Even The Bad Times Are Good

Whilst  most of the world seems to be sinking into an economic abyss, Dubai continues to confound its critics with an economy which is heading north in the other direction.

With the Eid holidays upon us, Dubai will see shopping malls open 24 hours a day to cater for the expected one million visitors who will transform the city into a maelstrom that will trawl the malls, fill the hotels and bring bumper to bumper traffic on to the roads. Many will be from the neighbouring GCC countries whilst some lucky European tourists will be taking a mid-term school break in the sun.

The hospitality sector is still counting its takings following a hectic month of exhibitions and conferences, including Gitex and the World Energy Forum, that has seen the city bursting at its seams. Global Village opened on Sunday and will run until the end of March 2013. With almost forty pavilions and seventy countries represented, this cultural and entertainment attraction is looking at over 5 million visitors this time round.

The recent Gitex Shopper, which accounts for 10% of the total annual retail spend in IT and electronics sales, reported an impressive 23% growth in this year’s sales to US$ 65 million with a similar growth in attendees to 206k.

The increasing population of the UAE is reflected in the news that GEMS Education plans a further ten new schools, over the next two years, to cope with the influx of extra pupils. With educational establishments in ten countries, Dubai still remains the company’s mainstay with over twenty schools in operation. As a matter of interest, nearly 88% of all Dubai-based students attend the 150 private schools which collected US$ 960 million in tuition fees. The 207k students in attendance are taught by 13,200 teachers, giving a student-to–teacher ratio of 16:1.

Another beneficiary of this population growth is Dubai Healthcare City, established in 2002 as the world’s first healthcare free zone. There has been a 25% year on year increase in the number of patients which now numbers over 500k, of which 15% are from overseas. Medical tourism is a growing income stream for the emirate and indicates the quality of care and high standard of its international medical centres.

In on-going efforts to rid itself of its non-core assets, DP World has just sold a 25% investment in a Russian container terminal for US$ 230 million. Downsizing in 2012 has seen this subsidiary of Dubai World sell off a 60% stake in an Australian operation and a 34% stake in the UK Tilbury Container Services (US$ 75 million) as well as quit ventures in Belgium and Yemen. In a similar vein, Drydocks World has just sold a 67% stake in its SE Asian operations to the Malaysian shipping company, Pacific Carriers.

The end of October is the start of the Q3 reporting season with generally good results on show. Nakheel saw a 97% YTD jump in Net Profit to US$ 520 million because of a 126% increase in Revenue from US$ 545 million to US$ 1.25 billion. It does appear that it has recovered well from its near 2008 demise following the GFC.

Meanwhile, Emaar Properties came in with YTD Net Profit up 49% from US$ 295 million to US$ 440 million, ably assisted by a US$ 840 million contribution from the launch of its three recent residential projects.  At the same time, its retail division – including Dubai Mall – saw nine-month Revenue up 18% to US$ 510 million and its hospitality business up 15% to US$ 265 million.

Dubai’s second largest developer, Deyaar, saw Q3 profits surge from a paltry US$ 0.2 million to US$ 1.4 million despite a fall in its Revenue from US$ 50.2 million to US$ 37.4 million. The company is still feeling the effects from the 2008 property collapse here.

Not to be outdone by the major developers, the banks have come in with strong earnings. Mashreq reported a 28.3% improvement in its YTD Net Profit to US$ 265 million on Operating Income of US$ 800 million. Helped by increasing stability in the market and positive economic data, the bank saw a 7.5% increase in Loans and Advances to US$ 11 billion whilst maintaining total assets of US$ 20.8 billion. A further sign of improvement in the local economy was a 37% decline in its provisions for Loans and Advances which has now fallen to US$ 145 million.

Dubai-based Emirates NBD, the country’s largest bank by assets, had a great Q3 with a massive increase in Net Revenue from US$ 48 million to US$ 174 million. This did come with a cost as  the bank cut overheads by closing down eight branches (with 750 jobs) and 64 of its ATMS – mainly as a result of its earlier acquisition of the troubled Dubai Bank.

Very strong growth in the telecoms sector saw du record a 33.8% quarterly jump in Net Profit, before Royalty to US$ 178 million following a 12.9% hike in Revenue to US$ 687 million.

Its duoplistic competitor, Etisalat,  had a 29% increase in Q3 Net Profit to US$ 600 million but this figure flattered to deceive somewhat because it included US$ 510 million in relation to its sale of a 9% stake in the Indonesian mobile operator, XL Axiata. With this stripped out, there would have been a 9% quarterly rise to US$ 80 million on Revenue of US$ 2.18 billion.

The good news did not permeate into the Dubai Financial Market Index which actually fell 13 points to 1631 over the shortened week. This could have been the result of some profit-taking ahead of the Eid holiday. Wednesday, the last day of trading this week, saw some 100 million shares traded, valued at US$ 39 million.

Worse news for some expatriates was that the Dubai Economic Council has been discussing a number of tax issues emanating from the federal government. Whilst emphasising the importance of any tax being considered a fundamental part of the UAE’s economy Juma Al Majid, the Council’s Chairman, said it would be unwise to rush such a move without proper deliberation from all stakeholders.

Massive tax increases and draconian spending cuts in the eurozone have failed to ease their debt problems. Q3 witnessed the highest level of total government debt which was estimated to be at 90% of the 17 countries’ economic output. Furthermore five countries – Greece, Italy Spain, Portugal and Cyprus – remain in recession with many analysts expecting other nations to follow in the near future. Greece’s debt burden is over 150.3% whilst Italy is struggling at 126.1%, as both economies shrink even further.

The three countries with the immediate problems continue to be Spain, Greece and Italy. Spain is reeling under a jobless rate among the 16 – 24 year age group of 52% whilst its overall unemployment rate has risen from 8% to over 25% since 2007. The country’s retail sales fell at their fastest pace in six years and the signs are ominous as consumer confidence hits rock bottom, social unrest becomes more violent and their economy shrinks.

Greece is hoping that it can agree with the troika so that it can receive further bailout funds of US$ 41 billion next month. If they fail, the country could become technically bankrupt and quickly exit the euro.

The traditional instability that is the hallmark of Italian politics has been brought into sharp focus again with the shenanigans of the former PM, Silvio Berlusconi who is threatening to bring down the Monti government. One can only see hardships on the Italian horizon with more austerity and increased civil unrest on the cards.

The situation is further exacerbated with the area’s PMI (Purchasing Managers’ Index) dropping to 45.8 in October – its lowest level since 2009. Any number under 50 signifies a contraction in activity.

Worryingly for Germany, a survey of manufacturing has seen the index drop again from 47.4 to 45.7. The returns from France were even more depressing showing that the contagion effect from the poorer south countries is having such a negative impact on the whole region. And with the number of unemployed in the eurozone now nearing 18 million, there is little hope of any economic recovery in the foreseeable future.

Then we look at Dubai again where, in comparison, Even The Bad Times Are Good.

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