Land Of Hope And  Glory                                                   04 April 2019

Damac Properties reported a record number of homes handed over last year, with many of the 4.1k total in its Damac Hills community. The developer posted revenues of US$ 1.7 billion, whilst net profits came in at US$ 331 million, with booked sales totalling US$ 1.2 billion.

Last year, Danube Properties sold nearly 1.9k residential units, a 78.5% increase, which the developer estimates to be 10.6% of the total market share of off-plan sales, compared to just 5.0% a year earlier. Over the year, Danube recorded a 19.3% hike in revenue to US$ 266 million. The company continues to be confident in the local realty sector and to date has awarded contracts valued at US$ 436 million, covering twelve projects.

The RTA have extended the Serco contract to operate and maintain the metro transit system for a further two years in a US$ 185 million agreement. The UK company has been with the RTA since the Metro opened and has performed well, with a train service availability of 99.9% and punctuality of 99.8%: last year, there was a record 204 million journeys. Under the new contract, Serco will recruit and train Emirati employees. A recent study has shown that over the first eight years of the rail system to 2016, it had added an estimated US$ 18.0 billion to the economy.

This week sees the hosting of the second annual Future Blockchain Summit, a meeting that will bring together all the sector’s stakeholders from governments, industry and academia. The two-day event will see a global pool of technology visionaries, government bodies, the world’s biggest brands and industry first-movers pushing blockchain forward and championing its adoption on a global scale. It is expected that over 8k interested parties will attend the meeting. Smart Dubai has been working on over twenty citywide blockchain use cases in partnership with the government and private sectors, as it strives to become the world’s first government to execute all applicable transactions using blockchain technology by next year. If this venture succeeds, it will result in savings totalling US$ 1.5 billion and eliminate 100 million annual paper transactions.

The UAE administration is carrying out a joint study with its Saudi neighbours to discuss the “addition of new goods to the selective tax list”. It was only in October 2017 that both governments implemented an excise tax of 100% on tobacco and energy drinks, and a 50% tax on carbonated drinks. The impact of this excise duty has had a detrimental impact for some businesses, with sales of energy drinks plunging by as much as 65%. Whether such companies have taken enough “punishment” remains to be seen but if they have, it is a good bet that the likes of sweets, fast food and crisps could be on the taxman’s menu.

As noted last week, the country’s GDP expanded by 1.7% to US$ 393.0 billion, over the year, driven by growth in oil revenues (because of increased energy prices towards the end of 2018) and a strong performance in non-oil activities. The energy sector, which accounts for 25.9% of GDP, grew an impressive 35.1% over the year. The non-oil sector was 2.9% higher at US$ 307.2 billion, with major contributions from retail/wholesale accounting for 11.2% of GDP, financial services (9.2%), manufacturing (8.9%) and construction (8.3%).

Tristar is interested in a London IPO later this year, as it seeks to raise US$ 250 million. The Dubai liquid logistics provider, co-owned by its chief executive and founder Eugene Mayne, Agility and Kuwait’s Gulf Investment Corporation, has the likes of ADNOC, ENOC, Shell and BP amongst its customers.

Emaar Economic City in Saudi Arabia incurred a net loss after zakat and tax of US$ 37 million last year, compared to a  2017 net profit of US$ 67 million, driven by lower backlogs of residential and industrial projects. `The results were not helped by higher administrative, selling and marketing expenses.

It seems that Network International could be valued as high as US$ 3 billion, based on the pricing range issued ahead of its London IPO. The Dubai payment processor is 49% owned by Emirates NBD, with the balance by Warburg Pincus and General Atlantic. This is a welcome boost for Europe’s lacklustre IPO market, where recent volumes have been at their lowest level since the GFC.

Emirates NBD revised its deal to acquire 99.85% of Denizbank. Although the deal was arranged mid-2018, because of the 17% fall in the Turkish lire, the value of the deal is US$ 2.75 billion instead of the earlier announced US$ 3.2 billion. It is expected that the Turkish bank will contribute up to 15% of Emirates NBD’s 2019 profit. At the end of 2018, the asset value of the combined banks was US$ 173 billion, with the Dubai financial institution accounting for US$ 136 billion.

