubai skyline he built stands, oblivious.

IV. Mauled by the mall

I find myself stumbling in a daze from the camps into the sprawling marble malls that seem to stand on every street in Dubai. It is so hot there is no point building pavements; people gather in these cathedrals of consumerism to bask in the air conditioning. So within a ten minute taxi-ride, I have left Sohinal and I am standing in the middle of Harvey Nichols, being shown a £20,000 taffeta dress by a bored salesgirl. "As you can see, it is cut on the bias..." she says, and I stop writing.

Time doesn't seem to pass in the malls. Days blur with the same electric light, the same shined floors, the same brands I know from home. Here, Dubai is reduced to its component sounds: do-buy. In the most expensive malls I am almost alone, the shops empty and echoing. On the record, everybody tells me business is going fine. Off the record, they look panicky. There is a hat exhibition ahead of the Dubai races, selling elaborate headgear for £1,000 a pop. "Last year, we were packed. Now look," a hat designer tells me. She swoops her arm over a vacant space.

I approach a blonde 17-year-old Dutch girl wandering around in hotpants, oblivious to the swarms of men gaping at her. "I love it here!" she says. "The heat, the malls, the beach!" Does it ever bother you that it's a slave society? She puts her head down, just as Sohinal did. "I try not to see," she says. Even at 17, she has learned not to look, and not to ask; that, she senses, is a transgression too far.

Between the malls, there is nothing but the connecting tissue of asphalt. Every road has at least four lanes; Dubai feels like a motorway punctuated by shopping centres. You only walk anywhere if you are suicidal. The residents of Dubai flit from mall to mall by car or taxis.

How does it feel if this is your country, filled with foreigners? Unlike the expats and the slave class, I can't just approach the native Emiratis to ask questions when I see them wandering around – the men in cool white robes, the women in sweltering black. If you try, the women blank you, and the men look affronted, and tell you brusquely that Dubai is "fine". So I browse through the Emirati blog-scene and found some typical-sounding young Emiratis. We meet – where else? – in the mall.

Ahmed al-Atar is a handsome 23-year-old with a neat, trimmed beard, tailored white robes, and rectangular wire-glasses. He speaks perfect American-English, and quickly shows that he knows London, Los Angeles and Paris better than most westerners. Sitting back in his chair in an identikit Starbucks, he announces: "This is the best place in the world to be young! The government pays for your education up to PhD level. You get given a free house when you get married. You get free healthcare, and if it's not good enough here, they pay for you to go abroad. You don't even have to pay for your phone calls. Almost everyone has a maid, a nanny, and a driver. And we never pay any taxes. Don't you wish you were Emirati?"

I try to raise potential objections to this Panglossian summary, but he leans forward and says: "Look – my grandfather woke up every day and he would have to fight to get to the well first to get water. When the wells ran dry, they had to have water delivered by camel. They were always hungry and thirsty and desperate for jobs. He limped all his life, because he there was no medical treatment available when he broke his leg. Now look at us!"

For Emiratis, this is a Santa Claus state, handing out goodies while it makes its money elsewhere: through renting out land to foreigners, soft taxes on them like business and airport charges, and the remaining dribble of oil. Most Emiratis, like Ahmed, work for the government, so they're cushioned from the credit crunch. "I haven't felt any effect at all, and nor have my friends," he says. "Your employment is secure. You will only be fired if you do something incredibly bad." The laws are currently being tightened, to make it even more impossible to sack an Emirati.

Sure, the flooding-in of expats can sometimes be "an eyesore", Ahmed says. "But we see the expats as the price we had to pay for this development. How else could we do it? Nobody wants to go back to the days of the desert, the days before everyone came. We went from being like an African country to having an average income per head of $120,000 a year. And we're supposed to complain?"

He says the lack of political freedom is fine by him. "You'll find it very hard to find an Emirati who doesn't support Sheikh Mohammed." Because they're scared? "No, because we really all support him. He's a great leader. Just look!" He smiles and says: "I'm sure my life is very much like yours. We hang out, have a coffee, go to the movies. You'll be in a Pizza Hut or Nando's in London, and at the same time I'll be in one in Dubai," he says, ordering another latte.

But do all young Emiratis see it this way? Can it really be so sunny in the political sands? In the sleek Emirates Tower Hotel, I meet Sultan al-Qassemi. He's a 31-year-old Emirati columnist for the Dubai press and private art collector, with a reputation for being a contrarian liberal, advocating gradual reform. He is wearing Western clothes – blue jeans and a Ralph Lauren shirt – and speaks incredibly fast, turning himself into a manic whirr of arguments.

