To Give A Little, Take A Little                               27 June 2019

It is more than a decade since Deira has seen such building activity, with a reported 2.2k apartments being handed over from mid-2020. Ithra is set to complete phase 1 of its “Deira Enrichment Project” which also includes 800 retail outlets and eight hotels. Located on one side of the Hyatt Regency and on the opposite Gold Souq side, the project will cost US$ 1.1 billion. None of the units will be available freehold, with rents for studio and 1 B/R starting at US$ 9k and US$ 11k respectively; on completion, the new area in old Dubai could house upwards of 12k living and working within the development. The environs will see a lot more new residents, particularly when Nakheel’s Deira Island and Emaar’s Mina Rashid start to transform the area.

Fidu Properties expect to see a 70% hike in Chinese investment in the Dubai realty sector this year, in line with recent annual increases of over 60%. For the first nine months of 2018, the Dubai Land Department ranked China as the fourth biggest source market, with sales of US$ 463 million, equating to just 1.0% of the US$ 44.1 billion total. The outlook is bright as a result of the Dubai Lands Department opening two representative offices in China, with a third in the pipeline. Other factors for the optimism are the 53% increase in Chinese visitors over the past five years and over 4k Chinese companies operating in the emirtae.

With RTA’s approval, Nakheel is to invest US$ 31 million in roads and bridges, giving direct access to its new Al Khail Avenue retail, dining and entertainment development at Jumeirah Village. The link, expected to be completed by the end of 2020, will feed into a 4k multi-storey car park, providing entry to and exit from the mall. The total project will comprise 350 shops, restaurants, entertainment outlets and services, along with a DoubleTree by Hilton 267-room hotel.

China’s The Silk Road Fund has acquired a 49% share in ACWA Power’s renewable energy platform for an undisclosed amount. The entity will take over ACWA Power’s CSP, PV, and wind assets in the UAE and four other countries – Egypt, Jordan, Morocco and South Africa – which in total has a total capacity of 1668MW. This is not the first time that the two companies have co-invested, having already done so in two UAE-based projects – the 2400MW Hassyan clean coal power plant, and the 950MW Hybrid CSP and PV fourth phase of MBR Solar Park.

China’s TenCent, the world’s leading games platform, has opened its MENA regional office in Dubai Internet City. The 16-year old company, a global platform for game development, publishing and operation, has a global payroll of 55k. This comes at a time when the local and regional games industry is exploding, with the current revenue of the country’s ever-expanding game sector at US$ 324 million, with 80%+ of smartphone users playing mobile games.

Following a joint economic policy dialogue held in Washington DC, the US and UAE plan to “fully maintain all aspects” of the 17-year old Open Skies bi-partisan relationship. The agreement, which “reinforced the principle of a fair and equal opportunity to compete in providing international air transportation governed by the ATA,” could see Emirates further expanding its routes into the country. The airline’s CEO and chairman Sheikh Ahmed bin Saeed Al Maktoum reiterated that “under the bilateral agreement, we can, but we won’t expand for no reason”..

With two tenders, totalling US$ 1.2 billion, awarded this week, the prospect of an Abu Dhabi-Dubai rail link moved a step closer. The contracts, covering Packages B and C, will run for 216 km and 94 km, forming part of a 605 km line extension from the UAE-Saudi border in Ghuweifat to the Port of Fujairah. The latest developments, linking Khalifa Port, “Kizad”, and Jebel Ali Port, will involve the China Railway Construction Corporation Ltd, (CRCC), and Ghantoot Transport & General Contracting Company. The whole project is expected to be completed by 2024.

A Xero study estimates that Australian businesses are losing as much as US$ 5 billion because bigger companies are not paying their bills on time. Some of its key findings indicate that big companies pay more than 50% of their invoices late (on average by 23 days) and that 46% of SMEs fail within five years. The study involved 150k entities and ten million invoices, worth US$ 80.5 billion, and concluded that there was a definite link between long payment times and slower growth for small businesses and premature failure. Interestingly, the federal government will start paying SME accounts within twenty days starting from next month. It begs the question on what would happen in Dubai if big companies paid on time; two things are certain – there would be a massive influx of liquidity and it would improve the shelf life of SMEs, the life and blood of the Dubai economy.

Under the Abu Dhabi government’s three-year Ghadan 21 economic stimulus package, a three-year agreement has been signed with the country’s biggest lender, First Abu Dhabi Bank, to extend state-backed loans to SMEs: it will be backed by government guarantees in case of a default of up to 75% of the loan amount. Up to US$ 2.5 billion will be made available to both Emirati and expatriate-owned businesses in Abu Dhabi. This was but one of eight initiatives of a US$ 13.6 billion package put forward by the Abu Dhabi government to stimulate their economy. Others ranged from a thirty-day payment guarantee for suppliers and contractors to eco-tourism development initiatives, and cheaper electricity for industrial companies. Hopefully the knock-on effect will be felt by its northern neighbour, Dubai.

