You Can’t Always Get What You Want

Just as the rest of the world appears to be wallowing in an economic malaise, Dubai Customs report that Q1 trade reached an impressive US$ 81 billion almost 7% up on the corresponding period last year. Exports and Re-exports rose 9% to over US$ 33 billion whilst Imports reached US$ 48 billion – 1% higher than in Q1 2011.

India is still the top trading country with total trade at almost US$ 11 billion – almost half of which were exports. This made India Dubai’s second biggest exporter but well behind China which exported US$ 7 billion worth of goods. Unsurprisingly gold was not only the biggest imported item with the yellow metal accounting for over 14% of total imports (or US$ 7 billion) but also the emirate’s biggest export at US$ 5 billion.

Undoubtedly such figures spark investor interest in Dubai and are a factor in the 22% year on year increase in the number of business registration and licensing transactions (54,286) carried out by the Department of Economic Development. May also witnessed a 14% increase in the number of trade licences issued. Such figures only go to prove the increasing resilience of the local economy.

One reason expounded for Dubai’s success is its development of modern customs systems which has resulted in the emirate becoming more competitive on the global stage. Indeed the World Economic Forum placed the UAE third in the world in its Global Competitiveness Report 2011 – 2012.

The tourism sector received a boost with the planned 2013 opening of a Marvel Comics indoor theme park. Built by the IMG Group (Ilyas and Mustafa Galadari), it will be located at their City of Arabia development and will cover 1.2 million sq ft.

Even without the attraction of such a theme park, tourists are flocking into the emirate not only for a pre-Ramadan break but also to enjoy the shopping and ancillary activities of Dubai Summer Surprise. Last year, DSS attracted 4 million visitors who spent an estimated US$ 2.4 billion and it is hoped that this number will be surpassed in 2012.

It is not only tourism but also real estate sector that is beginning to regain some of its former glory with even more land being made available to overseas investors. Sheikh Mohammed bin Rashid Al Maktoum released two plots of land in Dubai Investments Park on an 85 year leasehold. This will surely bring in overseas buyers looking for a secure and profitable investment and should be a win win situation for both sides.

Arabtec finally signed a US$ 3 billion contract to construct the Midfield Terminal Building at Abu Dhabi International Airport. The 700,000 sq mt terminal building will be able to accommodate 65 aircraft and 8,500 passengers an hour.

Further good news came from two other major companies – Anham and Nestle. The former, a Dubai-based company, has just been awarded an US$ 8 billion contract for supplying American troops in Afghanistan. This comes on top of the same company being awarded a US$ 2.2 billion 2010 contract for logistical support to US troops in Iraq, Kuwait and Jordan.

Nestle announced that it was building a new US$ 135 million factory that will create an additional 800 jobs. The new facility will be on a 175,000 sq mt block at Dubai World Central and will make coffee and culinary products.

Not a bad week also for the Iraqi entrepreneur, Ihsan Jawad, who sold his intelligence and information group, Zawya, to Thomson Reuters for a reported US$ 40 million. The company was launched in Dubai ten years ago.

Also in the selling mode was Shehab Gargash, the owner of Daman, the Dubai investment management group. The company offloaded 22.7% of its shares in a private deal estimated at US$ 27 million. If the market continues to improve, the company will look at an IPO with a possible listing on one of the UAE markets. (One bourse that could do with the business is Nasdaq Dubai, which since the May delisting of Damas, has only two stocks trading).

One of those two listed companies, Depa Limited, has just lost a US$250 million fit out contract for the Doha International Airport. This blow to the interior design company comes on the back of losing US$ 50 million as their related performance bond and advance payment guarantee were encashed.

Meanwhile, the DFM had another flat week of trading with the Index closing on Thursday at 1452 – heading down from Sunday’s opening of 1470. As already indicated in earlier blogs, the market will remain stagnant until there is some action from European leaders on solving their sovereign debt crisis.

Dubai and the region are in the middle of a boom in debt market trading with bond sales this year already in excess of US$ 18 billion. The easier availability of credit and the growing confidence in Dubai’s creditworthiness have made the emirate a safer haven than most other locations in the world.

With the announcement that Emirates will help finance the imminent arrival of four Airbus 380s as part of its current order of fifty-eight, the airline will arrange a US$ 1 billion financing facility. Nearly US$ 600 million will be part of a leasing agreement across two tranches – with 75% having a 10 year maturity and the remainder with a 6 year maturity. Last week, the airline had repaid a US$ 550 million sukuk on maturity.

The UAE Central Bank indicated a 30% rise in banks’ non-performing loans (NPLs) for the twelve months ending 30 April 2012. There was a paltry 1.7% increase in loans to nearly US$ 300 billion whilst NPLs soared 30% to over US$ 16 billion. (What is left in the woodwork remains to be seen).  Total bank assets saw an almost 3% jump to over US$ 460 billion.

Overseas, certain banks have been taking a pounding this week. Barclays was fined US$ 450 million for trying to manipulate the Libor rate (some may call it cheating). Just wait for the lawyers to get their teeth into lawsuits and then Barclays problems will escalate exponentially. What is even more disquieting is that it is expected that other banks may be in the same trouble.

JP Morgan, having thought they had  lost US$ 2 billion in May from their credit derivatives debacle, may have to revise this estimate to a much higher figure. So much for betting in credit markets!

The two banks’ respective CEOS, Bob Diamond and Jamie Dimon, must be in danger of losing their jobs.

Whilst the outlook in Dubai is bullish, the same could not be said for many other places – none moreso than the euro zone which appears to be spiralling into deeper economic turmoil. If the political leaders cannot agree on basic fundamentals to try and lessen the crisis then the odds must be in favour of certain countries leaving the euro this year.

Unlike Portugal, Ireland and Greece, which have been hit hard by austerity packages as part of their bailout agreements, Spain seems to have been able to negotiate a much more equitable deal. This just shows that you can’t always get what you want but if you try sometimes you get what you need – but for some high profile banks that should read “you get what you deserve”.

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