After a buoyant global market rally and the passing of the so-called bank stress tests in the U.S., most everyone is eager to claim that the worst is behind us and we are witnessing the green shoots of recovery.

Followers of history would have us think again. During the Great Depression investors were head-faked into believing that the initial recovery would be a lasting one -- and they licked their wounds for another four years thereafter.

This week I had the chance to co-chair the Arabian Hotel Investment Conference in Dubai and interviewed two sizable players on stage at the event – Sultan Ahmed bin Sulayem of Dubai World and Prince Sultan Salman Abudulaiz Al-Saud of the Supreme Commission on Tourism. The latter is better known for taking the big picture view of the world as an astronaut on the 1985 Discovery mission.

Both in their half hour appearances on stage gave candid assessments of where we are today. The chairman of Dubai World said he would complete all the projects under construction but would delay any new developments, including the one kilometer tower designed to surpass the world’s tallest tower, the Burj Dubai. Sultan bin Sulayem trimmed the sails of his property group Nakheel by cutting 15 percent of the workforce. “Everything that cannot be currently financed will be delayed,” said the development veteran.

Saudi Arabia’s story remains one of expansion. After six years of surpluses, the Kingdom is spending freely on education, healthcare and yes, even tourism. Prince Sultan is trying to recapture some of the $15 billion Saudi citizens spend abroad each year on holidays. At the same time, the country is modernizing its infrastructure. With a population of 28 million people, including six million ex-pats, Saudi Arabia has decided to either refurbish or open 22 domestic and international airports. This runs in parallel with a strategy to develop four new economic cities from scratch.

Marios Maratheftis of Standard Chartered told the hotel developers that the Middle East is the “most resilient region in the world.” He is certainly correct in one respect -- with the bank forecasting that the Middle East will stay above water in 2009, with growth of about 1 percent. Americans and Europeans would thank their lucky stars for that performance this year.

Having taken the business temperature as the heat surged in Dubai during my three day stint, one quickly finds out that realism has arrived in the region’s financial center. A group of attorneys stopped to share their thoughts while I was flagging down a taxi. One said they are fine as a firm this year, but if 2010 looks the same they may not survive this slowdown.

That, unfortunately, is at the heart of the challenge. Next year is not looking so bright, with credit still scarce and government and corporate debt coming due starting in the autumn. Government officials expressed their confidence that the $10 billion bond offering will go well -- and Sultan Bin Sulayem shared that view for Dubai World, with more than $4.5 billion in need of refinancing in the next year.

The region has been tested before and worked through the challenges. While touring his beach hotel complex via an electric powered abra (boat), Gerald Lawless, the Executive Chairman of Jumeirah Group, compared this economic challenge to the rapid response needed after 9/11 and the Gulf War.

Lawless, a 30 year veteran of the region, said Dubai has made a “very real assessment of where we are. We know it is pretty deep but it could have been a whole lot worse.”

Beyond the staff cuts, Dubai Inc. has had to respond in force to get visitors in place. Hoteliers like Lawless teamed up with Emirates Airlines to put forth bundled offers. Lawless says that his beach resorts had 97 percent occupancy in April -- but this came at a price, with revenue per available room down 20 percent in the first quarter.

The Jumeirah Group has big expansion plans, but the owner-operator of the iconic Burj Al Arab hotel is also taking a more measured pace. The first of six hotels planned for China has been delayed again until the spring or summer of next year. Lawless, however, plans to have 60 hotels under management by 2012, with half of them opened by then.

After the conference, I took an hour to take in “The Walk” at Jumeirah Beach, a modern boardwalk of restaurants and high end shops. Locals and tourists alike were out spending, not with the frantic pace of just a year ago, but in a more measured way.

At the start of this stroll, I stopped to take in an unusual scene in the Gulf. It was a crane with a giant wrecking ball tearing down an “old” structure. This prime location was being cleared for what seems to be another residence. It was a rare burst of new activity in a city which has been in a big rush for the past two decades, and is taking a pause to spot the green shoots of recovery in these desert sands.

Labels: burj al arab, jumeirah, Prince Sultan Salman Abudulaiz Al-Saud, Sultan Ahmed bin Sulayem

Posted by CNN's John Defterios: 11:16 AM

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