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Dubai investors fear impact of corruption allegations
The latest corruption probe by the Dubai Government might raise economic fears, but will help boost investor confidence in the long run, analysts said.
- Gulf News Report
- Published: 23:32 August 19, 2008
Dubai: The latest corruption probe by the Dubai Government might raise economic fears, but will help boost investor confidence in the long run, analysts said.
"It's a positive development. With the latest crackdown, the government is sending a strong message. It will help restore investor confidence," Sudhir Kumar, managing director of Realtors International, a property consulting firm, told Gulf News.
However, Reuters said yesterday that a series of financial scandals at major Dubai firms threatens to derail the emirate's ambitions to become an international business hub unless the government tackles corruption head on.
"Propelled into the global limelight by glitzy projects such as the world's tallest tower, Dubai has long sought to transform itself into a global player, partly by assuring investors that it offers a world-class legal system as well as zero tax," a Reuters report said.
But at least four police investigations launched this year into executives at major government-linked real estate and financial firms have raised fears that a lack of regulation and transparency could hamper investor confidence, it said.
Recognition
"There is a recognition that on these business dealings, negative headlines can have damaging consequences," Reuters quoted Christian Koch, director of international studies at the Gulf Research Centre, as saying.
"Confidence in the economy, its future plans, transparency and fighting corruption is all tied together."
Dubai government has issued Mortgage Law, that will help its regulator Real Estate Regulatory Authority (RERA) and its Land Department to tighten their grip on the red-hot property sector where a number of players have been bending rules to make illegal profits.
Dubai developer Nakheel, builder of the emirate's man-made palm islands, told Reuters yesterday a former employee is under investigation on suspicion of bribe-taking as the emirate pledges to crack down on corruption.
"The company can confirm that a former member of staff is being interviewed by authorities in relation to acceptance of inducements from third parties," a Nakheel spokesman told Reuters in a statement.
The state-owned developer said on Friday a current employee was being investigated for accepting bribes following an internal audit process. It did not name the employees.
Dubai's Public Prosecution said on Sunday fighting corruption was a top priority for the Gulf business hub and pledged a zero-tolerance policy on violations.
Since the opening up of the emirate's real estate sector to foreign ownership in 2002, property and construction sector has been driving Dubai's economic growth at an average of 8 per cent to nearly $53.9 billion last year.
Despite the high growth, the sector could not ensure enough supplies to match the growing demand for housing units.
"Any employee exploiting his position to make illegal profits will not have immunity," a statement from the office of His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, said, following the latest revelations of financial irregularities.
The flurry of cases has coincided with a strengthening of the financial audit department at the start of 2007, giving it more power and making it directly answerable to Shaikh Mohammad.
The department audits about 250 entities annually in Dubai, including all firms in which the government owns 25 percent or more, and passes any violations on to the public prosecutor's office.
Tamweel shares recover
Dubai mortgage lender Tamweel yesterday told Reuters the possibility that an investigation into former executives could lead to cash losses was "remote" and there would be no impact on profit.
The Sharia-compliant firm has no intention to change its 2008 profit growth target of up to 80 per cent, Chief Financial Officer Gaurav Agarwal said in a conference call with analysts.
"It is a very remote possibility of cash losses. There is no hole in the balance sheet," Agarwal said. "We are very confident that there is no impairment on the profits."
Tamweel's former Chief Executive Adel Al Shirawi and head of investments Feras Kalthoum were under investigation for alleged financial irregularities, Tamweel's biggest shareholder, Istithmar World, said last week.
Shares of Tamweel have fallen about 21 per cent this month mainly on the news.
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