The bourse opened for trading on Sunday 31 Mar, at 2631, and having gained 57 points (2.1%) the previous fortnight, had an impressive 145 points (5.5%) weekly gain to close by Thursday, 04 April, on 2776. Emaar Properties, having closed US$ 0.03 lower last week, was up US$ 0.11 to close at US$ 1.25, with Arabtec, flat for the previous four weeks, nudged US$ 0.01 higher to US$ 0.59. Thursday 04 April saw increased trades of 124 million shares, valued at US$ 64 million, compared to a week earlier of 208 million shares at US$ 98 million. For Q1, the index was 4.1% to the good at 2635, with corresponding rises for both Emaar and `Arabtec – US$ 0.24 and US$ 0.07 respectively

By Thursday, 04 April, Brent traded US$ 1.90 higher to close on US$ 69.72; gold continued its recent weeks of ups and downs, gaining US$ 2 to US$ 1,297. For Q1, Brent was US$ 14 .30 (28.5%) to the good at US$ 68.10, with the yellow metal US$ 14 higher (1.0%) at US$ 1,298.

Saudi Aramco became the most profitable company in the world when reporting an EBITDA (earnings before interest, tax, amortisation and depreciation) of US$ 224 billion; this figure easily surpasses Apple’s US$ 83 billion surplus. Even though Exxon Mobil pulls in a lot lower profit at US$ 40 billion, it does earn slightly more cash generated per barrel than Aramco which is stifled to some degree by relatively high tax payments; Aramco pays 50% of its profit on income tax, plus a sliding royalty scale that starts at 20% of its revenue.

Another Saudi company in the news this week was Prince Alwaleed bin Talal’s Kingdom Holding that received US$ 333 million from its stake sale in Dubai ride-hailing firm Careem, which was bought out by Uber in a US$ 3.1 billion deal. The investment company will utilise the funds in up to five businesses in Saudi and Europe, with 30% being targeted for technology and potential growth entities and the balance for income-generating, dividend-distributing investments. It has been estimated that it almost doubled its money on its Careem stake.

Tui has warned that the grounding of its 15 Boeing 737 Max planes could cost it up to US$ 340 million; the travel firm was also expecting delivery of a further eight before the end of next month. The tour company has had to use spare planes in its fleet, extend leases that were due to expire and hire in extra planes, many of which may be less fuel efficient and bigger than what is actually required. It seems that the company is not covered for this type of event – no wonder then that its shares fell 8% in Friday’s trading.

easyJet confirmed that it still expects to post a H2 US$ 360 million loss attributable to Brexit jitters and a slowdown in the regional economies. The British low-cost carrier also had concerns about a weakening consumer mood and softer ticket yields across the continent, along with higher fuel prices. Its shares sank 8% on the news, as it expects “the overall environment in Europe to get worse”.

As it tries to cut annual costs further (from US$ 1.0 billion to US$ 1.5 billion), and introduce “significant restructuring”, US-owned Boots has warned of possible closures of some of its 2.5k outlets in the UK. The pharmacy chain, which employs 60k, reported a 2.3% decline in like for like sales and profits 14.3% lower, in a “most difficult quarter”. In February, the pharmacy chain indicated that 350 jobs were at risk in its Nottingham head office, as it planned to reduce costs by 20%.

In a US$ 5.4 billion deal, that will create a technology and security giant employing 80k, French defence electronics group Thales acquired Dutch data security firm Gemalto, a global leader in digital identification and data protection. The deal will result in Thales’s seventh global division being known as Digital Identity and Security focussing on the group’s civil and defence customers. The French government has a 26% stake in Thales and is their biggest single investor.

Months after DSV walked away from a US$ 1.7 billion deal with Switzerland’s Ceva Logistics, it has now acquired Panalpina in a US$ 4.3 billion deal. The price is at a 43% premium, based on the market value on 15 January when the offer was made. The sale will not only boost DSV’s air-cargo volumes and ocean-going sector but also complement the Danish group’s strength in road shipments.

There are growing voices proposing that the UK’s Big Four accountancy firms – Deloitte, EY, KPMG and PwC – should not only be separated into audit and non-audit businesses but should also face a full structural break-up. The four firms carry out 97% of big companies’ audits and at the same time often provide them with other services. The Competition and Markets Authority Chair, Rachel Reeves, said: “For the big firms, audits seem too often to be the route to milking the cash-cow of consultancy business”. There have been concerns about the auditors’ modus operandi on the back of high-profile company collapses such as Carillion and Patisserie Valerie. Not surprisingly the Big 4 seem in agreement to many of the changes recommended and that “trust in audit is in urgent need of repair”. No need to watch this space because nothing major will change.

There is something wrong with the financial world when three world bodies have different opinions on global growth prospects over the coming two years.

The WTO reported that Q4 world trade fell by 0.3% but expanded by 3.0% last year. This year, growth is expected to come in lower at 2.6% and well a below a previous 3.7% forecast. The usual suspects were cited by the world body – new tariffs, slower economic growth, volatility in financial markets and tighter monetary conditions in developed countries. Whilst uncertainty is around the economic environment, trade will always suffer.

