Wish You Were Here

The main drawback of living in one of the best locations in the world is that it comes with a price – Dubai has been ranked as the 22nd most expensive city globally and number one in the ME. The recent UBS survey confirms that you have to pay for what you get. Interestingly, it did show that the work ethic here is high with employees putting in more than 2,000 hours a year. Contrast that to workers in W Europe, who have much shorter working hours and the longest holidays, and you can begin to see why Dubai’s economic outlook is brighter when compared to many others.

Another indicator of increasing consumer confidence is the proposed IPOs from two of Dubai’s better known entities – Paris Gallery and the Al Habtoor Group. CEO, Mohammed Al Fahim, has had discussions with all the three local bourses with a view to taking Paris Gallery public. The company had a 2011 turnover of US$ 272 million including its Imperial Majesty No 1 perfume which sells for over US$ 300k – no surprise then that only 10 bottles have ever been produced! The latter, headed by Khalaf Al Habtoor, is looking at raising around US$ 1.5 billion, probably on Nasdaq Dubai. (Interestingly, Habtoor Leighton Group has just won a healthcare project in Saudi Arabia worth US$ 315 million – this coming a month after the Joint Venture secured a US$ 125 million Qatar tram project).

If either of these IPOs goes ahead it will be the first seen locally in over four years and may be a precursor of other family companies following suit. And if they were to list on Nasdaq Dubai, it would be a major boost for that exchange’s image and trading volumes since it currently trades only two companies.

On the subject of trade, increasing amounts of cargo are using Dubai International Airport. Consequently it is expanding its facilities to cope with the growing demand, as well as refurbishing its existing facilities – Hall A and Freight Gate 1. As part of its US$ 7.8 billion 2020 Strategic Plan, it will begin work on a 30,000 sq mt addition to the Cargo Mega Terminal which will result in a 25% annual capacity increase to 1.5 million tons. Additionally, construction has already commenced on a new transhipment facility with a 400k tons capacity.

To keep up with DIA, DP World is going ahead with major development plans on two fronts. A 400 metre quay extension to its Terminal 2 will allow the expanded 3,000 metre quay to handle six vessels of 15,000 TEUs simultaneously. To further build up capacity, and to cope with the expected increases in demand, at its new Terminal 3, the company has just signed agreements for the supply of 19 quay cranes and 50 rail mounted gantry cranes. The Jebel Ali Port has already moved a record 6.1 million TEUs in H1 and when these enhancements are in place in 2014, total capacity will be 19 million TEUs.

It is somewhat ironic that as the global economy continues to weaken, Dubai seems to be heading in the other direction. FedEx, the world’s second largest package delivery company, has issued a profits warning indicating that it will be 10% lower than first expected – because of a downturn in trade.

2012 has seen car sales go through the roof as a result of lower financing deals and increasing customer confidence. Some of the dealers, with growing sales, include Toyota – up 43% in the first eight months, Nissan ME with a 30% jump in Q1, Kia 37% up in H1 and Chevrolet up an impressive 40%. Even Ferrari ME saw a 7% rise in H1 sales to 190 vehicles.

One of these buyers must have been the driver – admittedly with many cars – who has committed over 12,700 offences and racked up fines in excess of US$ 3.8 million. The second driver on the police list owes US$ 320k covering 1,000 fines over the past 18 months.

The emirate’s retail and hospitality segment has received one of its biggest boosts for some time with Emaar’s launch of a 340 metre, 63-storey building with 200 hotel rooms and 542 serviced apartments. Slated for a 2015 opening, it will become the company’s third Address Hotel in Downtown and will further augment this sector which accounts for nearly 35% of Dubai’s economy – more than the combined totals of real estate and financial services.

Scarcely a week goes by without news of another major conference coming to these shores. This time it is the Association for the Advancement of Cost Engineering who will be holding their international conference here in November – the first time it has been held outside of the USA.

The Dubai retail sector, which contributes 12% (US$ 4.1 billion) to the emirate’s GDP, is expected to continue annual growth of at least 5.5% for the next three years. As indicated in last week’s blog, Majid Al Futtaim had reported impressive H1 results with a 17% hike in profits to US$ 410 million with total group assets north of US$ 10.0 billion. This week, MAF announced it intends to replicate its highly successful Mall of the Emirates in Cairo with a US$ 400 million Mall of Egypt complete with Ski Egypt.