"People here are turning into lazy, overweight babies!" he exclaims. "The nanny state has gone too far. We don't do anything for ourselves! Why don't any of us work for the private sector? Why can't a mother and father look after their own child?" And yet, when I try to bring up the system of slavery that built Dubai, he looks angry. "People should give us credit," he insists. "We are the most tolerant people in the world. Dubai is the only truly international city in the world. Everyone who comes here is treated with respect."

I pause, and think of the vast camps in Sonapur, just a few miles away. Does he even know they exist? He looks irritated. "You know, if there are 30 or 40 cases [of worker abuse] a year, that sounds like a lot but when you think about how many people are here..." Thirty or 40? This abuse is endemic to the system, I say. We're talking about hundreds of thousands.

Sultan is furious. He splutters: "You don't think Mexicans are treated badly in New York City? And how long did it take Britain to treat people well? I could come to London and write about the homeless people on Oxford Street and make your city sound like a terrible place, too! The workers here can leave any time they want! Any Indian can leave, any Asian can leave!"

But they can't, I point out. Their passports are taken away, and their wages are withheld. "Well, I feel bad if that happens, and anybody who does that should be punished. But their embassies should help them." They try. But why do you forbid the workers – with force – from going on strike against lousy employers? "Thank God we don't allow that!" he exclaims. "Strikes are in-convenient! They go on the street – we're not having that. We won't be like France. Imagine a country where they the workers can just stop whenever they want!" So what should the workers do when they are cheated and lied to? "Quit. Leave the country."

I sigh. Sultan is seething now. "People in the West are always complaining about us," he says. Suddenly, he adopts a mock-whiny voice and says, in imitation of these disgusting critics: "Why don't you treat animals better? Why don't you have better shampoo advertising? Why don't you treat labourers better?" It's a revealing order: animals, shampoo, then workers. He becomes more heated, shifting in his seat, jabbing his finger at me. "I gave workers who worked for me safety goggles and special boots, and they didn't want to wear them! It slows them down!"

And then he smiles, coming up with what he sees as his killer argument. "When I see Western journalists criticise us – don't you realise you're shooting yourself in the foot? The Middle East will be far more dangerous if Dubai fails. Our export isn't oil, it's hope. Poor Egyptians or Libyans or Iranians grow up saying – I want to go to Dubai. We're very important to the region. We are showing how to be a modern Muslim country. We don't have any fundamentalists here. Europeans shouldn't gloat at our demise. You should be very worried.... Do you know what will happen if this model fails? Dubai will go down the Iranian path, the Islamist path."

Sultan sits back. My arguments have clearly disturbed him; he says in a softer, conciliatory tone, almost pleading: "Listen. My mother used to go to the well and get a bucket of water every morning. On her wedding day, she was given an orange as a gift because she had never eaten one. Two of my brothers died when they were babies because the healthcare system hadn't developed yet. Don't judge us." He says it again, his eyes filled with intensity: "Don't judge us."

V. The Dunkin' Donuts Dissidents

But there is another face to the Emirati minority – a small huddle of dissidents, trying to shake the Sheikhs out of abusive laws. Next to a Virgin Megastore and a Dunkin' Donuts, with James Blunt's "You're Beautiful" blaring behind me, I meet the Dubai dictatorship's Public Enemy Number One. By way of introduction, Mohammed al-Mansoori says from within his white robes and sinewy face: "Westerners come her and see the malls and the tall buildings and they think that means we are free. But these businesses, these buildings – who are they for? This is a dictatorship. The royal family think they own the country, and the people are their servants. There is no freedom here."

We snuffle out the only Arabic restaurant in this mall, and he says everything you are banned – under threat of prison – from saying in Dubai. Mohammed tells me he was born in Dubai to a fisherman father who taught him one enduring lesson: Never follow the herd. Think for yourself. In the sudden surge of development, Mohammed trained as a lawyer. By the Noughties, he had climbed to the head of the Jurists' Association, an organisation set up to press for Dubai's laws to be consistent with international human rights legislation.

And then – suddenly – Mohammed thwacked into the limits of Sheikh Mohammed's tolerance. Horrified by the "system of slavery" his country was being built on, he spoke out to Human Rights Watch and the BBC. "So I was hauled in by the secret police and told: shut up, or you will lose you job, and your children will be unemployable," he says. "But how could I be silent?"

He was stripped of his lawyer's licence and his passport – becoming yet another person imprisoned in this country. "I have been blacklisted and so have my children. The newspapers are not allowed to write about me."

Why is the state so keen to defend this system of slavery? He offers a prosaic explanation. "Most companies are owned by the government, so they oppose human rights laws because it will reduce their profit margins. It's in their interests that the workers are slaves."

Last time there was a depression, there was a starbust of democracy in Dubai, seized by force from the sheikhs. In the 1930s, the city's merchants banded together against Sheikh Said bin Maktum al-Maktum – the absolute ruler of his day – and insisted they be given control over the state finances. It lasted only a few years, before the Sheikh – with the enthusiastic support of the British – snuffed them out.

