Diamonds are Forever

The UAE has ticked all the right boxes to claim regional bragging rights, by bettering all of its neighbours, in the recent World Economic Forum’s Global Enabling Trade Report 2012. On a worldwide comparison, it was ranked in terms of quality of:

  • air transport infrastructure – 4th
  • seaport infrastructure – 6th
  • transhipment connectivity – 7th
  • transport infrastructure – 11th
  • border administration – 11th
  • business environment – 12th

Such reports just go to highlight the immense progress that has made Dubai such a vibrant regional tourist, trade and retail hub.

The retail sector will add yet another facility to its portfolio with the proposed US$ 7.5 million Jumeirah Park Community Centre, covering nearly 11,000 sq mt. Although not in the same league as the likes of Dubai Mall (the world’s largest at 350,000 sq mt), Mirdiff City Centre (290,000 sq mt) and Mall of the Emirates (225,000 sq mt), it will serve over 4,000 residences in the Jumeirah Village triangle.

Then there is the US$ 160 million expansion plan of the Dragon Mart. Already the world’s biggest trading centre for Chinese goods outside of China, it is looking at an additional 177,000 sq mt extension. Interestingly, it is reported that over 80% of the extension has already been pre-let!

Also going well (maybe too well) is local real estate. It is estimated that Dubai has over 400,000 apartments and 58,000 villas with a further 6,000 houses (or over 10%) becoming available in H2 of 2012. If reports are to be believed, there are some areas that have seen a whopping 10% QUARTERLY increase in prices – that being the case, it can only be hoped that this not a precursor of another property bubble, which all but destroyed the market in 2008.

Commercial realty is a different story with there still being a 40% vacancy rate. A further 800,000 sq mt is expected to be added to the inventory in H2 bringing the total amount of Dubai office space available to nearly 10 million sq mt.

As the temperatures hover in the mid-40s and the utility bills rise in unison, DEWA continue with their expansion plans. This time it will spend US$ 55 million laying over 800 km of cable to add to the electricity grid.

It seems that Meydan is also turning up the heat with their reported claim for US$ 950 million against Arabtec and the Malaysian contractor WCT in relation to the construction of the mega racecourse which hosts the Dubai World Cup. This follows an apparent acrimonious dispute that saw the cancellation of the original contract in 2008.

That year also saw the QE2 berth in Dubai and four years later plans are finally afoot to recoup some of the US$ 100 million investment. Now – with its original fittings and décor intact – it is to become a luxury floating hotel with 300 hotels and another must see landmark for the increasing number of Dubai-bound visitors.

The boom in tourists is mirrored in the May 10.4% year on year increase in passenger numbers at Dubai airport. The monthly figure of 4.4 million brings the YTD total to 23.2 million and in line with the annual forecast of 56.5 million passengers in 2012.

Another Dubai success story is Byrne Equipment Rental which accounts for over 20% of all equipment hired in the UAE. The company, valued at US$ 320 million, is set to build a new US$ 4 million HQ in Dubai Industrial City.

It is no secret that car dealerships have had a bumper year to date and this reflects growing consumer confidence that the good old days are on the way back. Al Nabooda Automobiles seem to think so as the distributor of Porsche, Audi and VW has just announced plans to spend nearly US$ 300 million on new facilities over the next two years.

One industry that is beginning to feel the pinch from the economic turmoil is private equity. Although estimated at US$ 23 billion (having grown from a base of US$ 8 billion five years ago), the Middle East segment expanded by only 3% – or US$ 700 million – in 2011. Life is not going to get any easier as fund raising becomes more difficult to source and the local bourses continue to perform badly.

However, Majid Al Futtaim Holdings LLC is a company with no apparent problems raising finance. This week it managed to sell US$ 500 million bonds at 5.25% and actually received bids in excess of US$ 3 billion. Likewise Dubai Duty Free managed to raise US$ 1.75 billion by a 6 year senior unsecured syndicated credit facility which was heavily oversubscribed. Both these deals indicate that Dubai debt has recovered from the dark days of November 2009 and has regained market confidence.

The DFM had a better than expected week of trading with the Index closing on Thursday at 1505 – heading north from Sunday’s opening of 1452. The Index is showing an 11.1% YTD improvement from its opening then of 1353.

Meanwhile, the Central Bank reported a 1.5% reduction in May money supply aggregate M1 (total of current and call accounts deposited with the banks) to US$ 77 billion. With quasi-monetary deposits of US$ 150 billion added to M1, money supply aggregate M2 fell just over 3% to US$ 227 billion. When government deposits at local banks of US$ 60 billion are added to M2, the money supply aggregate M3 sees a 1.3% decrease to US$ 287 billion.

Although bank deposits slipped 1.2% to US$ 306 billion, there was a marginal increase in May total bank loans and advances to US$ 292 billion. This indicates a tightening in liquidity which, if continued, could prove to have a negative impact on future growth; at the moment, the non-oil sector is slowing down and the banks’ Q2 reporting season profits will inevitably be disappointing overall.  But on a global comparison, Dubai is still tracking reasonably well.

On the world stage, the eurozone debt crisis still dominates the news with little or no hope for a permanent solution to all of its problems whilst the politicians are involved in micro rather than macro-managing the situation. The crisis deepens by the day and can only be rectified by a combination of fiscal and political integration with fundamental changes to the whole system, including the establishment of a federal central bank.

Eurozone now has a 1 in 9 unemployment rate (17.6 million) – the highest since the euro was launched back in 1999 – and youth unemployment has reached 22.6% (3.4 million). The Greek youth unemployment rate is over 50% whilst Italy stands at 36.2%. When you add the figures from the other ten EU countries not in the 17-member eurozone, there are 24.9 million (10.3% of the work force) unemployed including 5.5 million youths (22.7%).

And which country is the current president of this mess – Cyprus!

Two examples from the corporate world company highlight that it is not only the eurozone crisis that is causing economic mayhem. Microsoft bought aQuantive in 2007 for US$ 6.3 billion and now it has just written off this balance indicating the worthlessness of the acquisition. The British pharmaceutical company, GlaxoSmithKline, has settled a US$ 3 billion case for being involved in healthcare fraud in the USA. And then there is Barclays.

As intimated in a recent blog, Bob (I Love Barclays) Diamond, the erstwhile CEO of Barclays, finally did fall on his own sword. His Tuesday resignation, following revelations of a Libor rigging scandal by the bank, surprised some analysts and came as the bank faced possible criminal action. It is hard to imagine that other major players are not involved as Barclays was the first to raise their head above the parapet, admit their wrong-doing and settle with the authorities. Who said Diamonds are Forever – not so for the one who gets paid so much for appearing to know so little!

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