Felix Salmon reports the latest news from Dubai, arguing that the $10bn cash injection from Abu Dhabi is no panacea for the Emirate's long-term woes:
If you think that the Dubai situation has pretty much been resolved with that cash infusion from Abu Dhabi, think again. Paul Whitfield and Vipal Monga explain that nothing really has been cleared up at all, and that there are far more — and far bigger — uncertainties surrounding the emirate’s finances than most of us had suspected.
For one thing, Dubai has no real legal structure capable of dealing with a default on this level, which has forced it to hurriedly import a jury-rigged system with UK and Singaporean jurists, based on British and American (not Islamic) legal structures.
Whitfield and Monga point to a World Bank Report about the costs of insolvency in the Emirate:
The United Arab Emirates does have bankruptcy laws, but they have rarely, if ever, been used by international firms and have certainly never been applied to a business of the scale or complexity of Dubai World.
They are also far from investor-friendly. According to a study by the World Bank, it takes an average 5.1 years to recoup money from a closing business and even then investors should expect only 10.2 cents on the dollar. That gives the UAE the second-lowest ranking in the Middle East and North Africa on both measures
If investors end up losing out big in Dubai, the country's migrant community is going to continue to losing out even more.
And there you have the double-edged sword of real estate bubbles: great opportunities for migrants on the way up, and even greater challenges on the way down.