Big Wheel Keep On Turnin’ – Proud Mary

bluewatersThe less said about Donald Trump the better . .   .

UAE is thought to be the most generous country in the world, having donated US$ 47.4 billion since its 1971 foundation. Latest figures indicate that 64.1% of aid is concentrated in three sectors – “government and civil society” (US$ 22.0 billion), “public programs support” (US$ 6.1 billion) and humanitarian and relief aid (US$ 2.3 billion). 89.4% of the aid has gone to Asia (US$ 21.8 billion) and Africa (US$ 20.6 billion).

Last week it was all about making Dubai the greenest city in the world – this week new laws, introduced by HH Sheikh Mohammed bin Rashid Al Maktoum, aim to place Dubai as the smartest global city. The emirate’s ruler is keen to foster closer ties between the public and private sectors by introducing legislation to facilitate PPPs and by authorising the newly created Dubai Smart City Office to enter into ventures with any entity to implement best practices.

Next April, Four Seasons will have their second Dubai property in DIFC – a year after the opening of its Four Seasons Resort Dubai at Jumeirah Beach. The 106-key hotel, with interiors by New York’s Tihany Design, will also have four outlets.

Another hotel due to open next year will be the 103-room Bespoke Hotel and Residences Palm Jumeirah. The UK management group, with over 200 global boutique properties, has signed a JV with Dubai-based IFA Hotels and Resorts for its first foray in the local market.

Hilton Worldwide is in discussions with both of its local partners – Majid Al Futtaim and Wasl Hospitality – to add to its current three Dubai properties (Al Mina, Al Muraqabat and Mall of the Emirates), under the mid-market Hilton Garden Inn brand. All have been opened in 2015, with the next one in Bur Dubai, slated for an early 2019 completion.

Dubai Municipality has indicated that work on its US$ 500 million Aladdin City project will start late next year, with completion by the end of 2018. Air-conditioned bridges will connect the three (25, 26 and 34-storey) towers which will comprise both hospitality and commercial space.

The US-based Nikki Beach Resort & Spa will partner Meraas Holding in a 52k sq mt resort, due to open in Q1 2016. The resort, located on Pearl Island peninsula, will incorporate other leisure facilities, including Nikki Beach Restaurant & Lounge.

Meraas has also established a new division to manage its hotel portfolio. Apart from the upcoming 7-star Bulgari, the company already has links with Emaar Hospitality, with the Rove brand, and Jumeirah, with Venu.

By H1, Dubai had 667 hotel establishments (5% higher than the same period in 2014) and 94.9k rooms – up 7%.

The latest report from Unitas Consultancy and seems to point to a marked slowdown in residential property sales over the past two years. For example, Dubai Marina sales for the nine months to September were down 33% to 1.5k, compared to the same period in 2014, whilst Downtown recorded a 37.5% drop to 500 units.

Work is expected to start on the US$ 6.8 billion Mall of the World in 2017, with the Police Academy moving to Academic City. The mega city, covering 1.7 million sq mt, will be finished by 2030 and will include 278 buildings, with a network of 33 roads and 152k sq mt of walkways.

Local community mall developer, aswaaq, is planning to expand its 11 Dubai community malls and supermarkets. A US$ 30 million investment will see new facilities – 3 malls and 3 supermarkets – creating 300 jobs.

Dubai is set to get two more supermarkets as Abu Dhabi-based Fresh & More, founded last year, plans a 50% UAE expansion which would bring its total of outlets in the UAE to 21 by the end of next year.

LG Gulf has spent US$ 8 million in refurbishing its anchor store in Dubai Mall. The company’s president, Yong Geun Choi, is confident that the electronics sector will continue to flourish, despite low oil prices and a drop in consumer confidence.

Emirates Flight Catering has signed an exclusive agreement with Dubai South to build an inflight catering facility for the private and business aviation sector that will be using the new mega airport.

In 2016, Emirates is expecting the delivery of 36 new aircraft (20 Airbus 380s and 16 Boeing 777s), whilst retiring 26 older units over the next two years. By the end of 2015, the fleet will be 244 strong, following the acquisition of 26 planes this year, with a further 262 planes, valued at over US$ 120 billion, on order. It is interesting to note that the fleet average age for Emirates is 5.6 years, compared to the top 5 US carriers’ mean of 10.7 years.

It is ironic that Emirates will be carrying 15k US civil servants next year as its code share partner, JetBlue, won a government tender. This comes at the same time that United announced the cancellation of its flights into Dubai, following Delta’s similar decision last month. Now none of the big 3 US carriers, (American, Delta and United), who are accusing Gulf airlines of unfair government subsidies, have a Gulf presence.

Although October traffic was up 4.4%, to 6.3 million passengers, annual growth rate at Dubai International slowed, as the impact of low oil prices, regional turmoil and a strong greenback took effect. For the first 10 months of the year, passenger numbers totalled 65.0 million – 11.2% up on last year.

A new directive from the Department of Economic Development will see the end of companies, in both the education and healthcare sectors, being able to charge extra on any credit card payment. This will come into force next February and could well be followed by similar action for the service sector.

