Dubai has run the gauntlet of reputational hazard these past 20 days.
Public relations machine spins out of control
Dubai went to sleep last Monday night in roughly the same shape it did on the night of November 24 - assured that the troublesome US$3.5 billion (Db12.85bn) Nakheel sukuk would be repaid on time, but with questions still to be answered about its remaining debts. So that was a lot of fuss about nothing then, wasn't it? In the 20 intervening days, global markets briefly convulsed immediately after the standstill request, regional markets took a bigger hit over a longer period, and Dubai found itself for a short time compared with Iceland and Argentina as economies that had let their financial situation get out of hand, to the extent that their standing in the world took a serious knock.
In the course of the global crisis, much has been written about "moral hazard", but there is an equally serious danger out there too: reputational hazard. Dubai has run the gauntlet of reputational hazard these past 20 days. The emirate blames the international media for exaggerating the extent of its problems, and there is something in that accusation. In the week after November 25 all the tired old cliches of the West's newsrooms were pulled down from the shelves, dusted off and presented again as ground-breaking "analysis": desert dreams turning to sand; gold losing its glitter; nemesis following hubris etc, etc, ad nauseam. If I see the Ozymandias analogy in print again I will personally take action under the laws of plagiarism on behalf of Percy Bysshe Shelley.
But the more responsible media also had a valid point. The Financial Times and The Wall Street Journal, much as they like to trumpet their influence with global markets, did not manufacture the initial reaction. They reported it. Markets hate uncertainty and unpredictability, and they had plenty of that from Dubai to feed their worst fears. That these eventually proved groundless does not make them any less frightening. We all know nightmares are temporary and unreal, but they certainly seem real at the time.
So what sparked the nightmare from which Dubai awoke on Monday morning? Above all, it was a failure to communicate. With hindsight, it was a misjudgement to put out the "standstill" request on the eve of public holidays in the Islamic world and the West. World markets panicked, but Dubai and the UAE were not at their desks to respond to global fears. That was the initial error. Mistake number two was to let the global markets continue to believe the worst. The second major statement from Dubai World, which isolated $26bn of debt to be restructured, was actually a sign of significant progress on the debt issue. But it was so lacking in detail or elaboration that it simply further fuelled market anxieties, especially among the holders of Nakheel sukuk who faced the most imminent threat of financial loss.
Both these were errors of communication, and failure to get across the facts of the situation was the glaring feature of the episode. It is not as though Dubai has any shortage of communicators. Brunswick, the London-based public relations agency ranked among the world's best, has been advising the Dubai Department of Finance since springtime. Financial Dynamics, another top UK firm, was advising Dubai World. The Dubai Government also has its own home-grown network of advisers and spin doctors. None has covered themselves in glory in this episode.
Brunswick, to give them some credit, realised a new approach was needed in the run-up to the sukuk deadline and called in a big hitter from New York, an adviser to the former US Treasury secretary Hank Paulson, to bolster their advisory efforts and inject an extra bit of credibility. Some good may come of it all. Both statements on Monday, from Sheikh Ahmed bin Saeed Al Maktoum as chairman of the Dubai Supreme Fiscal Committee and from Dubai World, appeared to recognise the communications deficit by promising to do better in future.
Sheikh Ahmed talked about "internationally accepted standards for transparency", while Dubai World stressed its commitment to "regular, direct and timely communications". Both are wholly admirable aims and the Government and its state-owned companies have shown a maturity and sophistication to identify the communications issue as a significant factor in Dubai's recovery. It is also significant that Sheikh Ahmed, perhaps the globally best-known of Dubai's senior executives, was the man chosen to put that message across.
The issue of Dubai's indebtedness is not over. There is plenty of opportunity for the emirate to demonstrate its new commitment to openness and transparency in the months to come as it grapples with the 90-odd banks and many contractors who are owned billions and want to reach a long-term deal with Dubai. Good PR advice can never work magic on its own. It has to have an essentially positive message to get across. Now that Dubai has shrugged off the immediate nightmare, it has a unique chance to rebuild and enhance its core image.