By Roula Khalaf  www.ft.com

Seven months after Dubai shocked the world with a sudden restructuring of one of its flagship companies, the sense of relief is palpable in the city as well as in Abu Dhabi, the better-off neighbour that came to the rescue.

Burj Khalifa
Burj Khalifa

Although the crisis provoked serious tensions between the United Arab Emirates’ two leading centres, Dubai was thankful to be part of an oil-rich federation. Sheikh Mohammad bin Rashed al-Maktoum, the ruler, renamed the just-completed Burj Khalifa, the world’s tallest tower, after the UAE president.

Yet, in spite of the relief – Dubai World looks set to reach a consensual agreement with its creditors – a new kind of anxiety seems to have developed among at least some nationals in the emirate.

“People are happy that Dubai is now more humble – but what they don’t like is that they had to travel to Abu Dhabi for a bail-out,” one prominent Dubai analyst tells me. “This was psychologically shattering.”

The financial crisis was a global disaster, he says. “Everyone had problems, except Abu Dhabi and Qatar, but they are [too rich] to be counted. Compared to them, Dubai has the more solid economy.”

Given the structure of the UAE federation, the autonomy enjoyed by each of the seven emirates, and the fact that more than 90 per cent of the hydrocarbons wealth is concentrated in Abu Dhabi, anxieties and rivalries are inevitable. Abu Dhabi has always been the big sister in the emirates, the one that subsidies everyone else and provides the largest share of the federation’s budget.

Two developments in recent years have made the dynamics in the federation more complex still. First, as Dubai prospered, it emphasised its independence and enhanced its reputation as a coveted destination for business, trade and tourism. Its name, in fact, became much bigger than the UAE.

Second, after the 2004 death of Sheikh Zayed bin Sultan al-Nahyan, the founder of the federation, a new generation in Abu Dhabi has been flexing its financial muscle, determined to follow Dubai’s example, diversifying the oil-dependent economy and asserting itself on the world stage.

As over-leveraged Dubai now retrenches and cuts costs, Abu Dhabi can still spend generously on its own future. It can also learn from the mistakes of its neighbour, not least the need for fiscal discipline and restraint in the real estate sector.

The maddening traffic and construction bonanza that choked Dubai’s streets for years has now made its way to Abu Dhabi. Scores of Dubai residents who lost their jobs in the crisis drive to its neighbouring emirate for work every day.

As they watch the wealthier neighbour move ahead, even if at a more measured pace, some people in Dubai argue that Abu Dhabi should satisfy itself with the role of the political capital, and leave the business to Dubai.

Some of the Abu Dhabi projects that directly compete with existing free zones in Dubai do raise uncomfortable questions, but not the general diversification drive, which will, in any case, benefit other UAE states.

Dubai, moreover, will recover from its wounded pride, a product of its own excesses. If it can clean up its finances, its first-class infrastructure will keep it ahead of its neighbours as the region’s pre-eminent business hub.

Indeed there is some logic to the argument that the Dubai crisis has strengthened the federation by creating closer financial co-ordination with Abu Dhabi, which now provides oversight that is much appreciated by creditors and investors.

The greater worry for the federation lies elsewhere, in the yawning gap between Dubai and Abu Dhabi on one hand and the remaining poorer emirates on the other.

The UAE may be one of the world’s richest nations but in an emirate such as Sharjah nationals still suffer from frequent power cuts. Bolstering the federation in the future will require much higher spending on the northern emirates, with Abu Dhabi having to foot the bill.

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