Dubai's Economy -- When Big Isn't Better

March 9, 2009— -- Dubai, the tiny emirate the size of Rhode Island, is stuffed with more of the world's "biggest" attractions than one could imagine. Some call it the land of excess.

Dubai is home to the world's tallest building and hosted the world's biggest private party, which included two tons of lobster. The Dubai World Cup offers the world's biggest horse-racing purse with $6 million in prize money. Dubai even has the world's largest aquarium viewing panel, inside the world's biggest mall, of course, and plans for the biggest bridge are already completed.

There were so many plans, in fact, that Dubai's landmass was expanded to accommodate it all. And this was all done in two decades.

But for all of the emirate's prosperity and fame, there's something else there that's the biggest, and Dubai is not happy about it. Dubai is now in the midst of the biggest economic downturn in the country's history.

"There was too much development in certain segments," said Hashem Montasser, managing director of of the investment banking firm EFG-Hermes. "How many five-star hotels, five-star residential buildings do you need for a population that is growing but not that fast?"

Real estate prices have dropped up to 30 percent, and the horizon includes a skyline of unfinished buildings where construction was delayed or canceled by dried-up financing, including a $600 million Trump resort.

Last week Dubai had to take a $10 billion loan from rival emirate Abu Dhabi to pay off creditors.