Here Comes the Sun

With temperatures edging towards the 40 degree mark, there is no doubt that summer is on its way and DEWA can look forward to increased revenues!

As the mercury climbs and the days get longer, the authorities may even consider day light saving so that we get an extra hour of daylight in the evening. The effect this will have on the Dubai economy could be significant as well as having a beneficial impact for both residents and the hoard of tourists.

The increasing number of visitors indicates a 10% growth on the previous year will be undoubtedly bettered in 2012. Diverse factors driving this forward include the Arab Spring unrest, which has diverted travellers to Dubai from regional troubled spots, more Indian and Chinese venturing overseas and the expansion of the Emirates network.

With Emirates flying high, it comes as no surprise to see that Dubai Duty Free has recorded a 14% quarterly increase in its sales to almost US$ 400 million. In order to expand its Dubai International Airport facility even further, the world’s largest airport retailer is looking at a US$ 1 billion loan facility with any new loan being backed by its future earnings.

At the same time, news that DIC has managed to restructure a US$ 2.5 billion loan with its creditors. 85% of this amount will be repaid over five years whilst the remaining 15% balance will be settled within three years. This investment arm of Dubai Holding still has a raft of assets in the USA, Germany and UK, where it owns the Travelodge chain of hotels.

This comes on the news that the cost of insuring Dubai’s debt continues to plummet as investors becoming more bullish about the emirate’s ability to service its outstanding loans. This optimism is reflected in the fact that its 5-year credit default swaps have dropped 25% to 340 basis points over the past nine months.

Those doubting that the Dubai economy is on the up just have to witness what is happening in both the construction industry and the car market. A phenomenal US$ 75 billion worth of projects is set to be awarded over the next five years in the UAE – more than the combined estimate of Kuwait, Bahrain, Qatar and Oman. Automobile sales in the UAE are on track to equal the record heights attained in 2008 when over 320,000 units were sold with the latest quarterly sales very similar to those of Q1 2008.

Other news this week concerned the country’s oil production. It does not take a Rhodes Scholar to calculate that with the oil price at US$ 100 and daily production of 2.8 million barrels, the country’s annual oil revenue is well over US$ 100 billion. On first glance, this looks a healthy figure to run a country. However, some analysts feel that the UAE will require oil prices in excess of US$ 90 to balance the country’s current budget requirements (compared to US$ 75 for Saudi Arabia and Kuwait). US$ 30 was the break-even figure in 2007.

A recent report shows that UAE banks’ profitability is at their highest level since the halcyon days of 2005 – and this despite a 4% increase in loan provisions and an 11% hike in operating expenses. A pity that customer service continues to annoy many customers!

It comes as no surprise to discover that the country’s radio stations account for just over 3% of the total advertising spend in the country (US$ 50 million). This compares to say 10% in the more mature European markets. Maybe an overall improvement in the quality of programmes would encourage more usage of this media.

The ongoing euro zone crisis continues to take its toll with two of the world’s bigger economies taking a battering. Spain’s industrial output fell again for the sixth straight month whilst Italy has been forced to slash its original 2012 growth forecast with a 1.3% contraction now expected.

Further indicators of stress in the bond markets saw Italy’s one year borrowing costs more than double in a month whilst Spain’s yield on its 10-year bonds still hovers around the 6% mark.

Meanwhile the Dubai Financial Market saw a 1% weekly rise from 1648 to 1679 and a 23% hike for the calendar year when it opened at 1341.

The jittery global markets are a portent of economic clouds on the horizon. However, here comes the sun to Dubai and we look set to weather the conditions better than most other places in the world.

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