And today? Sheikh Mohammed turned Dubai into Creditopolis, a city built entirely on debt. Dubai owes 107 percent of its entire GDP. It would be bust already, if the neighbouring oil-soaked state of Abu Dhabi hadn't pulled out its chequebook. Mohammed says this will constrict freedom even further. "Now Abu Dhabi calls the tunes – and they are much more conservative and restrictive than even Dubai. Freedom here will diminish every day." Already, new media laws have been drafted forbidding the press to report on anything that could "damage" Dubai or "its economy". Is this why the newspapers are giving away glossy supplements talking about "encouraging economic indicators"?

Everybody here waves Islamism as the threat somewhere over the horizon, sure to swell if their advice is not followed. Today, every imam is appointed by the government, and every sermon is tightly controlled to keep it moderate. But Mohammed says anxiously: "We don't have Islamism here now, but I think that if you control people and give them no way to express anger, it could rise. People who are told to shut up all the time can just explode."

Later that day, against another identikit-corporate backdrop, I meet another dissident – Abdulkhaleq Abdullah, Professor of Political Science at Emirates University. His anger focuses not on political reform, but the erosion of Emirati identity. He is famous among the locals, a rare outspoken conductor for their anger. He says somberly: "There has been a rupture here. This is a totally different city to the one I was born in 50 years ago."

He looks around at the shiny floors and Western tourists and says: "What we see now didn't occur in our wildest dreams. We never thought we could be such a success, a trendsetter, a model for other Arab countries. The people of Dubai are mighty proud of their city, and rightly so. And yet..." He shakes his head. "In our hearts, we fear we have built a modern city but we are losing it to all these expats."

Adbulkhaleq says every Emirati of his generation lives with a "psychological trauma." Their hearts are divided – "between pride on one side, and fear on the other." Just after he says this, a smiling waitress approaches, and asks us what we would like to drink. He orders a Coke.

VI. Dubai Pride

There is one group in Dubai for whom the rhetoric of sudden freedom and liberation rings true – but it is the very group the government wanted to liberate least: gays.

Beneath a famous international hotel, I clamber down into possibly the only gay club on the Saudi Arabian peninsula. I find a United Nations of tank-tops and bulging biceps, dancing to Kylie, dropping ecstasy, and partying like it's Soho. "Dubai is the best place in the Muslim world for gays!" a 25-year old Emirati with spiked hair says, his arms wrapped around his 31-year old "husband". "We are alive. We can meet. That is more than most Arab gays."

It is illegal to be gay in Dubai, and punishable by 10 years in prison. But the locations of the latest unofficial gay clubs circulate online, and men flock there, seemingly unafraid of the police. "They might bust the club, but they will just disperse us," one of them says. "The police have other things to do."

In every large city, gay people find a way to find each other – but Dubai has become the clearing-house for the region's homosexuals, a place where they can live in relative safety. Saleh, a lean private in the Saudi Arabian army, has come here for the Coldplay concert, and tells me Dubai is "great" for gays: "In Saudi, it's hard to be straight when you're young. The women are shut away so everyone has gay sex. But they only want to have sex with boys – 15- to 21-year-olds. I'm 27, so I'm too old now. I need to find real gays, so this is the best place. All Arab gays want to live in Dubai."

With that, Saleh dances off across the dancefloor, towards a Dutch guy with big biceps and a big smile.

VII. The Lifestyle

All the guidebooks call Dubai a "melting pot", but as I trawl across the city, I find that every group here huddles together in its own little ethnic enclave – and becomes a caricature of itself. One night – in the heart of this homesick city, tired of the malls and the camps – I go to Double Decker, a hang-out for British expats. At the entrance there is a red telephone box, and London bus-stop signs. Its wooden interior looks like a cross between a colonial clubhouse in the Raj and an Eighties school disco, with blinking coloured lights and cheese blaring out. As I enter, a girl in a short skirt collapses out of the door onto her back. A guy wearing a pirate hat helps her to her feet, dropping his beer bottle with a paralytic laugh.

I start to talk to two sun-dried women in their sixties who have been getting gently sozzled since midday. "You stay here for The Lifestyle," they say, telling me to take a seat and order some more drinks. All the expats talk about The Lifestyle, but when you ask what it is, they become vague. Ann Wark tries to summarise it: "Here, you go out every night. You'd never do that back home. You see people all the time. It's great. You have lots of free time. You have maids and staff so you don't have to do all that stuff. You party!"

They have been in Dubai for 20 years, and they are happy to explain how the city works. "You've got a hierarchy, haven't you?" Ann says. "It's the Emiratis at the top, then I'd say the British and other Westerners. Then I suppose it's the Filipinos, because they've got a bit more brains than the Indians. Then at the bottom you've got the Indians and all them lot."

