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When Iranian businesspeople
decided to launch a branch of their company in Dubai in order to bypass
sanctions and import necessary goods through that Emirate, they never thought
that Dubai would turn into a crisis zone one day. The safe house that they had
built in Dubai was not safe after all. Iranian officials who maintained that
due to lack of trade ties between Iran and US, the former will not be affected
by international financial crisis, had not taken into account that their
number one trade partner, that is, Dubai will be affected by the crisis. The
housing crisis, which started in the United States, left its mark on Dubai and
the subsequent crisis engulfed trade and tourism in the small Emirate. Having
about 20 billion dollars of trade exchanges with Dubai due to economic
sanctions imposed by the West, Iran is now more concerned about future
prospects of Dubai. Iranian merchants, who once considered Dubai a bypass to
US sanctions and undertook extra costs imposed on them through transactions,
are not praying to God to keep their last resort safe. A member of presiding
board of Iran Chamber of Commerce, Industries and Mines, however, has added a
new concern: Dubai’s concern about losing the Iranian capitals.
Massoud Daneshmand, who is in charge of
joint chamber of Iran and the United Arab Emirates and is also treasurer of
Iran Chamber of Commerce, Industries and Mines, has taken part in the
following interview to explain about importance of Dubai and impact of the
crisis in Dubai on Iran. He has noted that European banks are helping the
Emirate to overcome its problems and has promised that conditions in Dubai
will be back to normal.
Will the
crisis in Dubai affect the Iranian economy?
It will certainly affect our
country’s economy. Globalization of economy has caused such crises to spread
to other countries, though the degree of their influence depends on the
relationship between different economies. Although the crisis has begun in
real estate sector of Dubai, but it has spread to other sectors. Real estate
does not directly affect trade, but Iran has also economic relations with
Dubai and its economy has been touched by the crisis in Dubai’s real estate
crisis.
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Real estate does not directly affect trade, but Iran has also economic
relations with Dubai and its economy has been touched by the crisis in
Dubai’s real estate crisis.
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What
solutions have been sought by officials of Dubai to solve this problem?
You certainly know that the
government of Dubai is independent of the government of the United Arab
Emirates. UAE consists of seven emirates with independent sovereignty. They
include Abu Dhabi, Ajman, Fujairah, Dubai, Sharjah, Ra’s al Khaymah and Umm
al-Quwaine which are independent in their domestic and economic affairs and
are only under rule of UAE in military and international affairs. During the
current crisis in UAE, liabilities of Dubai have been put at 80 billion
dollars which is not very high. However, Dubai should redefine its economic
goals and the need for this has been great following the crisis. Dubai has
founded its economy on trade and tourism and the crisis has engulfed both
sectors. The crisis has spread to those sectors from the real estate due to a
policy that banks adopt in times of crisis. When real estate sector becomes
insolvent, banks adopt a contractionary policy and apply that stringent policy
to facilities. This will put double pressures on businesses and damage
tourism. This has happened in short term and has caused problems for various
economic sectors in Dubai. It will certainly affect the Iranian economy which
has vast dealings with Dubai. The government of Dubai is currently trying to
solve the problem and has taken many positive steps.
What
problems are Iranian businesses facing in Dubai under the current
circumstances?
No business can survive
without bank facilities. Contractionary policies adopted by banks in Dubai
have caused many problems for businesspeople and have also affected tourism.
Therefore, officials in Dubai are more concerned than us and are trying to
solve the problem. They know that under conditions of crisis they should open
the doors to trade and have helped banks to grant facilities in order to
prevent more damage to trade. Iran’s transactions with Dubai exceeded 15
billion dollars in 2008 and that figure accounted for 20 percent of total
trade volume of Iran. Therefore, we are an important trade partner for Dubai.
That amount of export and import is every important to Dubai. They have to
interact with Iran. Therefore, they have to remove obstacles as soon as
possible and they are currently doing that.
You noted
that Dubai’s economy needs markets. What do you mean exactly?
I mean that Dubai’s economy
should shift its center from real estate back to trade and tourism. Suppose
that global economic crisis had not taken place and housing crisis had not
reached Dubai. Until when would the Emirate have been able to continue with
construction? There are limits. The resident and emigrant population in Dubai
adds up to about three million. If every three person needs a housing unit,
one million houses would be enough. Therefore, there is a limit to
construction activities and real estate. Dubai should redefine its economy by
entering into joint ventures with neighboring countries. Iran has good grounds
for investment. Even in construction industry for which big companies have
been established in Dubai. They can continue construction in Iran. For
example, Iran has been active in building ports. There are good potentials in
Dubai for such projects. We can share potentials and do joint investments in
Iran which would be beneficial to both sides. Dubai has production units which
are engaged in reexport of audio and visual devices for which there is a good
market in Iran. Therefore, the two countries can make joint investments in the
field.
During the
past few years, trade relations between Iran and Dubai have greatly increased.
The reason, perhaps, is the economic sanctions imposed on Iran which has made
businesspeople to use UAE to bypass those sanctions. Although this has
increased costs for the Iranian businesses, but has been a solution under
existing conditions. Don’t you think that our country should be more concerned
about the crisis in Dubai?
Every society gives priority
to its own interests. We have been grappling with many problems in the past
years as a result of the sanctions. Some of those problems have been solved
through Dubai and, of course, at a higher cost. But Dubai has also interests
in this form of transaction and is aware of them. Therefore, Dubai should try
to get conditions back to normal so as not to lose an important partner like
Iran. Iran’s 15-billion-dollar market has guaranteed them about 30 billion
dollars in exchanges because Dubai works as intermediary and reaps benefit on
both sides. Therefore, Dubai is trying to restrict problems to the real estate
sector in order to prevent them from spreading to other sectors. They are
trying to grant facilities to businesspeople in order to protect trade and
maintain markets like Iran. The problem in Dubai can be solved by spending 80
billion dollars. Although this is not an easy solution, they are doing their
best to succeed.
Do you have
any idea about the damages inflicted on Iran as a result of the crisis?
Undoubtedly, the exact
figure cannot be calculated. Our economy is closely interrelated to that of
Dubai and has suffered a lot due to the existing crisis. People who had bought
real estate in Dubai should sell it at one-third of the actual price now.
Businesses are facing shortage of bank facilities. Companies whose capital
turnover was four times a year are not content with two or three turnovers.
Solutions should be sought to redresses such losses, but it is very difficult
to calculate the exact figure of those losses.
How the
crisis began in Dubai?
The crisis started at Dubai
World which is a big company involved in real estate, building towers and even
building artificial islands. Following the housing crisis in the United States
when banks stopped granting facilities to constructors, the latter group faced
serious problems and could not repay its debts to banks. Of course, the
company had predicted the crisis in advance and had called for a moratorium on
repayment of its debts seven months earlier than the crisis. The request was
granted at that time and the period of repayment was extended by six months.
However, after those six months, the company was still unable to repay its
debts. This caused banks a deficit of 80 billion dollars and they could not
disburse more facilities. To solve this problem, the government is looking for
ways to pay the company’s debts to banks in order to prevent further spread of
the crisis. I recently heard that Abu Dhabi has contributed 12 billion dollars
and European banks have also offered financial aid to bail the company out.
The financial aid to Dubai continues and the problem is expected to be solved
in the near future. |
