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.

Worries for Expat Population

Though 90 percent of Dubai's population is foreign workers, the government is reportedly canceling 1,500 work visas per day. Most people are given just a month to find a new job. There has been a mass exodus as a result.

"We had a lot of credit card debt and thought, 'we can go over there for a short time, pay off all of our credit card debt, be prepared to start a family,'" American Denay Vargas said.

Vargas and her husband moved to Dubai from the U.S. last year when he got a high-paying job. They live in one of the many luxury high-rises design for expatriate workers and enjoy some of Dubai's perks, including not having to pay taxes. But after watching so many friends lose their jobs, Vargas is worried.

Vargas and her husband, who moved to Dubai from the United States last year, live in one of the many luxury high-rises designed for expatriate workers. But after watching so many friends lose their jobs, Vargas is worried.

"The outlay of cash we spent to move here, it was big," she said. "So we would be going back home still in debt and having spent more money than if we had stayed in the states."

Debt in Dubai is a much worse fate than simply going broke -- here, there's a debtors jail. To avoid it, many have reportedly been ditching their cars at the airport on the way out of town, fleeing what seemed like paradise just a year ago.

"People are concerned," Montasser said. "It's a reality check for the entire world and Dubai is part of it."