They admit, however, they have "never" spoken to an Emirati. Never? "No. They keep themselves to themselves." Yet Dubai has disappointed them. Jules Taylor tells me: "If you have an accident here it's a nightmare. There was a British woman we knew who ran over an Indian guy, and she was locked up for four days! If you have a tiny bit of alcohol on your breath they're all over you. These Indians throw themselves in front of cars, because then their family has to be given blood money – you know, compensation. But the police just blame us. That poor woman."

A 24-year-old British woman called Hannah Gamble takes a break from the dancefloor to talk to me. "I love the sun and the beach! It's great out here!" she says. Is there anything bad? "Oh yes!" she says. Ah: one of them has noticed, I think with relief. "The banks! When you want to make a transfer you have to fax them. You can't do it online." Anything else? She thinks hard. "The traffic's not very good."

When I ask the British expats how they feel to not be in a democracy, their reaction is always the same. First, they look bemused. Then they look affronted. "It's the Arab way!" an Essex boy shouts at me in response, as he tries to put a pair of comedy antlers on his head while pouring some beer into the mouth of his friend, who is lying on his back on the floor, gurning.

Later, in a hotel bar, I start chatting to a dyspeptic expat American who works in the cosmetics industry and is desperate to get away from these people. She says: "All the people who couldn't succeed in their own countries end up here, and suddenly they're rich and promoted way above their abilities and bragging about how great they are. I've never met so many incompetent people in such senior positions anywhere in the world." She adds: "It's absolutely racist. I had Filipino girls working for me doing the same job as a European girl, and she's paid a quarter of the wages. The people who do the real work are paid next to nothing, while these incompetent managers pay themselves £40,000 a month."

With the exception of her, one theme unites every expat I speak to: their joy at having staff to do the work that would clog their lives up Back Home. Everyone, it seems, has a maid. The maids used to be predominantly Filipino, but with the recession, Filipinos have been judged to be too expensive, so a nice Ethiopian servant girl is the latest fashionable accessory.

It is an open secret that once you hire a maid, you have absolute power over her. You take her passport – everyone does; you decide when to pay her, and when – if ever – she can take a break; and you decide who she talks to. She speaks no Arabic. She cannot escape.

In a Burger King, a Filipino girl tells me it is "terrifying" for her to wander the malls in Dubai because Filipino maids or nannies always sneak away from the family they are with and beg her for help. "They say – 'Please, I am being held prisoner, they don't let me call home, they make me work every waking hour seven days a week.' At first I would say – my God, I will tell the consulate, where are you staying? But they never know their address, and the consulate isn't interested. I avoid them now. I keep thinking about a woman who told me she hadn't eaten any fruit in four years. They think I have power because I can walk around on my own, but I'm powerless."

The only hostel for women in Dubai – a filthy private villa on the brink of being repossessed – is filled with escaped maids. Mela Matari, a 25-year-old Ethiopian woman with a drooping smile, tells me what happened to her – and thousands like her. She was promised a paradise in the sands by an agency, so she left her four year-old daughter at home and headed here to earn money for a better future. "But they paid me half what they promised. I was put with an Australian family – four children – and Madam made me work from 6am to 1am every day, with no day off. I was exhausted and pleaded for a break, but they just shouted: 'You came here to work, not sleep!' Then one day I just couldn't go on, and Madam beat me. She beat me with her fists and kicked me. My ear still hurts. They wouldn't give me my wages: they said they'd pay me at the end of the two years. What could I do? I didn't know anybody here. I was terrified."

One day, after yet another beating, Mela ran out onto the streets, and asked – in broken English – how to find the Ethiopian consulate. After walking for two days, she found it, but they told her she had to get her passport back from Madam. "Well, how could I?" she asks. She has been in this hostel for six months. She has spoken to her daughter twice. "I lost my country, I lost my daughter, I lost everything," she says.

As she says this, I remember a stray sentence I heard back at Double Decker. I asked a British woman called Hermione Frayling what the best thing about Dubai was. "Oh, the servant class!" she trilled. "You do nothing. They'll do anything!"

VIII. The End of The World

The World is empty. It has been abandoned, its continents unfinished. Through binoculars, I think I can glimpse Britain; this sceptred isle barren in the salt-breeze.

Here, off the coast of Dubai, developers have been rebuilding the world. They have constructed artificial islands in the shape of all planet Earth's land masses, and they plan to sell each continent off to be built on. There were rumours that the Beckhams would bid for Britain. But the people who work at the nearby coast say they haven't seen anybody there for months now. "The World is over," a South African suggests.

All over Dubai, crazy projects that were Under Construction are now Under Collapse. They were building an air-conditioned beach here, with cooling pipes running below the sand, so the super-rich didn't singe their toes on their way from towel to sea.