Meanwhile the World Bank expects annual MENA growth for this year and next to be 1.5% and 3.4% on the back of a weaker global economy and financial-market volatility. The 2020 improvement is expected to come about because of “ongoing policy reforms to diversify the economy and strengthen the business environment”. However, despite this recovery its long-standing low growth in per-capita GDP will be flat.

Three months on from its January forecast, the IMF has indicated that the global growth has lost momentum since the start of the year, leaving the world economy in a “precarious” position; however, the IMF chief, Christine Lagarde does not expect an immediate recession.  Next week, it will issue its new World Economic Outlook and it will be inevitable that the 3.5% global growth forecast made in January will be downgraded, although there could be an upturn by the end of this year.

At last, Malaysia’s ex-Prime Minister Najib Razak has gone on trial for his role in a financial scandal involving the country’s sovereign wealth fund 1MDB. He faces an initial seven charges, including pocketing US$ 681 million from the fund, out of a total of 42. The government has also filed criminal charges against Goldman Sachs for defrauding investors by raising money for 1MDB – a fund that was supposedly meant to boost Malaysia’s economy through strategic investments. However, some of the money was apparently used to fund lavish lifestyles, a Hollywood film and a super-yacht.

After being arrested last November and then released on US$ 9 million bail in March, disgraced former Nissan chief Carlos Ghosn has been re-arrested in Tokyo. Initially, he was charged with underreporting his pay package the five years to 2015 but a new case implicates him in suspicious payments to a dealership in Oman.

Two former Barclays swaps traders, convicted of manipulating a benchmark interest rate, were sentenced to as much as five years in prison by a London judge who warned those still working in the finance industry that misdeeds would bring jail time. The charges against the two men were in relation to manipulation of the Euro interbank offered rate, which is related to trillions of dollars’ worth of loans and derivatives. According to the judge, Michael Gledhill, the way the Euribor rate was calculated “was an open door for those involved in the conspiracy to manipulate, or attempt to manipulate, the Euribor rate for the advantage of their own bank’s trading positions.”

Latest figures indicate that global e-commerce sales surged 13.0% to US$ 29 trillion, driven by a 12.0% hike in online shoppers to a total of 1.3 billion. The US led the way, as the number of internet users buying goods online from abroad grew to 21.0%, as their cross-border business-to-consumer sales expanded 4.0% to US$ 412 billion, equating to 11% of total sales in this segment. The three largest markets were US (US$ 9.0 trillion), Japan (US$ 3.2 billion) and China (US$ 1.9 trillion). It seems strange and rather ironic that these figures issued by the United Nations Conference on Trade and Development are for 2017 – a little out of date!

According to the UK’s trade body, Ukie, the country’s gaming market is worth US$ 7.5 billion on the back of the very successful releases of games such as Fortnite and Player Unknown’s Battleground that only came out last year. Of that total, US$ 5.3 billion is spent on software, with a further US$ 2.1 billion on hardware; the remaining balance is from “game culture” which includes toys, merchandise and books.  The software can be further broken down into four segments – digital/online, mobile games, boxed software and pre-owned – accounting for 50.1%, 29.1%, 19.1% and 1.7% of the US$ 5.3 billion total. The sector is now worth more than the movies and music segments combined.

Latest figures from Saudi Arabia show that the Q4 unemployment rate has dropped 0.1% to 12.7%; the unemployment rate men stood at 6.6%, compared to 32.5% among Saudi women. There were 3.1 million males in employment, with a further 1.0 million actively seeking employment.

The country’s budget deficit is a little over US$ 150 billion which will rise to US$ 181 billion by the end of 2019, equating to 21.7% of GDP; 46% of the total debt is in US dollars. The further issue of US$ 31 billion this year will be used to help finance the national budget deficit.

It is a good time to go Turkey for a holiday as its lira sank 5% in just one day, and over last week the stock market shed 10% of its value. After several years of noticeable growth, the economy has done a complete turnaround and is now experiencing a recession, accompanied by high inflation at over 20%.

There is no doubt that its President Recep Tayyip Erdogan led the country through fifteen years of almost continuous growth of an 5.6% average (excluding just one year, 2009). Having doubled in size over that period, the economy has had two quarters of contraction, the unemployment rate stands at an unwieldy 13.5% (4.3 million). Things are bound to get better later in the year but do not expect much annual growth of over 2%.

President Abdel Fattah al-Sisi’s government has increased Egypt’s minimum wage level by 66.7% to US$ 116 a month, whilst pensions will rise by 15% to US$ 52, with immediate effect. Consumer spending has been impacted by recent government measures including the introduction of VAT, cutting energy subsidies and devaluing the currency that has left many of the 100 million population in dire straits.

