Simply The Best

Burj-Khalifa-New-YearDubai’s 2013 budget hopes to cut its annual deficit by 18% to less than 0.5% of GDP with Revenue expected to rise by 7.8% to US$ 8.9 billion and Expenditure up 6.0% at US$ 9.3 billion. It is not known what vehicle the government will use to finance this deficit of US$ 400 million.  39% of spending will be payroll-related, which includes an additional 1,600 jobs for Emiratis as part of the drive to put more locals into employment.

A recent FT survey yet again places Dubai as the region’s top destination accounting for 30% of all the ME’s DFI (direct foreign investment). There is no doubt that it has been helped by its superb infrastructure, Jebel Ali Port and Emirates.

04 January will not only be the 7th anniversary of HH Sheikh Mohammed bin Rashid becoming the Dubai ruler but it will also see  the completion and opening of the upgrade to the Al Khail Road. Costing US$ 517 million, with new flyovers and 8 line highways in some places, it is situated between SZR and Emirates Road. Indeed, with possible congestion on SZR over the next eighteen months – caused by the expansion of Dubai Creek through Jumeirah – Al Khail Road takes on added significance.

Dubai will continue developing its roads and infrastructure in 2013 and the RTA is expecting to spend US$ 1.7 billion with US$ 820 million and US$ 880 million earmarked for its operational and capital budgets respectively. Of the total, 34% (or US$ 580 million) is for the Traffic & Roads Agency.  An 11% increase in forecast Revenue will help defray some of the costs.

The quay wall extension at Jebel Ali Port, an integral part of its 1 million TEU (20’ equivalent container units) expansion, has been completed. With an additional extension of 400 metres to 3,000 metres, the facility will be able to cope with handling six 15,000 TEU mega ships at the same time and is due to open in Q2 2013. At the end of September, the port had posted a 4.6% increase to handling almost 10 million TEUs.

Having splashed out a record amount to extend shirt branding of Arsenal FC through to 2019 and naming rights to the stadium until 2028 (thankfully they have started winning again), Emirates is now the official airline of the men’s tennis tour for the next five years. Last February, it also signed a seven year US$ 90 million deal to be the title sponsor for the US Open and nine other US tennis tournaments.

At the end of 2012, it seems likely that Emirates will become the world’s second biggest airline, overtaking Delta, but still well behind United which merged with Continental last year. Local “rivals”, Qatar and Etihad, are ranked 17th and 28th respectively. Meanwhile Dubai Airport came in as the 5th biggest airport in terms of seats per week. Its 1.6 million was just behind Heathrow’s 1.7 million and not far from the biggest airport, Atlanta’s Hartsfield Jackson with 1.9 million. Interestingly, no other ME airport made the top 50.

As recent blogs have indicated, there has been tremendous growth in the UAE’s non-oil trade figures, expected to reach almost US$ 1 trillion this year with a 15% 2012 growth projected and next year will be along the same lines. UAE free zones, with a 20% increase, accounted for US$ 120 billion of the total. In the latest available figures, 46.2% of trade was with non-Arab Asian countries whilst the EU, Americas and GGC trailed behind with 21.5%, 9.3% and 9.2%.

The last week of the year started with claims and counterclaims as Qatar Airways filed a US$ 600 million suit against the Dubai / German JV Lindner Depa. The reason claimed for the legal dispute was that LDI failed to complete the construction of 19 airport lounges at the new US$ 15.5 billion Doha Airport putting back its opening a year to H2 2013. This in turn affected the airport’s expansion plan and inconvenienced the 20 million passengers – 80% of which are flown by the national carrier.

This was followed by LDI’s statement to Nasdaq Dubai (Depa is one of only two companies listed on that bourse). It indicated that the Qatari claim was false and misleading and, whilst being deeply disappointed by the allegations, it rebutted all claims.

Reports that certain properties in the Downtown area have seen prices increase by up to 10% in Q4 alone (and 25% in 2012) may well have sounded the alarm bells about the possibility of the start of another asset bubble. But those fears were quickly put to rest by the shock Central Bank announcement that banks have to cap mortgage lending for expatriates to 50% of the property’s value. Although it should stop the perennial flippers and speculators in their tracks, it will come as disappointing news to the genuine investor / buyer and could have a negative impact on other realty stakeholders, including developers and agents.

One wonders what hit the construction sector will take and what impact it will have on the Dubai economy. In 2011, the industry accounted for 10.3% of Dubai’s GDP with a total construction project value of US$ 86.9 billion – way ahead of Saudi Arabia’s US$ 59.6 billion.  With over 80% of the population expatriates, it is hard to see where most of those, who would normally buy property, will access their money.