The projects completed just before the global economy crashed look empty and tattered. The Atlantis Hotel was launched last winter in a $20m fin-de-siecle party attended by Robert De Niro, Lindsay Lohan and Lily Allen. Sitting on its own fake island – shaped, of course, like a palm tree – it looks like an immense upturned tooth in a faintly decaying mouth. It is pink and turreted – the architecture of the pharaohs, as reimagined by Zsa-Zsa Gabor. Its Grand Lobby is a monumental dome covered in glitterballs, held up by eight monumental concrete palm trees. Standing in the middle, there is a giant shining glass structure that looks like the intestines of every guest who has ever stayed at the Atlantis. It is unexpectedly raining; water is leaking from the roof, and tiles are falling off.

A South African PR girl shows me around its most coveted rooms, explaining that this is "the greatest luxury offered in the world". We stroll past shops selling £24m diamond rings around a hotel themed on the lost and sunken continent of, yes, Atlantis. There are huge water tanks filled with sharks, which poke around mock-abandoned castles and dumped submarines. There are more than 1,500 rooms here, each with a sea view. The Neptune suite has three floors, and – I gasp as I see it – it looks out directly on to the vast shark tank. You lie on the bed, and the sharks stare in at you. In Dubai, you can sleep with the fishes, and survive.

But even the luxury – reminiscent of a Bond villain's lair – is also being abandoned. I check myself in for a few nights to the classiest hotel in town, the Park Hyatt. It is the fashionistas' favourite hotel, where Elle Macpherson and Tommy Hilfiger stay, a gorgeous, understated palace. It feels empty. Whenever I eat, I am one of the only people in the restaurant. A staff member tells me in a whisper: "It used to be full here. Now there's hardly anyone." Rattling around, I feel like Jack Nicholson in The Shining, the last man in an abandoned, haunted home.

The most famous hotel in Dubai – the proud icon of the city – is the Burj al Arab hotel, sitting on the shore, shaped like a giant glass sailing boat. In the lobby, I start chatting to a couple from London who work in the City. They have been coming to Dubai for 10 years now, and they say they love it. "You never know what you'll find here," he says. "On our last trip, at the beginning of the holiday, our window looked out on the sea. By the end, they'd built an entire island there."

My patience frayed by all this excess, I find myself snapping: doesn't the omnipresent slave class bother you? I hope they misunderstood me, because the woman replied: "That's what we come for! It's great, you can't do anything for yourself!" Her husband chimes in: "When you go to the toilet, they open the door, they turn on the tap – the only thing they don't do is take it out for you when you have a piss!" And they both fall about laughing.

IX. Taking on the Desert

Dubai is not just a city living beyond its financial means; it is living beyond its ecological means. You stand on a manicured Dubai lawn and watch the sprinklers spray water all around you. You see tourists flocking to swim with dolphins. You wander into a mountain-sized freezer where they have built a ski slope with real snow. And a voice at the back of your head squeaks: this is the desert. This is the most water-stressed place on the planet. How can this be happening? How is it possible?

The very earth is trying to repel Dubai, to dry it up and blow it away. The new Tiger Woods Gold Course needs four million gallons of water to be pumped on to its grounds every day, or it would simply shrivel and disappear on the winds. The city is regularly washed over with dust-storms that fog up the skies and turn the skyline into a blur. When the dust parts, heat burns through. It cooks anything that is not kept constantly, artificially wet.

Dr Mohammed Raouf, the environmental director of the Gulf Research Centre, sounds sombre as he sits in his Dubai office and warns: "This is a desert area, and we are trying to defy its environment. It is very unwise. If you take on the desert, you will lose."

Sheikh Maktoum built his showcase city in a place with no useable water. None. There is no surface water, very little acquifer, and among the lowest rainfall in the world. So Dubai drinks the sea. The Emirates' water is stripped of salt in vast desalination plants around the Gulf – making it the most expensive water on earth. It costs more than petrol to produce, and belches vast amounts of carbon dioxide into the atmosphere as it goes. It's the main reason why a resident of Dubai has the biggest average carbon footprint of any human being – more than double that of an American.

If a recession turns into depression, Dr Raouf believes Dubai could run out of water. "At the moment, we have financial reserves that cover bringing so much water to the middle of the desert. But if we had lower revenues – if, say, the world shifts to a source of energy other than oil..." he shakes his head. "We will have a very big problem. Water is the main source of life. It would be a catastrophe. Dubai only has enough water to last us a week. There's almost no storage. We don't know what will happen if our supplies falter. It would be hard to survive."

Global warming, he adds, makes the problem even worse. "We are building all these artificial islands, but if the sea level rises, they will be gone, and we will lose a lot. Developers keep saying it's all fine, they've taken it into consideration, but I'm not so sure."

