Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai, had a dream to create a city rivalling the finest in Islamic history, and spearheaded one of the most extraordinary building drives in recent memory.
Then, a year ago, one of the emirate's biggest conglomerates admitted it was struggling to pay its creditors, and it all came crashing down.
Twelve months on, signs of cautious optimism are emerging. Rodney Wilson, a professor at the Institute for Middle Eastern and Islamic Studies at Durham University, said: "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."
The emirate's government is believed to be preparing a $1.5bn Islamic bond to issue to Malaysian investors. This comes just months after its $1.2bn sovereign bond was fully taken up, in what was its first credit market activity since last November. Turker Hamzaoglu, the chief Europe, Middle East and Africa economist at Bank of America Merrill Lynch, said: "The market now believes things are getting better; we expect Dubai to issue more bonds."
Signs of a slowdown in Dubai's real estate market emerged in the middle of 2008. Yet it was an announcement on the eve of Eid al-Adha, a three-day Muslim holiday, that sent shockwaves around the global markets, prompting fears of sovereign debt default well before such talk hit Europe. Dubai World, a state-backed conglomerate, revealed that it had been unable to service its debts and had asked its creditors for a six-month grace period to get its house in order. While the problem of its $25bn debts was a commercial one, the company's close links with Dubai's ruling family immediately raised fears over the state of the emirate's finances, and whether it would default on its Islamic bond payments.
The news sent investor confidence in Dubai to an all time low and when its exchange re-opened after the holiday, the index slumped 7 per cent.
The shock announcement also raised questions over the emirate's lack of transparency, the strength of its governance controls and the relationship between the government and state-backed companies.
Sheikh Maktoum's father started plans to offset Dubai's lack of oil or natural gas by establishing a trading centre for the Middle East in the 1950s. His son's plans were more ambitious still, aiming to create a thriving financial services industry and a glamorous tourist destination. These plans included the development of Burj Khalifa, the tallest building in the world, and the Palm Islands, three artificial islands shaped like palm trees. Last year, Jim Krane, author of Dubai: The Story of the World's Fastest City, said: "When you start building a third island shaped like a palm tree, intending it to be as big and crowded as Manhattan, you are crying out for a sober voice to bark: Stop." The roots of last year's crisis came from Dubai's heavy borrowing from abroad to fund its staggering infrastructure programme.
The problems at Dubai World a year ago came from its property arm Nakheel, which was unable to service its bonds. Yet the real estate boom had already slowed, with property prices spiralling down by more than 70 per cent. Some believe prices will fall further. More than 400 projects were cancelled, and the third palm island was put on ice.
After the debt crisis hit, the International Monetary Fund downgraded its forecast for Dubai. The rating agency Standard & Poor's followed as it downgraded five state-backed companies to below investment grade.
Dubai's oil-rich neighbour Abu Dhabi stepped in with a $20bn bailout package, and it succeeded in bringing stability back to the troubled emirate. Mr Hamzaoglu said there were no longer fears that Dubai would default, and the belief was that it would will "muddle through". Analysts at Citi have estimated that the economy will grow 1.6 per cent this year.
There are still significant issues facing Dubai. BofA Merrill Lynch estimated that its loans and guarantees amounted to $150bn, $18bn of which need servicing next year.
Dubai has also suffered as all the pillars supporting its economy have been damaged in the downturn. Not just real estate and financial services, but trade, tourism and shipping have all struggled. Sheikh Maktoum is now concentrating on several key industries – including transport, retail and tourism – to drive the recovery.
One of the main problems brought on by the crisis was more intangible. Jim Krane said: "There is still an air of shame." Another big consequence, he said, was that the loss of autonomy to its neighbouring emirate had damaged the state. "Abu Dhabi has more leverage now, and that is hurting Dubai's recovery. The bail-out has cost it dearly"
Yet investors are certainly more upbeat despite the black clouds. Rob Lay, head of Europe, Middle East, and North Africa for Barings Asset Management, said: "Last year's events were a real shock, especially as it was the first time in the region." Yet appetite is back, and Barings opened a Dubai office last month. "Clients have moved beyond it. Last year was a painful process but confidence is returning and last year is increasingly seen as a blip," Mr Lay said. His optimism was reflected by the reception of the emirate's recent bond issue.
Mr Krane said: "The wild predictions from the West never came to pass. The infrastructure is there and it is a better proposition than a year ago. It still offers the best lifestyle and social freedoms and amenities in the region. Dubai stumbled badly and needs to reset its course, but this is still its game to lose."
Dubai in numbers
$112bn The total value of Dubai's debt, according to estimates from Barclays Capital. The figure equates to 140 per cent of its gross domestic product.
$31bn The debt that is due to mature in 2011 and 2012, excluding borrowing that Dubai has already arranged to restructure. Some $16bn is due next year alone.
11% The contribution of Dubai's property sector to its GDP this year, down from 14 per cent last year and 17 per cent in 2008.
-2.5% Dubai's economic growth rate during 2009, compared to an expansion of 5.7 per cent in 2008. HSBC thinks the figure this year will be 2 per cent, rising to 4 per cent in 2011.