Another Dubai-based company with overseas interests is Drake & Scull who have just been awarded a US$ 360 million contract, in a JV with Italy’s SICIM, to lay pipelines to develop an Iraqi oilfield. This is part of that country’s strategy to double its oil output within the next two years.

Obviously not resting on their laurels, having just helped Qantas out of their troubles, it is reported that Emirates are now in talks with troubled American Airlines over a new partnership deal. The American carrier filed for Chapter 11 bankruptcy protection in November 2011 and could obviously do with all the help that it can get – especially in these uncertain times.

Despite the doom and gloom in the banking industry, the 51 UAE banks – comprising 23 national and 28 overseas – saw their 2011 net profits surge 18.2% to over US$ 7.2 billion as a result of a 6.9% decline in interest expense and a 3.8% increase in net interest margins. By April 2012, net foreign assets showed a 78% year on year growth to reach US$ 45.0 billion with Assets up by 17.8% to US$ 122.7 billion and Liabilities down 1.3% to US$ 77.7 billion.  Whatever they do, and whatever the economic conditions, banks just cannot lose! (A pity about their level of customer service).

On the treasury side, it appears that the emirate is in the throes of issuing a bond to refinance a proportion of a US$ 1.8 billion sovereign debt due to mature next April.  Taking advantage of lower global interest rates and increasing industry confidence in its creditworthiness, Dubai’s credit default swaps now stands at their lowest level in four years. Empower continues to repay its loans – currently at US$ 326 million – on schedule with the latest loan instalment of US$ 22 million being repaid this week. The original loan was used to build plants and equipment for the district cooling provider in its various Dubai locations.

Just when we discover that 40% of the UAE population (including expatriates) is obese, the London-based Hummingbird Bakery – celebrated for its cupcakes – announces its first of twenty proposed  franchises in the ME opening in Dubai Mall (where else?) at the end of this month.

Not expanding as quickly as local waistlines is the UAE Consumer Price Index. Compared to the base year 2007, when the CPI stood at 100, it is  at 116.86 – a 0.33% increase on July 2012 and 0.95% up year on year.

The Dubai Financial Market continues its recent winning streak ending the week 2% up, or 31 points, at 1605 from a Sunday start of 1574. Not a bad year so far with the market up 18.6% and year on year 9.5% in front.

This week two more factors can be added to the mix to further exacerbate the current global economic malaise – East China Sea and the Strait of Hormuz. The political fallout over the disputed islands in the South China Sea has led to Japanese companies taking drastic action in China where all the leading vehicle companies, including Honda, Nissan, Mazda and Toyota have either stopped or suspended production. Major shops and supermarkets have taken similar action with I Holdings closing 13 outlets and 198 convenience stores, Aeon 30 (or 85%) of its supermarkets and Uniqio 42 clothing stores. Even Sony and Komatsu have shut down some of their operations. With bilateral trade worth US$ 345 billion, the worry is that if this continues it will not only damage trade between the two countries but will have a devastating impact at a global level.

The second factor begs the question of why there are navies from 25 countries carrying out the largest ever war games exercise near to the Strait of Hormuz – the seaway that sees 18 million barrels of oil pass through every day. Any blockade, which would be probably caused as a direct consequence of actions between the “2Is” – Israel and Iran – will have such a damaging effect on the economies of many countries which, in turn, will make the eurozone crisis pale into insignificance. (And there is an election in November).

Meanwhile the farce that is eurozone continues unabated. In Spain, it transpires that 10% of their bank loans (equivalent to US$ 221 billion) are bad with the July figures the worst on record. Their political obduracy will prove economic suicide as the likes of Prime Minister, Mariaono Rajoy, continue to declare that the EU and the ECB will not be permitted to dictate terms as a condition for buying that country’s bonds. It can only be a matter of time – say October – that a full Spanish bailout is on the table.

The latest figures from Greece indicate that their primary debt figure will overshoot 50% to 1.5% as the recession takes hold which has seen its GDP shrink 20% since 2008. Further, according to their Finance Minister Yiannis Stournaras, it also seems unlikely that they will be in a position to meet the troika’s request to cut their two-year budget by a further US$ 15 billion.

When you add Ireland and Portugal to these two ailing economies, it comes as no surprise to see that investors, from these four countries, have withdrawn from their banks US$ 410 billion in the past year and moved the funds to safer locations within the eurozone. So much for a common currency!

At times like this I guess many of you wish you were here (in Dubai).

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