Is the Dubai government concerned about any of this? "There isn't much interest in these problems," he says sadly. But just to stand still, the average resident of Dubai needs three times more water than the average human. In the looming century of water stresses and a transition away from fossil fuels, Dubai is uniquely vulnerable.

I wanted to understand how the government of Dubai will react, so I decided to look at how it has dealt with an environmental problem that already exists – the pollution of its beaches. One woman – an American, working at one of the big hotels – had written in a lot of online forums arguing that it was bad and getting worse, so I called her to arrange a meeting. "I can't talk to you," she said sternly. Not even if it's off the record? "I can't talk to you." But I don't have to disclose your name... "You're not listening. This phone is bugged. I can't talk to you," she snapped, and hung up.

The next day I turned up at her office. "If you reveal my identity, I'll be sent on the first plane out of this city," she said, before beginning to nervously pace the shore with me. "It started like this. We began to get complaints from people using the beach. The water looked and smelled odd, and they were starting to get sick after going into it. So I wrote to the ministers of health and tourism and expected to hear back immediately – but there was nothing. Silence. I hand-delivered the letters. Still nothing."

The water quality got worse and worse. The guests started to spot raw sewage, condoms, and used sanitary towels floating in the sea. So the hotel ordered its own water analyses from a professional company. "They told us it was full of fecal matter and bacteria 'too numerous to count'. I had to start telling guests not to go in the water, and since they'd come on a beach holiday, as you can imagine, they were pretty pissed off." She began to make angry posts on the expat discussion forums – and people began to figure out what was happening. Dubai had expanded so fast its sewage treatment facilities couldn't keep up. The sewage disposal trucks had to queue for three or four days at the treatment plants – so instead, they were simply drilling open the manholes and dumping the untreated sewage down them, so it flowed straight to the sea.

Suddenly, it was an open secret – and the municipal authorities finally acknowledged the problem. They said they would fine the truckers. But the water quality didn't improve: it became black and stank. "It's got chemicals in it. I don't know what they are. But this stuff is toxic."

She continued to complain – and started to receive anonymous phone calls. "Stop embarassing Dubai, or your visa will be cancelled and you're out," they said. She says: "The expats are terrified to talk about anything. One critical comment in the newspapers and they deport you. So what am I supposed to do? Now the water is worse than ever. People are getting really sick. Eye infections, ear infections, stomach infections, rashes. Look at it!" There is faeces floating on the beach, in the shadow of one of Dubai's most famous hotels.

"What I learnt about Dubai is that the authorities don't give a toss about the environment," she says, standing in the stench. "They're pumping toxins into the sea, their main tourist attraction, for God's sake. If there are environmental problems in the future, I can tell you now how they will deal with them – deny it's happening, cover it up, and carry on until it's a total disaster." As she speaks, a dust-storm blows around us, as the desert tries, slowly, insistently, to take back its land.

X. Fake Plastic Trees

On my final night in the Dubai Disneyland, I stop off on my way to the airport, at a Pizza Hut that sits at the side of one of the city's endless, wide, gaping roads. It is identical to the one near my apartment in London in every respect, even the vomit-coloured decor. My mind is whirring and distracted. Perhaps Dubai disturbed me so much, I am thinking, because here, the entire global supply chain is condensed. Many of my goods are made by semi-enslaved populations desperate for a chance 2,000 miles away; is the only difference that here, they are merely two miles away, and you sometimes get to glimpse their faces? Dubai is Market Fundamentalist Globalisation in One City.

I ask the Filipino girl behind the counter if she likes it here. "It's OK," she says cautiously. Really? I say. I can't stand it. She sighs with relief and says: "This is the most terrible place! I hate it! I was here for months before I realised – everything in Dubai is fake. Everything you see. The trees are fake, the workers' contracts are fake, the islands are fake, the smiles are fake – even the water is fake!" But she is trapped, she says. She got into debt to come here, and she is stuck for three years: an old story now. "I think Dubai is like an oasis. It is an illusion, not real. You think you have seen water in the distance, but you get close and you only get a mouthful of sand."

As she says this, another customer enters. She forces her face into the broad, empty Dubai smile and says: "And how may I help you tonight, sir?"

Link: The dark side of Dubai - Johann Hari, Commentators - The Independent

[Muadib]

Abu Dhabi has stepped up and guaranteed 100% of Dubai World's debt...

European markets are back in the black after being down yesterday...

RBS was down over 10% at one point, once it was made public that they were a primary lender to Dubai World... RBS is now back in the black...

US markets were off 209 points at open this morning... Climbing back at this point... Gold being hit the hardest...

[DaffyDuck]

Good for Dubai - what about Abu Dhabi?

