Shaken, not stirred: How Dubai got back in business

James Bond usually battles against oily Middle Eastern movers and sheikhers, armed with a Walther PPK revolver and rubbish jokes:

The choice of Dubai has the approval of Fleming's estate, publisher Hodder & Stoughton and Sheikh Mohammed. Sheikh Mo, as Bond would doubtless call him over a few puffs of a shisha, has already given the go-ahead for the film version of the book (working title: From Dubai With Love) to be shot in Dubai, and even offered his private Boeing 747 to fly in equipment and stars, including Daniel Craig. Deaver has not revealed details of the plot of the book, to be published in May, but no one will be surprised if 007 scales the world's tallest building, the almost 1km-high Burj Khalifa, sails around the Palm Jumeirah, the reclaimed island in the Arabian Sea in the shape of a giant palm, tries a spot of skiing in Dubai's giant ski dome, and downs a vodka martini in the bar of the sail-shaped Burj Al Arab hotel where the cocktails are served with gold-leaf shavings.

He might even dabble in real, ongoing espionage intrigue. Investigators are still unpicking the grisly story of how secret agents, suspected to be from Israel's Mossad, used forged British passports to enter Dubai last year, murder Mahmoud al-Mabhouh, a senior commander of the Islamist group Hamas in his beachfront hotel room, and leave the country before the local cops could catch up with them.

But Sheikh Mohammed, of course, would like Deaver to come up with more upbeat fiction. He hopes that Bond and Ethan Hunt (not content with a single big-screen hero, Dubai also gave Tom Cruise permission to shoot Mission: Impossible - Ghost Protocol in the city at the end of last year) will affirm that Dubai, one of the most spectacular victims of the global boom and bust, is back, or at least on its way back. During the go-go years senior government officials would point to references to Dubai in Hollywood films, however awful - they even praised Sex & The City 2 - as proof that the city state was a player on the world stage. And these days, boy, does Dubai need a lift.

The global recession ripped through the dunes, leaving Dubai's dream of becoming the Switzerland of the Middle East little more than a mirage. Locals who used to joke that Dubai would be a great place 'when it's finished' have begun to wonder whether it is in fact finished.

The raw numbers confirm the desert storm: roperty, the engine of Dubai's growth, which at its peak in 2007 accounted for more than half the economy, has run into the sand and house prices are down 70 per cent, the steepest overall fall anywhere in the world. British investors sank some £200 million into £1 billion-worth of property, much of which has not been completed - and some may never be. An estimated £335 billion-worth of projects had been cancelled or were on hold by 2009, leaving half-built, hollow-eyed kyscrapers punctuating the desert like decaying monuments to Dubai Inc. Prestige assets are under threat as well. The QE2, bought for 50m by Dubai's state-backed conglomerate Dubai World for conversion into a luxury hotel, is languishing in a Dubai port.

Tourism, another key sector, has also been struggling, with room rates slashed to attract visitors (rates in some hotels have slumped from £500 a night to £100). Spectacularly ill-timed multibillion-dollar investments by Dubai's sovereign wealth funds in glitzy foreign assets - Dubai bought Barneys, the New York department store, for $825m, and put billions of dollars into Las Vegas gambling giant MGM Mirage - are an international embarrassment. The market capitalisation of the Dubai Financial Market has fallen 70 per cent since its high in 2008; the debt of government and government-controlled companies has risen, some analysts say, to $160bn, more than twice the GDP of around $75bn. Fears of defaulting have forced Dubai's rulers to dishdash to their wealthier relatives in Abu Dhabi, federal capital of the UAE, for a bail out of up to $20bn, underwritten by the Central Bank of the United Arab Emirates. As one local jokes, 'We've swapped sunshine for subprime.'

Or have they? A string of happier news suggests the emirate's luck might just be beginning to turn. Dubai World, which shook global markets 18 months ago when it announced a standstill on repayments on the $25bn it owes to local and overseas banks, has rescheduled its borrowings, as has another troubled state-controlled giant, Dubai Holding, owner of Dubai's leading hotel brand Jumeirah. Managers at Dubai World, and other state-financed conglomerates, have been sacked and replaced by safe pairs of hands such as Sheikh Ahmed bin Saeed al-Maktoum, boss of the fast-growing Emirates airline. (Emirates more than quadrupled its first-half profits last year, pulling in nearly $1bn; the airline is buying 90 Airbus A380 superjumbos as well as Boeings and will soon be operating from the new, five-runway al-Maktoum International Airport.) Dubai's airports will handle 50m passengers this year, a rise of 13.1 per cent; new roads carve oily streaks across the desert; the Metro public transport system recently opened; and Jebel Ali port remains one of the world's busiest.

The feared exodus of expatriates has not materialised. Dubai's population, which dropped by eight per cent in 2009, grew by nearly seven per cent in the first nine months of 2010 to reach 1.87m, more than 100,000 of whom are Britons. 'There are more schools opening up and they all have more business than they can handle,' says Mohammed al-Shaibani, Sheikh Mohammed's right-hand man. The property market has reached bottom and is moving towards recovery, according to Mohammed Alabbar, chairman of Emaar, the firm that built the Burj Khalifa. 'There's not much new supply coming in. The property market has bottomed out without a doubt. It's not as good as it used to be, but we're moving in that direction,' he says.

In late September, Dubai returned to capital markets, seizing on the improved conditions to sell $1.25bn in bonds. Dubai's real GDP could grow by around 4.6 per cent in 2011, after contracting by 1.3 per cent in 2009, says Hamad Buamim, director general of the emirate's chamber of commerce. Rodney Wilson, a professor at the Institute for Middle Eastern and Islamic Studies at Durham University, sums up the situation: 'Dubai had grandiose ambitions that verged on the surreal. Reality has set in now. They are not out of the woods but things look a lot better.'

Encouraged by the upswing, investors, notably Britons, are returning. London's Ivy restaurant and private members' club is to open a sister establishment in Dubai this year, a move that represents a U-turn by proprietor Richard Caring. Caring's Caprice Holdings, whose brands include The Ivy, Scott's, Le Caprice, J Sheekey, Annabel's and Soho House, has signed a deal with the Jumeirah hotel group. 'I said four or five years ago that there was only one Ivy,' Caring says. 'I sound a bit like a Liberal Democrat politician, because things have changed. The deal that we were offered, on the basis of us staying in control and maintaining the image, was too good to turn down.' Joining Caring in the souk is Italy's one-man brand Giorgio Armani, who recently opened his first Armani-branded hotel in the Burj Khalifa.