A Bad Moon Rising

full-moonNakheel reported a 46.9% surge in profits to US$ 708 million for the first nine months of 2014. This improvement was aided by a handover of 950 properties and a strong performance from its retail sector.  Although it has paid its bank debt earlier than planned, the company still has to face major debt issues but it does seem to be heading in the right direction.

According to latest H1 data from Dubai Land Department, GCC nationals invested US$ 5.2 billion in Dubai realty. Local law (Act no 7 – 2008) dictates that only such nationals can own property in non-freehold locations which was again highlighted by a case in the Cassation Court. A Pakistani had signed an agreement with an Emirati friend who consented to hold the registration for a block of land in his name. Unfortunately, the local died and there was a dispute with the heirs relating to the ownership. Despite having acknowledgment from the deceased, the court found that any contract contrary to the current law was void.

Knight Frank’s Q2 report claims that Dubai annual rents (at 14.1%) had the fastest growth rate in the world. However the Q2 figures, with a 2.0% increase, (compared to Q1’s 6.0%) indicated that the steam had been taken out of the market.

The importance of Eid Al Adha for the local economy was brought home by government figures indicating a 12% hike (to US$ 7.7 billion) in foreign trade in Eid-related products, such as cosmetics and clothing. Imports accounted for US$ 5.7 billion of the total with exports and reexports of US$ 300 million and US$ 1.7 billion respectively. Both the retail and hospitality sectors benefitted from an influx of over 600k visitors over this important holiday period.

There is no doubt Healthcare City is fast becoming another Dubai success story as there has been a 20%+ rise in H1 patient numbers to 600k whilst there now over 4.1k  licensed healthcare professionals. More significantly, the number of overseas patients has jumped to 90k – another indicator that health tourism is becoming a valuable revenue driver for the emirate’s coffers.

Surprisingly, the UAE accounts for 6.3% of the global exports of copper cable, with a value of US$ 1.325 billion. Russia is the biggest exporter at US$ 2.94 billion followed by Germany, Belgium and the US with UAE coming in fifth place. With Ducab a major player, the local industry has a trade surplus of US$ 923 million, with imports at US$ 397 million.

MA Yussufali’s Lulu Group has spent US$ 82 million in buying 10% of the UK-based East India Company and 40% of its fine foods subsidiary. The company has four outlets in the UK and three in the Middle East and is planning to expand in the US and Europe.

Abraaj Capital has bought a majority stake in South Africa’s Liberty Star Consumer Holdings for an undisclosed amount. With over 4.2k employees, Libstar is a personal care product and food manufacturer with plans to expand into other sub-Saharan African countries. With over US$ 7.5 billion of assets under management, the Dubai-based private equity firm has been recently active in consumer businesses in the region, including Egypt, Saudi Arabia and Turkey.

Dubai-based Global Student Accommodation, together with the Creedon Group, are planning to develop a 2.5 acre Dublin site at a cost of US$ 52 million to accommodate 400 students in the Irish capital. This will be phase 1 of a US$ 316 million investment plan and will expand GSA’s operations which currently run in the UK, Japan, China and Australia.

Following the region’s biggest ever bond issue (at US$ 4.3 billion) in Q2, it is reported that Etisalat is again going to test the market with a planned US$ 500 million bond issue.

Having fallen 0.2% the previous week to 5042 points, the Dubai bourse opened the shortened week on Tuesday. Over the ensuing three days’ trading, it closed 2.0% down, on Thursday, at 4943.  So far this year, the market has jumped 46.7% from its 01 January opening of 3370. Bellwether stocks, Emaar and Arabtec closed on US$ 3.12 and US$ 1.23 respectively. With the global stock markets heading south, it seems plausible that the local bourse will follow suit next week.

Following GlaxoSmithKline’s recent US$ 489 million fine for corruption charges in China, it seems that the British company and another drugs company are investigating bribery allegations – this time in this region. GSK is looking at claims of corrupt behaviour in the UAE, as well as Lebanon, Syria and Iraq. Sanofi has notified the US authorities that it had been made aware, by a whistleblower, of improper payments in connection with the sale of pharmaceutical products in unnamed countries in the ME.

China’s services sector continues to decline with its non-manufacturing PMI dropping from 54.4 to 54.0, with a marked decline in the realty sector which dropped to levels last seen in 2008.

All is not well in the eurozone as its stock markets had a bleak week with fears deepening for the global economy. The IMF once again cut back on its previous growth estimates as the ebola epidemic joined the Ukraine crisis and IS to become a major drag, pulling the single currency bloc closer to recession. Official data indicates that Germany recorded its biggest fall in exports (down 5.8% in August) and industrial production (down 4.0%) since 2009 with growth half of that of the UK – now the fastest growing economy of the G20 countries. If this is happening to the powerhouse of the eurozone, the future is going to be messy for the bloc and the outlook for the euro is indeed gloomy.

The IMF has also lowered its growth forecasts for the Mena region down from its 3.2% estimate in April to 2.6% this year and from 4.5% to 3.8% in 2015. Over the same time period, Iraq’s 6.7% forecast has been slashed to a negative 1.5% because of the current geo-political turmoil. However, the world body actually upped expected growth in the UAE for this year and 2015. However, there has to be a caveat – if the oil price were to fall even further there would be an inevitable negative impact on growth forecasts and a major cutback in its fiscal surplus.

Although part of Dubai will soon become an island, in economic reality it will always be affected by external factors beyond its control.  As global demand weakens, the Brent crude oil price dipped below US$ 90 – its lowest level in four years – on Thursday.  If this continues to fall, then this could result in problems for the country’s exchequer as analysts indicate breakeven estimates of between US$ 70 – US$ 85. If the world’s economy continues to stagnate, this will have a knock-on effect on the country’s fiscal surplus as well as on Dubai’s trade, tourism and travel industries.

As stock markets around the world tumble and the outlook for the global economy deteriorates, October could once again prove to be a portent for economic malaise. The Wall St stock market crash occurred in October 1929, signalling the start of the Great Depression and Black Monday in October 1987 saw the Dow Jones lose 22.61% in one day. There are now real fears that October again could see A Bad Moon Rising.

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