[GooMaiRoo]

"Once the manic burst of building has stopped and the whirlwind has slowed, the secrets of Dubai are slowly seeping out. This is a city built from nothing in just a few wild decades on credit and ecocide, suppression and slavery. Dubai is a living metal metaphor for the neo-liberal globalised world that may be crashing – at last – into history. "

MM - Good stuff. Thanks for introducing TD members like myself to reporter Johann Hari. His insightful articles provide a truly brilliant counterpoint to globalist cheerleaders such as the New York Times' Thomas Friedman.

[barbaro]

"Once the manic burst of building has stopped and the whirlwind has slowed, the secrets of Dubai are slowly seeping out. This is a city built from nothing in just a few wild decades on credit and ecocide, suppression and slavery. Dubai is a living metal metaphor for the neo-liberal globalised world that may be crashing – at last – into history. "

MM - Good stuff. Thanks for introducing TD members like myself to reporter Johann Hari. His insightful articles provide a truly brilliant counterpoint to globalist cheerleaders such as the New York Times' Thomas Friedman.

I'd like to see more of Johann Hari's writings, yes.

Also, I loathe Thomas Friedman. I like some of his books, but I cannot stand his NYT Op-Ed articles. He's pathetic, IMO.

[barbaro]

Here's a Max Keiser report, and his claim that many UK banks will fail and some US banks will have probs: USD, oil, GLD, etc.

Agree or disagree with this and other comments by Keiser?

[larvidchr]

"Once the manic burst of building has stopped and the whirlwind has slowed, the secrets of Dubai are slowly seeping out. This is a city built from nothing in just a few wild decades on credit and ecocide, suppression and slavery. Dubai is a living metal metaphor for the neo-liberal globalised world that may be crashing – at last – into history. "

MM - Good stuff. Thanks for introducing TD members like myself to reporter Johann Hari. His insightful articles provide a truly brilliant counterpoint to globalist cheerleaders such as the New York Times' Thomas Friedman.

Ditto, very interesting, there must be a lot of small and medium big property investors that already have lost all with the very big fall in property values, and the Slave/worker situation needs to be publicised much more worldwide if there is to be any chance of change.

I saw a television program about this Indian guy who had come to Dubai with just a little bit of money some years back, he started by buying two small one room apartments, now he was buying several floors at the time in the new big high rise projects, it was all about getting your name on a contract in the stampede there was when every new project started selling (long before they are build), and then selling it on in short order with huge profits when the prices sky-rocketed, a guy like that could very easily have gotten in big trouble by now since it all was a bit pyramid like, if any projects he has invested in suddenly have stopped before completion he would be bankrupt, like wise if any of his projects has fallen up till 50% as some of the prices have now in Dubai.

The 3000 thousand abandoned cars in the airport is certainly no joke any-more.

[GooMaiRoo]

Agree or disagree with this and other comments by Keiser?

Spot on about everything, a great video link. Notice that its from RT (Russia Today). Keiser can also be heard on Al Jazzera and Tehran's Press TV. It's sad and frightening that astute economists like Max Keiser are being swept down the memory hole by most Western media outlets. Like a frog slowly boiling in a pot of water, the Western media won't acknowledge the depth of greed, corruption and incompetence that's bringing down its economies until it's way too late to do anything.

[barbaro]

Short, but too the point:

[natalie8]

Here are some articles that were e-mailed to me. They're long so I'll just post the links.


***not sure if the articles will show. Let me try something else****

[barbaro]

We know this is the eco-effect, or trickle effect. It's all related. How are things in Dubai, Nat8?

Shattered Dubai dream echoes across Mideast

Laid off workers leave ‘in tears’; remittances dry up, cutting funds to region

Nader Daoud / AP file
Mahmoud Tamimi, 31, steps out of his house in Amman, Jordan. Back in Dubai, the 31-year-old Palestinian had a good job, a nice apartment and a $3,700 monthly salary, dozens of times what he'd ever made before. Then he was laid off when Dubai's economy plunged. With his residency permit tied to his job, he couldn't stay. He now squeezes into a two-bedroom apartment with his wife, daughter and seven other family members in a poor neighborhood of Jordan's capital, vainly looking for work.
View related photos


Mideast/North Africa video

updated 3:39 a.m. ET Jan. 8, 2010

AMMAN, Jordan - Mahmoud Tamimi's friends call it the "Dubai syndrome" — the insatiable longing for a city he loves but was forced to leave. Back in Dubai, the 31-year-old had a good job, nice apartment and a $3,700 monthly salary, dozens of times what he'd ever made before.

Then, early last year, the Jordanian of Palestinian origin was laid off as Dubai's economy plunged. With his residency permit tied to his job, he couldn't stay. He now squeezes into a two-bedroom apartment with his wife, daughter and seven other family members in a poor neighborhood of Jordan's capital, vainly looking for work.

Dubai's downfall is not only hurting the city-state and the financiers who bet big on its promises.

