Dubai is the nation state as mortgage bubble: hype, leverage, and a lot of concrete mixers. Last week, the air came hissing out and with it a new word, Sukuk, replaced collateralised debt obligation in the global financial community.
But in Cape Town, Dubai World’s bubble burst a year ago, with the ousting of provincial premier, Ebrahim Rasool, the state-owned investment company’s local champion.
By then things were already foundering at the V&A Waterfront, where a R7-billion consortium stitched together at the 11th hour to buy the country’s most valuable piece of real estate was riven by internal differences. And Dubai World’s controversial attempt to buy the Somerset Hospital complex, sandwiched between the Waterfront and the new World Cup stadium, was running into bad publicity as the M&G exposed efforts to carve up the bidding between the Emirates’ investment company and ANC-linked businesspeople.
This week V&A management issued a soothing statement that financing for the Waterfront deal was ring-fenced and Dubai World’s debt standstill (the proximate cause of the crash) would not affect the ‘profitable” retail, commercial and residential complex.
That is true in the narrowest sense: the Waterfront is not about to be shuttered for shortage of operating cash. But the turning off of the Gulf cash spigot must have important medium- and long-term consequences.
In 2007 Rasool told visiting newspaper editors that on a recent trip to London he had been strip-searched: evidently the premier, with his neat beard and owlish glasses, did not seem a ‘moderate” enough Muslim.
His message was simple: vast sums are sloshing around the Islamic world looking for yield. Those running Gulf-based sovereign wealth funds wanted to take their money where they wouldn’t be racially profiled and strip-searched while their wallets were rifled. The Cape was such a place.
It sounded sensible. Dubai Ports World, a subsidiary of Dubai World, had been embroiled in controversy over its planned acquisition of American port operations, and the global financial crisis had yet to recast Gulf investors as saviours of tottering banks. Indeed, the massive investment in the Waterfront a year earlier was a vote of confidence in South Africa and the region.
In partnership with London & Regional Properties, owned by the Livingstone brothers, and a local empowerment consortium, Dubai World had paid Transnet R7-billion for the V&A.
They would spend twice that, they said, on new developments in the precinct that had been only ‘45%” built, Dubai World’s brash point-man, James Wilson, promised.
There were mutters around the city at the prospect of Dubai-style tower blocks and megahotels.
Wilson helpfully handed local newspapers artists’ renderings of artificial islands in Granger Bay.
Cape Town was less worried about a disturbing affiliation between senior provincial government officials and the Emirate’s ruling family, but it was becoming a bone of contention in the divided provincial ANC.
Many suspected that local businessman Hassan Adams, seen as a key Rasool backer, had been cut in to the Waterfront empowerment consortium.
Phumzile Mlambo-Ngcuka’s controversial and expensive visit to Dubai didn’t help matters, although no one remarked on the fact that her husband, Bulelani, chaired the Waterfront company.
Adams later gave the Scorpions boss-turned-businessman an opportunity to take up shares in another lucrative Cape empowerment
business — the Grandwest Casino.
Allegations — hotly denied — then emerged that on a trip to Dubai Rasool had assured its rulers they would be frontrunners in the tender to buy the Somerset hospital site.
So confident was Dubai World that he or Adams could deliver that they sent architects to meet provincial officials about their plans.
That optimism was short-lived. Thabo Mbeki’s ejection was quickly followed by Rasool’s ouster, and his replacement, Lynne Brown, cancelled the hospital sale.
Meanwhile, Helen Zille’s Cape Town council was complicating the planning arrangements around the precinct. At the V&A mall, a new wing stuffed with high-end boutiques was so quiet that some retailers called it ‘death row”.
As for the new developments, only Sol Kerzner’s One&Only, part-funded by Dubai World, went up. London & Regional allegedly refused fresh capital, and the increasingly politically marginalised empowerment partners struggled to get promised board seats.
Kerzner is now publicly wondering about the financing of his hotel. For the rest of the V&A, no Burj Cape Town is likely to be built soon, while apart from road upgrades, fresh investment will be limited.
If Dubai World needs to cash out assets, the Waterfront may be among the easiest to offload. It may be profitable, but liquidity is urgently required, and the politico-business nexus that fostered its interest has been shattered.