Dubai Economic Council has signed a partnership agreement with Philips to create Dubai Global Innovation Centre, following a MoU signed in 2014. Building of the non-profit centre will start in 2016, with the aims of establishing research projects and encouraging innovation.

Although still in positive territory, the Emirates NBD UAE PMI’s rate of growth has slowed dramatically. November saw a .5 point monthly rise to 54.5 which indicates growth in the non-oil sector, despite the slump in energy prices, general wariness in the market and tightening liquidity.

Despite the doom and gloom around the emirate, growth this year is expected to be in line with the previous three years – at 4.0% – according to the DG of the Department of Economic Development, Sami Al Qemzi. Earlier in the month, Sultan bin Saeed Al Mansouri indicated 3% – 3.5% GDP growth for the UAE.

Dubai Gold & Commodities Exchange saw a monthly 41.0% growth, compared to November 2014, as year on year volumes rose by 23.0%.

A November law has established a new Dubai Statistics Centre which, inter alia, will oversee all surveys carried out by private entities; in order to ensure the quality and veracity of information contained in future reports, companies will require prior authorisation before publishing.

Dubai start-ups may benefit from the announcement that the US venture capital firm, 500 Startups, has established a US$ 30 million fund; 500 Falcons will help up to 200 MENA entities, with seed money of up to US$ 100k and will focus on e-commerce.

It seems that the recent clampdown by US authorities on dollar banking transactions is having an adverse impact on local financial institutions and individuals. In a bid to weed out money laundering and tax avoidance, both the time and compliance costs of clearing through US correspondent banks have increased. The UAE central bank governor, Mubarak Rashid al-Mansouri, has noted that this is having an adverse effect on the country’s financial institutions and has already discussed the problem with the US.

Embattled Drake & Scull received a crumb of comfort this week with a US$ 67 million MEP contract in the capital, bringing its total project awards this year to US$ 689 million. On Thursday, the company’s shares were trading at US$ 0.104 – over 58% down YTD.

The DFM opened Sunday at 3204 and closed a massive 8.1% down to 2945 – its lowest level in over two years – by the end of the week (10 December). Of the bellwether stocks, Emaar Properties lost US$ 0.17 to US$ 1.40, whilst Arabtec fell US$ 0.03 to US$ 0.27. Trading volumes on Thursday were again wafer thin, at only 215 million shares, valued at US$ 84 million changing hands, (cf 169 million shares for US$ 92 million, the previous Tuesday).

Brent crude had a week to forget, sinking by 9.7% (US$ 4.13) to US$ 39.61, whilst gold nudged up US$ 11 to US$ 1,072 at Thursday (10 December) close.

There was no deal forthcoming from the latest OPEC meeting which ended last Friday, as the 13-member bloc failed to agree an oil production ceiling. As one of the main protagonists, Iran, wants to restore its output to pre-sanction levels, before considering any production cut-backs, it is hard to predict how much this would add to OPEC supply. It is estimated that Iran will pump at least a further 1 million bpd into a bloated market that is already adding a superfluous 2 million bpd to stock levels. Basic economic theory indicates that, under the current status quo, where supply is greater than demand, prices will continue to fall. However, it is noted that since October, US producers have closed 15.3% of active oil rigs to 572, with the Energy Information Administration cutting next year’s production forecast to 8.8 million bpd, compared to current level of 9.3 million bpd.

Last month drug makers, Pfizer and Allergan, announced a US$ 150 billion merger to be followed this week by a US$ 120 billion deal between Dow Chemical and DuPont. Although the Chinese slowdown and low oil prices have proved catalysts for the chemical industry to consolidate, rising competition from non-conventional producers is the main driver. It is estimated that the merger could see the new venture saving over US$ 3 billion in costs alone.

Although on a smaller scale, the same scenario is occurring in the hospitality industry. In November, a US$ 12.2 billion deal was agreed with Marriott International acquiring Starwood Hotels. On Wednesday, Accor bought FRHI Holdings (owner of Fairmont, Raffles and Swissôtel) for US$ 2.9 billion. The deal will see the French company acquiring 155 hotels in 34 countries, whilst the current owners of FRHI, Kingdom Holding Company and the Qatari Investment Authority, will retain 5.8% and 10.5% stakes in the new venture.

As energy prices continue to fall, Woodside Petroleum announced that it had withdrawn its US$ 8.4 billion September bid for Oil Search. Australia’s 2nd largest oil firm, of which the Papua New Guinea is a 10% shareholder, was expected to tap into that country’s gas prospects via Oil Search, whose major shareholder is also the PNG government.

German investment firm JAB Holding has acquired Keurig Green Mountain for a reported US$ 13.9 billion – this at a 78% premium on its Friday 04 December closing price, but well down on its November 2014 book value of US$ 23.7 billion. Coca Cola is the largest investor in the US maker of K-cups single-serve coffee pods and will have a 17.4% shareholding in the new private company, with Keurig maintaining its independent status. In a growing market, it is estimated that the coffee pod sector accounts for US$ 6 billion or 40% of the global coffee market.