Even before Dubai's financial crisis, the sheikdom's growing economic woes had begun rippling out across the Arab world,

It is bad news for the Arab world, where chronic economic stagnation, high unemployment and low-paying jobs have long caused frustration among workers, especially the young. forcing workers like Tamimi back to their home countries, where jobs are scarce and wages often rock bottom. That is eating away at the money many Middle East families depend on, sent home from relatives who work in Persian Gulf countries and emirates such as Dubai.


Worker remittances plunge

Overall, the amount of money shipped back home by workers abroad, called remittances, is expected to fall by more than 7 percent this year across the Mideast and Arab north Africa, the World Bank estimates. That is the first drop in a decade.
In some countries the impact is worse: Worker remittances into Egypt have already plunged nearly a quarter over the past year, the International Monetary Fund said in October.

Kamran Jebreili / AP file

A moving truck is seen in front of the home of a family preparing to leave the country, in the Springs neighborhood of Dubai, United Arab Emirates, on June 4.

Arab workers go to many places for jobs, including Europe. But the oil-rich Gulf has long been the bedrock of Mideast remittances, with Dubai recently its most turbocharged engine.

Dubai built itself into a booming trade and tourism hub on the backs of foreign workers like Tamimi, whose family originally hails from the West Bank town of Hebron. Only about one in 10 of Dubai's roughly 1.5 million residents is a citizen.

Expatriate Arabs are not the only foreigners hurt by Dubai's downfall. Low-paid Indians and other South Asians provide much of the hard labor to raise skyscrapers including the world's tallest, the Burj Khalifa, which opened this week. Filipinos fill many of the service jobs.

But in per-capita dollar terms, it is the Arab world that's being hit hardest.

Huge effect on neighboring economies
Overall, worker wages from the Gulf — including Dubai and other places like Saudi Arabia and Kuwait — account for a whopping 15 to 20 percent of the economy in countries like Jordan, Lebanon and Egypt that are considerably poorer than the oil-fueled monarchies of the Gulf, said Nasser Saidi, a former Lebanese government minister who is now the chief economist at the Dubai International Financial Center, a state-run banking hub.

Under-the-table and other "unofficial" transfers of wealth outside the banking system mean the effect on local economies could be twice as high, he said.

All that means the recent decline in remittances — combined with a drop in trade and tourism also caused by the economic crisis — could leave many of the Arab world's poorer countries slower to recover than other parts of the world as the global economy pulls out of the crisis, the IMF said recently.

Even foreign Arab workers who remain in Dubai "are going to get less money than before" to send home, said Dilip Ratha, an economist at the World Bank.

Lack of opportunity linked to extremism
Dubai's latest debt problems will almost certainly make things even worse.
That has worried some who say high unemployment and low pay are already a core cause of hopelessness, and sometimes extremism, in the Mideast.

"Peace is not just the absence of conflict. It is the presence of opportunity and cooperation, and a sense of justice and fairness and movement," former President Bill Clinton told students in Dubai late last year, drawing a link between suicide bombing and a lack of opportunity in some parts of the Muslim world.

For Arabs from Casablanca to Baghdad, Dubai before its downturn was an antidote to that hopelessness: A rare exception to the scraggly, overcrowded cities that sprawl through much of the Arab world — a beacon of prosperity, offering a better and more liberal life.

In some cases, the fast-growing sheikdom promised an escape from poverty, violence or other societally imposed straitjackets.
For others, it was simply a place to yearn for and take risks in — an aspirational oasis, an Arab city to be proud of — just as young Americans try to make it big in New York or Hollywood.

The city also had a frantic pace and sky-high rents. But for many Arab workers, the perks outweighed that.

LInk & Entire: Shattered Dubai dream echoes across Mideast - Mideast/N. Africa - msnbc.com

[natalie8]

Good article, Milky. It's difficult for people who live here to see the whole picture. I can only speak about what I know. We have a few friends who have lost their jobs, but not that many.

I was downsized last February and I've only started working at a new job this December. My husband works in the security industry and that, of course, is very strong here.

Both the company he works for and the one I work for now have cut redundant positions. For example, at his work, most of the construction workers are Indian from Kerala. Their supervisors are also from Kerala. they would have 4 or 5 people to do the job of one and the workers would purposely delay the jobs in order to "keep their jobs". That doesn't go over very well in business.

I work for a hotel and my manager told me they did the same thing. It has been open for about 2 1/2 years now and when they downsized, they had also cut alot of the excess people in each position. Hotels do their budgets for x number of employees per room. We had had more than triple the number of employees needed.

Now, we're a little bit on the short side and we have to work hard, but the quiet times make up for it. At my husband's job, they have brought in western managers and they have cleaned up alot of the shit that was caused by the Indian subculture.

I'm not writing this to be racist, but it's a fact in this region.