Everybody’s favourite, Jean-Claude Juncker is now not happy with Italy wanting Giuseppe Conte’s populist government to do more to boost their flagging economy – some hope. The EC President’s warning came a day after the OECD highlighted Italy’s urgent need to take control of the fiscal situation and reduce its worryingly high public debt. Now in recession, the country’s output has never returned to its 2007 high.

The man who got all his post Brexit referendum forecasts wrong is again in the headlines warning that the risk of the country stumbling into a “disorderly” no-deal Brexit is now “alarmingly high”. Mark Carney, the Bank of England governor, is no stranger to controversy and some may see his latest remarks as once again pro-Remain political intervention.

There are signs that the Chinese economy may have turned the corner after following recent government intervention that has seen five cuts in bank reserve requirements over the past year along with other fiscal and monetary stimulus measures. China’s Caixin/Markit Manufacturing PMI moved back into positive territory recording a reading of 50.8, following the previous month’s 49.9.

US Commerce Department figures show that January business inventories rose at a quicker rate than expected, when climbing 0.8% – the same level as a month earlier and higher than the 0.5% market expectation. There were also increases in wholesale, retail and manufacturing invoices – up by 1.2%, 0.8% and 0.5% respectively. January sales saw increases for business (0.3%), retail (0.8%) and wholesale (0.5%), whilst manufacturing sales dipped 0.4% over the month.

Manufacturing improved in March with the ISM PMI 1.1 higher at 55.3, driven by gains in new orders (up 1.9 to 57.4) and employment with an impressive 5.2 hike to 57.5.

Construction spending came in 1.0% higher at an annualised rate of US$ 1.32 trillion, with the market expecting a slight downturn. There were increases in four construction segments – “public”, up 3.6% to US$ 325.8 trillion, highway – up 9.5% to US$ 111.1 billion, educational, 0.8% up at US$ 325.8 billion and private up 0.2% at US$ 994.5 billion.

With Brexit turmoil showing no indication of going away, the latest Markit’s services PMI showed that the country’s huge services sector shrank for the first time since mid-2016, with export demand noticeably weaker. In March, the reading of 48.9 (any number under 50 indicates contraction) was 2.4 lower than the 51.3 recorded in February. The construction sector is also decline, whilst manufacturing, with a 50.0 reading, would have been lower if not for stockpiling.

It is surprising to read that there are now 2.9 million UK children living in poverty after housing has been paid, with mortgages and rents continuing to spiral north. 70% of the total were in working families, compared to 67% a year earlier and more worryingly, 53% of children were under the age of five. Just like previous governments, this one has said that tackling poverty was its priority.

Two million UK workers on minimum wages are now receiving a pay rise (which may not be enough as other costs are rising), ranging from 4.9% to US$ 10.26 for 25-year-olds and over to a 3.6% rise for 16-17 year olds to US$ 5.50. Women represent an estimated 60% of those who are benefitting. It is estimated by the Living Wage Foundation that the wage level needed to “meet the costs of living” is US$ 13.75 (in London) and US$ 11.70 elsewhere. However, minimum wages in the UK are among the highest in the western world and of late pay rises are coming in at a higher pace than inflation resulting in a slight increase in consumer spend.

It seems an anomaly that the UK manufacturing sector was one of the few in the world that headed north this month, to a 13-month high, whilst the likes of France, Germany, Japan, Malaysia, South Korea and Taiwan went in the other direction; indeed, eurozone manufacturers posted one of their worst monthly figures since 2013. These returns seem to confirm that a global slowdown is on the cards.

Equally worrying for the eurozone was March’s PMI declining for the eighth straight month to a six year low of 47.5, down 1.8 month on month. With backlogs of work being run down at their fastest pace since late 2012 and new orders falling at their fastest rate in over six years, allied with the fact that both German and French manufacturing are in recession, there is no doubt that the bloc faces a turbulent period.

As Dubai’s winter comes to an end, summer is on the horizon and the same could be said of the local economy. Despite so much negativity in the air, there are signs that it may be picking up. Careem’s US$ 3.1 billion acquisition by Uber, Network’s US$ 3.0 billion IPO valuation, Emirates NBD’s US$ 2.8 billion purchase of Turkey’s Denizbank, Brent reaching the important US$ 70 threshold and the DFM up by over 10% this year are all portents that the worse may be over. Just weeks after Dubai Opera hosted the Proms, maybe it is time for the emirate to  become  yet again The Land of Hope and Glory!