Until last month, Dubai was acclaimed worldwide as an exotic Manhattan on the sea, with huge skyscrapers towering in desert sands alongside golden beaches crowded with stunning hotels and upscale shopping malls.

Unsurprisingly, news of the financial collapse of the emirate's key construction firms came as a shock to many, but as far as regional economists were concerned, the Dubai bubble had been ready to burst for some time.

It is an experience that no country wants to see repeated within its borders. Israeli economists stressed over the weekend that lessons must be learned from the crisis, among which are modesty and caution.

 

File photo shows Kuwaiti traders follow the market's movement at the Stock Exchange in Kuwait City December 1, 2009. [Xinhua]

Symptoms

The prevailing view in Israel is that Dubai was simply putting all of its eggs in one basket. Its failure to diversify meant that a meltdown was likely to occur at one point or another.

"Diversification of an economy is so important," said Yishay Yafeh, an expert in financial systems at the Hebrew University of Jerusalem.

"You can't base an entire economy on one sector," said Dan Catarivas, director of international relations at the Federation of Israeli Economic Organizations.

Dubai had a bold vision. It took a pearl-fishing village on the edge of the Arabian Desert and transformed it within a matter of a lifetime. Israeli economists told Xinhua they believe that while the dream of Dubai's founder was ambitious and praiseworthy, it was converted over the years by his successors to something that became unsustainable.

Massive investments in real estate led to an overheated economy, and despite government involvement in all the major development companies.

The economy also lacked an export base. In 2006, Dubai's imports totalled some US$60 billion, while exports stood at US$5 billion.

"The lesson is that they went too far. It's as simple as that," said Arie Melnik, a professor of economics at the University of Haifa, adding that he believes the "hubris" of the Dubai leaders was at the center of the crisis.