Although an apparent agreement was reached last year, General Electric has decided not to go ahead with the US$ 3.3 billion sale of its appliance division to Sweden’s Electrolux.

Despite sales of US$ 3 billion, it is reported that Cadbury’s (now owned by Mondelez International) paid no corporation tax last year. It joins a host of other multinationals, such as Amazon, Google and Starbucks, who have courted parliamentary and public outrage, by their “legal” tax arrangements. In 2010, Kraft Foods acquired the UK chocolate maker in a US$ 17.5 billion deal, with Kraft hiving off its snacks business to Mondelez two years later.

Japanese authorities are expected to slap a US$ 40 million fine on Toshiba for the accounting scandal that saw the electronics conglomerate inflating profits by US$ 1.25 billion over a 7-year period. Over the past five years, two other Japanese companies have been involved in accounting irregularities – IHI Corp and Olympus.

It is expected that Japan will beat China to build India’s first high speed train line – from Mumbai to Ahmedabad; the 505 km journey currently takes at least eight hours but the new line would cut the travel time to just two! The US$ 14.7 billion project is one of the country’s biggest foreign investments and is a sign of the Modi government’s efforts to update India’s ageing infrastructure.

Over the past two months, employment data has surprised many analysts in Australia. In October, 56k new jobs were created and this was bettered last month with 71k extra, bringing the jobless rate down to 5.8% – a 19-month low. On the other hand, economic growth is still relatively soft at 2.5% and lower than the expected 3.2%. However, the RBA has resisted moves to cut rates which are now expected to remain at current levels for at least H1 2016.

The same cannot be said for the world’s largest dairy producer, New Zealand, which is suffering from a softening in international prices. This week, the Reserve Bank cut benchmark rates for the 4th time in six months to 2.5%, in a bid to counter its strong dollar and boost the inflation rate which is lower than the government’s target.

The World Bank estimates that most emerging market countries’ economies have slowed over the past five years, with the prospect of more of the same over the coming years. With the exception of India, the BRIC countries have seen major economic downturns, after being touted as saviours of the world in 2010, not helped by corruption and falling commodity prices. Furthermore, many countries have seen incoming foreign investment fall, (estimated at 25%) and increasing amounts of capital returning to safe heavens. A stronger dollar is a major problem in as much it makes borrowed money more expensive to repay.

President Jacob Zuma continues to spook the markets – this time as he fired his finance minister, Nhlanhla Nene, a week after Fitch cut the country’s debt to BBB-, the lowest investment grade level. South Africa’s sluggish economy is bedevilled by falling commodity prices, lengthening power outages and on-going corruption. 2015 growth at 1.4% is at its lowest level since 2009, whilst the gross debt to GDP has almost doubled to 50% over the same period. Furthermore the rand is at a record low of 15.38 to the US$, whilst benchmark 10-year bonds, at 9.46%, are at their highest rate since the GFC.

Another BRIC country suffering the same problems is Brazil with a Moody’s rating of Baa3 – its lowest level of investment grade. At this level, overseas investors may pull out of the country particularly as no positive changes are likely next year, with a continuing recession inevitable. Q3 saw a 1.7% contraction, whilst last year the fall was 3.2% with benchmark rates at highs of 14%. The economy is being dragged down by massive corruption problems, spiralling inflation, rising unemployment and falling domestic demand.

In line with the terms of their 3rd creditors’ bailout agreement (for US$ 93 billion), the Greek government has approved a tough 2016 budget. The country, now in its 6th year of austerity, expects a 0.7% contraction in its economy next year, after zero growth in 2015.

Surprisingly, German October trade figures fell, with exports and imports down 1.2% and 3.4% respectively. These figures, along with disappointing industrial output figures, may indicate that the economy is hurting from the slowdowns in both China and emerging markets. However, other economic data, including its trade surplus widening 8.3% to US$ 22.8 billion, show otherwise so the government will be hoping for stronger November returns and 2015 growth nudging 2.0%.

This week is another indicator of the all too cosy relationship between government and big business, as two former labour politicians acquire lucrative postings. Former Prime Minister, George Brown, has been appointed to the advisory panel of Pimco (which also includes former Fed chairman Ben Bernanke and Jean-Claude Trichet, ex-president of the ECB). His Chancellor, Alistair Darling, has joined the board of Morgan Stanley. In 2014, the bank’s board were well remunerated with fees of US$ 75k and US$ 250k worth of stock. It is hoped that both of them have more luck than they had running the country up to their demise in 2010.

The focal point of the Meraas Holding’s US$ 1.6 billion Bluewaters Island project, Dubai-I, is facing possible delay. Dutch company Starneth Group, the designer of the Ferris wheel, and principal contractor Hyundai Engineering and Construction are locked in legal arbitration in Singapore, over management and budget issues. It is reported that Starneth, now taken over by Challenger Acquisitions, has stopped working on the US$ 40 million project and the US$ 5.6 million order for the drive system has been cancelled by Hyundai. Will the Big Wheel Keep On Turnin’ – Proud Mary?

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