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Rediff News  All News  » Business » Good times end in Dubai

Good times end in Dubai

March 17, 2009 16:31 IST

Dubai's Hot 100 party last month was a reminder of the city's high-rolling times before the credit crunch.

The annual celebration, laid on by a magazine profiling the United Arab Emirates' smart set, drew a crowd of boldfaced names: Thaksin Shinawatra, former Thai prime minister, mingled with developer Sulaiman al-Fahim, who brokered the sale of Manchester City football club to an Abu Dhabi sheikh.

But among the employees of ITP, the magazine's publisher, the free drinks were going down with more than the usual gusto. That week ITP cut its staff by about 10 per cent. "People knew the sackings were coming, and sure enough it was rough," says one of those axed.

For thousands of expatriates lured to Dubai by the promise of year-round sunshine and a tax-free lifestyle, the party is over. Corporate restructurings have arrived hard on the heels of steep falls in property prices and plummeting consumer confidence; El Dorado is fading back into desert. As the cutbacks spread from finance and real estate to sectors such as tourism, media and retail, many are packing up and heading home.

Dubai's roads and restaurants are noticeably quieter and once-exorbitant rents are becoming more reasonable by the month. The government claims visa issuance is holding up and denies reports of mass cancellations. But a YouGov poll in the UAE found more than half of respondents knew a family member or close friend who had been made redundant, a figure that had risen sharply from the end of 2008.

At Dubai's highest-profile investment company, Dubai International Capital, for example, staff are in flux as its parent company, owned by the ruler Sheikh Mohammed bin Rashid Al Maktoum, merges back-office functions with another of his investment vehicles. "It's a nightmare," says one. "We go into the office unsure if we will have a job at the end of the day."

The end of this month is expected to accelerate the departures among two of the largest white-collar expat communities, Britons and Indians, as it signals the end of the Indian school year and British schools' spring term.

Many employers have aided sacked staff, especially those with children, by extending visas so they do not have to leave quickly. Britons have also been wary of tax liabilities caused by returning before April 1, the new UK tax year.

In a labour market that remains underdeveloped by western standards, lawyers and recruiters are preparing for a rising volume of complaints as foreigners fight for severance pay while the government of the UAE reiterates its ban on private-sector employers making locals redundant. The job losses already announced and others still to come are seen as a big test of employment laws in a territory that has never known widespread hardship.

One difficulty, according to a western lawyer at a large Dubai business, is that there is "no real legal concept of redundancy" and no obligation on companies beyond paying staff their notice and modest severance pay.

The expat rumour mill, which has gone into overdrive since the economic crisis struck in October, talks in dark tones about companies letting whole departments go at a stroke or shedding small groups of employees every week to minimise bad publicity.

A further complication is the pressure a slew of employment disputes could put on both the local courts and the special court for the Dubai International Financial Centre, where many multinationals are based.

The centre's court -- which has an international panel of top commercial judges -- is embroiled in a number of time-consuming employment cases, some on appeal from a small claims tribunal.

In one such appeal in January, a former finance executive was fighting his ex-employer over just Dh25,209 ($6,853, £4,825) of disputed severance pay. Mark Beer, DIFC court registrar, insists the court can handle the workload but admits he hopes the "vast majority" of disputes will be resolved before reaching that stage.

Many more disputes are expected, especially involving western expatriates who took high-paying jobs in Dubai when demand was high but now find their positions under threat.

As the Dubai International Finance Centre blossomed from 2005, hundreds of companies used it as a regional launch pad and went on a hiring spree, scooping up experienced and novice bankers alike.

But regional equity markets have fallen with the oil price, corporate finance and debt are dormant, and restructuring work has proved more modest than bankers hoped. Now, at international names such as Morgan Stanley and Credit Suisse and local powerhouses such as Shuaa Capital and Mashreq, headcounts are dropping.

"During the speculative boom, a lot of people who were wholly unemployable in London found their way out here. And they have been found wanting," says one recruitment consultant.

At Dubai Properties, a large developer owned by the ruler Sheikh Mohammed, a handful of employees are in dispute with the company after they were asked to leave without severance pay late last year. The company, which is about to hand over another major residential complex in Business Bay, says those affected have been well looked after, and offered extended residence visas so they can seek other jobs and avoid disrupting their children's education.

The ex-employees, who want to remain anonymous as some have yet to settle with the company, say their legal advice is that any employee facing "arbitrary dismissal not linked to performance", such as redundancy, is entitled to between one and three months' severance pay, on top of any salary covering their notice periods. But they see little point in pursuing legal action over the relatively modest sums involved.

Not all those made redundant are heading home. According to Peter Henry, a Dubai-based partner for headhunters Whitehead Mann, opportunities remain elsewherein the region, especially in the risk functions of banks and conglomerates.

"If you look beyond Dubai, it is more positive: Abu Dhabi, Doha and to a certain extent in Bahrain," he says. "Saudi is also a very active market, where they are expanding businesses and international joint ventures are going ahead and we see a need for senior talent." Nevertheless, Dubai's lifestyle continues to make it the most attractive Gulf posting.

Others are prepared to wait for things to improve. Last year, Dubai hired Richard Attias, husband of Nicholas Sarkozy's ex-wife Cecilia, to promote the city through an events company focusing on sports and culture. But corporate sponsorship evaporated, leaving the former Publicis executive an obvious target for the ongoing cost-cutting regime across Dubai Inc.

His role was reduced from chief executive to adviser on a couple of low-key events. Nevertheless, Mr Attias says: "I reactivated my consultancy and put the headquarters in Dubai. I am very confident that the region and Dubai will soon be back on the front page,"

More fortunate still is Andy Blair (pictured), a construction project manager who achieved overnight fame when he scrawled his telephone number on his Porsche after being made redundant in January. Intense media interest -- not to mention the wide dissemination of his contact details -- allowed him to avoid the well-trodden path to Abu Dhabi or across the Gulf to Qatar. He has landed a job with a food and beverage consultancy. "People were talking about Doha or Bahrain but I'd rather poke my eyes out," says the 28-year-old Scot.

Additional reporting by Michael Peel.

Copyright: The Financial Times Limited 2009

Simeon Kerr,