Stand and Deliver!

With the summer heat taking its toll, it comes as no surprise that UAE energy consumption rose 5.2% last year to a frightening level of 1.56 million equivalent barrels a day. Evidently its recent growth rate is amongst the highest in the world – in 2008 there had been a 23% annual jump.

As the mercury seems to be settling in the 40 degrees plus range, the sun is definitely shining on the local retail sector. Although final figures have yet to be announced, it seems that the 2012 Dubai Summer Surprise festival could turn out to be the best ever as some malls report up to 20% increase in business. That being the case, it could add more than US$ 5 billion to the Dubai economy.

There is no doubt that hotels have also felt the benefit from the DSSF with a high number of visitors especially from the GCC countries. H2 will see a further 4,500 units added to the current stock of 54,000 rooms followed by an additional 11,000 rooms between 2013 and 2014.

There were two significant events this week. The first was the formal approval by the Emirates Nuclear Energy Corporation to start work on Units 1 and 2 of the Barakah Nuclear Facility. Each of these Korean-designed reactors will be able to produce 1,400 megawatts of electricity.

The second was the inauguration of the 400 km long pipeline from Abu Dhabi to Fujairah. On its first operational day, 500k barrels of oil were pumped through the new link which has a capacity of 1.8 million barrels or about or 70% of the country’s daily production. One of its major benefits is that it will bypass the Strait of Hormuz and any future problems that could arise.

Despite the fact that it currently produces 2.6 million barrels a day, the UAE has the highest petrol price in the Gulf. At US$ 0.41 a litre it is more than three times dearer than Saudi Arabia’s price of US$ 0.12. Only two countries in the Arab world charge more – Syria (US$ 0.56) and Tunisia (US$ 0.70).

These relatively high petrol prices have not deterred the impressive growth in motor vehicle sales. Al Futtaim – the biggest dealership in the country – reported a 27% half yearly rise in its Toyota sales which equate to annual sales of 100,000 units. Over the same period local Ford sales are up 38% whilst GM have posted an 11% gain.

The Dubai feel good factor even spilt over onto the local bourse which saw a weekly 3% rise from 1491 to 1536. The DFM Index is showing a 13.47% YTD gain – not a bad result during these turbulent  times!

Despite the local bullish outlook, this week has seen yet again increasing concern about a slowdown in global growth which, as noted in previous blogs, is now impacting on emerging markets. Consequently the IMF has again cut its 2012 growth forecasts for China to 8.0%, India 6.1%, Russia 4.0% and Brazil 2.5%. Eurozone remains a basket case with an overall projected contraction of 0.3%. More disconcerting is that in April, Italy and Spain were forecast to have negative growth of 0.3% and 0.6% respectively – three months later, the IMF cut these even further to minus 1.9% and minus 1.5%! Despite its US$ 16.5 trillion debt problem, the US has seen its latest growth forecast shaved by only 0.1% to 2.0%. (The worst is yet to come for that country).

In contrast, the Middle East’s growth forecast remains at 3.7%.

Scarcely a day goes back without another story on the woeful state of the banking industry. The latest episode in the on-going saga involving HSBC and its relationship with Mexico and money laundering where in 2008 over US$ 7 billion was shipped from its Mexican operation to the US. It seems that US HSBC affiliates were able to forward funds to prohibited countries such as Iran, Sudan, Burma, Cuba and N Korea. The good news for all concerned is that the bank has now expressed remorse about their unacceptable behaviour which had been going for more than a decade! The bad news is that they will probably get away with a fine of up to US$ 1 billion.

This week, the largest bank in the USA reported that it had lost US$ 4.4 billion as result of the antics of its rogue trader, the “London Whale”. As intimated in a May blog, we thought the then reported loss of US$ 2 billion to be on the low side! Little wonder that since April, the market has wiped off nearly US$ 40 billion from the bank’s value. To add to their problems, JP Morgan are now embroiled in an investigation that they have been manipulating the Californian energy market for their own profit and to the detriment of the public.

Not to be outdone US credit card companies – including Visa and MasterCard – have agreed to pay more than US$ 6 billion to retailers for basically ripping them off with fixed high fees. And we worry here when small unexplained charges appear on our statements and nothing gets resolved by the bank.

The repercussions from the Libor crisis rumble on. Although Barclays were the first to be caught by the authorities and fined a derisory US$ 450 million for fraud, there are many other banks waiting in the wings to receive their punishment with possible much higher fines. And rest assured these fines will seem miniscule once the lawyers start suing for all the damage suffered by their unsuspecting clients.

Don’t forget that earlier in the year, Barclays were fined US$ 12 billion for giving bad financial advice to its UK clients. It had understated the risks involved from investing in two Aviva funds which subsequently suffered heavy losses in the 2008 GFC.

Gone have the days when bank robberies were carried out by persons stealing from banks. These days, it seems that the boot is on the other foot and banks are getting their own back by continually dreaming up ways of defrauding their customers. Stand and Deliver now has a whole new meaning!

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