Despite this shock, Nakheel is going ahead with a self-financing US$ 136 million project for 381 villas in Jumeirah Park. This is a major step forward for a developer that reportedly had to write off assets, valued at US$ 21.4 billion after the last bubble burst in 2008. It is estimated 50% (or 4,500) pending units have already been handed over, with the balance slated for completion by the end of 2013.

Nakheel’s iconic Palm Jumeirah has received a boost with DEWA set to spend US$ 16 million to extend, by 3 km, a water transmission network from the island’s trunk to the crescent of the Palm. Completion is expected within eighteen months.

Contrary to earlier reports it seems that expatriates will not be immune from criminal charges in relation to bounced cheques. The new Presidential directive applies only to nationals and includes decriminalisation of such cheques presented by UAE citizens.

On the political front, the Syrian tragedy continues but this will be resolved one way or another in H1. The troubled relations between Japan and China will not go away and this will deteriorate even further this year. As North Korea becomes less isolationist, it will look for ways to improve their political and economic relations with the rest of the world. Nearer home, Egypt’s political impasse will drag on to the detriment of any meaningful economic progress.

Dubai has two stock markets. Nasdaq Dubai has only two listed stocks – DP World which ended 20.8% up on the year at US$ 11.73 whilst troubled Depa Limited closed 16.7% down at US$ 0.35. The Dubai Financial Market Index ended 2012 on 1623 points – a very credible 19.89% up on the year. It performed a lot better than most other global bourses such as Australian All Ords – 14.6%, Dow Jones – 7.3% and London FTSE – 5.84%.

Although the global economic climate remains bleak, the DFMI should continue its upward trend and could well break through the 1700 point level in H1. If anything, gold and silver did not perform as well in 2012 as some pundits had forecast. Gold stood at US$ 1,673.59, having risen 6.96% in 2012 but is now likely to test the US$ 1,800 level over the medium term. Having ended up 8.28%, at US$ 30.12, on the year, silver is expected to reach US$ 33.00 over the same time frame. (The almost daily volatility of these two metals may lead some to think that a little market manipulation may be occurring).

Over the past four years, Brent Crude has seen 3.78%, 13.35%, 21.27% and 65.82% rises and ended 2012 at US$ 111.27. It is hard to see oil trading over US$ 95 come the beginning of Q2 – unless, of course, there is some major catastrophe. Longer term, the price is set to drop quite significantly when new drilling technologies – including fracking – take effect. The world may become a different place if – and when – the US becomes the world’s top oil producer.

On the local front, property prices, in prime locations, will continue to rise – albeit at a slower rate whilst there will be more worrying news for tenants with annual rental increases of around 8% in the offing. Emirates will once again stun the aviation world when their annual results are released in April. Consequently both Dubai Airport and Dubai Duty Free, riding on the airline’s coattails, will continue announcing record figures – 60 million passengers and Revenue of US$ 2 billion in 2013 are not out of the question for these two entities.

If the world were not in such an economic mess, Dubai would grow at a faster rate than the predicted 4% for this year. Inflation will rise but will be still low on global comparisons. The hospitality sector will remain buoyant with 80%+ occupancy and RevPar rates nearing US$ 300. Whether the banks do anything about reducing their high provision rates for non-performing loans is problematic but these still continue as a millstone for local SMEs. The emirate’s government related companies will have no problem with US$ 9.4 billion bond repayments due this year – 2014 is another issue.

The eurozone is set to sink even further; do not be surprised to see turmoil in the markets and civil unrest on the streets of Greece, Spain, Italy and even France. The UK economy is expecting little growth following a double dip recession. When the IMF predicts Germany as one of its 20 worst performing economies, the Europeans portents look bleak indeed.

Elsewhere the BRICs are being superseded by the MICKS. Whilst China still remains an integral part of any possible recovery in 2013, the inefficiencies and corruption levels in the other three countries mean that they have been replaced by Mexico, Indonesia, Korea (South) and Southern Sudan. These countries have great growth prospects in the coming year.

The political lemmings in the US have avoided falling over the cliff – but the reprieve is only temporary. The huge debt problem is the main danger to the economy and there has to be some sort of bipartisan agreement to rein in that government’s US$ 16.4 trillion. Expect some more drama and show-boating by the end of February.

The Dubai Shopping Festival opens on Friday and has the tagline – “Dubai at its Best”. New Year’s Eve saw the emirate put on the world’s greatest fireworks display, watched by one million in the Down Town area and over a billion around the world. If Tina Turner had sung “Simply the Best”, nobody here would have argued.

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