Right Here Right Now

The triple “Ts” of Travel, Trade and Tourism continue to be the main drivers helping Dubai in its recovery phase since the global meltdown of 2009 which left the emirate in such a parlous state.

Despite the record high fuel prices and global economic turmoil, the Emirates Group has just announced a US$ 629 million net profit for its year ending 31 March 2012. The year saw the airline’s revenue jump nearly 15% to US$ 17 billion but  because of the high fuel cost (reflected by a 44% annual increase to US$ 6.6 billion) their bottom line decreased by 72%. (But compare this to  IAG, the owners of BA and Iberia, who have had a Q1 2012 loss of US$ 340 million – up from a loss of US$ 60 million a year earlier)

Staff numbers rose by 10% to 63,000 and during the year, 22 new aircraft were delivered which helped in carrying an 8% increase in passenger load to 34 million. The airline is set to expand even faster when one considers that it has 230 aircraft on order costing in excess of over US$ 84 billion.

Better news this week came from the Department of Economic Development reporting a 27% quarterly year on year increase in the number of trade licences issued. In addition to the 4,300 new licences, a further 25,000 were renewed in Q1. There was a marked expansion in licensing activity in the tourism sector reflecting its spectacular growth.

A recent independent study carried out by the Emirates Competitiveness Council  has estimated that the time saved by government e-services has led to cost cutting of over US$ 40 billion in the past five years. This has resulted in the number of days required to import or export goods being halved to seven days at a cost of US$ 630 per container. This compares to high income OECD countries where it takes three days longer and at a 50% higher cost than Dubai.

The hospitality sector continues to confound its critics. The stellar performance of Dubai’s hotels sees March occupancy levels at nearly 90% and average room rates up 6% to an impressive US$ 280 level. Many experts expect this upward trend to continue throughout 2012 and beyond.

Another indicator that the good times have returned – the local Land Rover distributor, Al Tayer Motors, has been recognised as the highest selling dealership  for Range Rover models in the world. Furthermore their Q1 sales showed a 40% increase over the same period last year.

The housing sector, that saw up to 60% of its value wiped off during the 2009 financial crisis,  is now showing encouraging signs of improvement. Apart from recent capital appreciation, it is reported that rents have jumped by 15% over the past twelve months with further rises expected over the remaining part of the year. Good news for investors but not so good for tenants, many of whom see more than 30% of their income being expended on rent.

Arabtec, the Dubai-based building company, announced a quarterly increase in its revenue to US$ 350 million and a tripling of its net profit to US$ 23 million. In addition, they have just won a US$ 60 million contract from Aabar and they are part of a three-firm consortium that have been nominated as the preferred bidders for a US$ 3 billion contract for the new Abu Dhabi airport.  No wonder their shares are one of the best performing on the local stock market this year, having doubled already this year.

Another Dubai company, du, saw a massive 62% quarterly hike in its net profits to over US$ 90 million – and this after paying a 50% royalty payment. Its revenues over the same period rose over 20% to US$ 650 million and now has a customer base of over 5.5 million subscribers.

The Dubai Financial Market Index has been running out of steam of late and this week over 4% was wiped off the value of  stocks as it ended the week on 1515 after a Sunday opening level of 1582 points.

As summer rapidly approaches, it seems that Istithmar World – an investment arm of Dubai World – continues with its spring cleaning. Having bought Barneys for nearly US$ 950 million in 2007, it has now lost control of the company following a deal with its creditors which sees the American company’s long term debt reduce by US$ 500 million to US$ 50 million. Around the time of its buying spree, Istithmar bought the QE2 for US$ 100 million, 20% of Cirque Soleil, a majority share in the Mandarin New York for US$ 340 million and the W Hotel Union Square for nearly US$300 million among other trophy assets.

No surprise to discover that the local banks are growing at a slower rate than initially estimated largely as a result of a weakening in credit demand. Q1 lending of the top seven banks showed a nominal 0.6% rise to just over US$ 200 billion. This will have a detrimental impact on the banks’ revenue as a slowdown in 2012 economic growth and a squeeze on their margins take effect. This might also explain why the UAE bank benchmark rate, EIBOR, at 1.52%, is the highest of the GCC countries and well above say Saudi Arabia (0.90%) and Bahrain (0.73%).

USA’s largest bank, JP Morgan, has a problem with a London trader, known as “The Whale”, who has been involved in complex trading activity that has gone drastically wrong. The end result is an initial loss put at US$ 2 billion and one has to wonder if more losses will become apparent in the coming days. An embarrassment for  the bank that paid out US$ 5.6 billion as “compensation for its investment bankers” in 2011.

The eurozone crisis goes from bad to worse. France will probably show negative growth in Q1 when their figures are released next Tuesday. Weekly 10 year bond  bond rates have shown signs for much concern. Greece’s rate rose to 24.39% (from 21.08%) whilst other countries such as Hungary’s 9.06% (from 8.20%) and Spain’s 6.00% (from 5.35%) indicate that the markets see these as increasingly bad risk.

In comparison, Dubai is performing well and the feeling of consumer confidence is becoming more palpable. Dubai may have already taken its medicine and is fast on the road to economic recovery. 

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