Dubai faces hard times

How did Dubai become so rich?

Petrodollars. Fifty years ago it was just a small trading port and pearl fishing town - one of several little city states on the Persian Gulf to gain independence from the UK in 1971. Along with Abu Dhabi and the five other sheikhdoms that went on to form the United Arab Emirates (UAE), it was transformed by the discovery of oil in 1966. In the ensuing decades, it attracted a stream of foreign workers and investment, but by the mid-1990s people realised that, unlike Abu Dhabi, it would run out of oil within 30 years. So began the extraordinary project, masterminded by then crown prince, now ruler, Sheikh Mohammed bin Rashid Al Maktoum (see box), to reinvent the city as an international hub of finance, trade and tourism, no longer reliant on oil revenue.

And was it successful?

Spectacularly. Huge building projects funded by the emirate (in the boom years, 25% of all the cranes on earth were in Dubai), and an inviting business climate (eg zero income tax) ensured a decade-long boom. Dubai’s GDP grew from $12bn in 1996 to $80bn last year, and with it a vast influx of 3.62 million expats: bankers, lawyers, architects, property developers from the West (100,000 of them from the UK); building workers, cleaners and servants from the East. Foreigners soon formed some 90% of the population. Dubai became famous for its pleasure domes: the Palm Jumeirah - an artificial island fanning out into the Persian Gulf that has attracted a clutch of celebrities, including David Beckham, Michael Schumacher and even, it's said, Afghan president Hamid Karzai; the Burj Dubai, an unfinished 160-storey skyscraper that is already the world’s tallest building; and Ski Dubai, 22,500 square metres of desert covered with snow all year round. But dozens of other projects - including the even taller Nakheel Tower and an $800m Donald Trump complex - are now either on hold or have been scrapped altogether.

Did Dubai expect to withstand the financial crisis?

Yes, and until last autumn it seemed relatively unscathed by it. By the end of the year, however, it was clear that the property industry, accounting for 30% of the economy, was on the slide. Property prices have fallen 25% on average since September, with homes on Palm Jumeirah down 50% to 60%. Morgan Stanley reports that in recent months $260bn of property projects have been binned or delayed. And all this has been exacerbated by the departure of thousands of expats. Hundreds of cars bought with cheap credit have reportedly been abandoned at the airport, keys left in the ignition, frozen credit cards and apology letters in the glove box.

Is the car story really true?

Dubai's police chief says only 11 cars have been dumped at the airport and rebukes the media for misreporting