VAT collections, in its first year of operation, were a lot higher than first thought, at US$ 7.4 billion compared to an original projection of US$ 3.3 billion. It would seem that the level of compliance astounded the experts, who had taken a more conservative approach. It is reported that the federal government will retain 30% (US$ 2.2 billion) of collected revenues, whilst the seven emirates will receive US$ 2.4 billion. Moody’s estimate that Dubai received around 60% of the share of revenues attributed to the emirates, and 42% of total VAT revenues in 2018; this is because the emirate has high tourist numbers and a higher daytime population because of the influx of workers from neighbouring emirates.

This year, revenue will inevitably increase but because of such high compliance in its first year of operation, and slower growth prospects, it will only be slightly up on 2018 returns. However, after combined royalties and dividends from the UAE’s government’s holdings in the telecommunications sector, VAT will become the second largest contributor of non-grant revenues to the public coffers this year.

A sign of the times? Q1 saw a marked 11.7% fall in expat remittances from the UAE to US$ 10.5 billion, compared to the same quarter in 2018. Of that total, 65.0% was wired via money exchanges (US$ 6.8 billion) and the balance through banks. The top four countries continue to be India (37.4%), Pakistan (10.2%), Philippines (7.9%) and Egypt (6.0%), accounting for 61.5% of all remittances. They were followed by Bangladesh, US, UK Jordan, China and Switzerland accounting for a further 17.7%.

The Dubai Statistics Centre estimates that the Islamic economy contributes US$ 11.2 billion (10.0%) to the emirate’s GDP, 2.4% higher year on year. The main driver was wholesale/retail trade accounting for 43.6% of the total, followed by financial activities, accommodation/ catering and manufacturing generating US$ 2.6 billion, US$ 2.0 billion and US$ 1.7 billion respectively.

According to research by Emirates NBD, Dubai’s economy will grow faster in 2019 and 2020  (at 3.0% and 3.7% compared to 1.9% last year), driven by expansion in the key sectors of construction/real estate, business services, hotels/restaurants and transport/logistics; this year’s GDP is expected to be at US$ 1.1 billion. However, this could be railroaded by external threats, including trade war escalation, declining global growth and weaker consumer spending/confidence. The country is expected to see growth fall in H2 from H1’s 2.2% and finish the year 2.0% higher, with Q4 growth down at 1.6%.

The country’s first nuclear power station will start generating energy by early 2020, with the opening of the first of four reactors, pending regulatory approval. The Nawah Energy Company, a JV between Emirates Nuclear Energy Corporation (ENEC) and Korea Electric Power Corporation, reported that construction of all four was 93% completed. The overseas partner already operates the Shin Kori 3 and 4 nuclear energy plants in South Korea. Nawah will take charge of all regulatory responsibilities for operations and maintenance of the Barakah plant.

The UAE has become the first regional country to introduce a new anti-money laundering software system this week, developed by the United Nations Office on Drugs and Crime. This means that, as from Wednesday 26 June, all entities under the central bank’s banking supervision department, the Insurance Authority, the Securities and Commodities Authority, Abu Dhabi Global Markets and the Dubai Financial Services Authority, should have registered; to date, 50% of the 900 businesses required have done so.  The goAML system is part of the country’s new regulations against money laundering and terrorist financing that came into effect last year, with fines ranging from US$ 14k to US$ 1.4 million.

On-going reports continue to link Damac Properties with a take-over of luxury fashion brand Roberto Cavalli. The iconic, but bankrupt, Italian brand is up for sale and has seen interest from at least five potential suiters, including Italy’s Diesel-owner OTB and US brand management company Bluestar Alliance. The Dubai-based developer has used the Italian brand in two of their projects – Just Cavalli Villas in Dubailand and Aykon Hotels by Damac Properties.

Arabtec’s wholly owned subsidiary, Target Engineering Construction Company, secured an additional US$ 86 million contract by Tecnicas Reunidas for work on ADNOC’s Bu-Hasa Integrated Field Development Project. This is in addition to work totalling US$ 142 million secured last November.

Although the Investment Corporation of Dubai posted a record 15.7% hike in annual revenue to US$ 63.3 billion, its profit declined 19.3% to US$ 4.4 billion, driven by “the impact of higher fuel and commodity input prices”. Dubai’s sovereign wealth fund, which owns, inter alia, Emirates Airline, Jumeriah Group and ENOC, along with major stakes in Emirates NBD, Dubai Islamic and Noor Bank, recorded a 4.0% hike in total assets to US$ 239.6 billion.

Having been on the cards for some months, Shuaa Capital is set to merge with its largest shareholder, Abu Dhabi Financial Group, creating a new entity with US$ 12.8 billion of assets under management. The Dubai investment bank will issue 1.47 billion new shares to ADFG’s parent company in return for its entire issued share capital; this will see the Abu Dhabi entity owning 58% of the new company, to be known as ADFG, which will still be listed on the DFM. This agreed valuation represents a premium of over 60% to Shuaa’s share price on 21 March 2019, the last trading day ahead of the possible merger announcement.

The bourse opened on Sunday 23 June at 2659 and, having closed 84 points (3.3%) to the good over the previous month’s trading, shed 33 points (1.2%) to 2626 by 27 June 2019. Emaar Properties closed US$ 0.02 higher at US$ 1.20, with Arabtec flat again at US$ 0.41. Thursday 27 June had seen wafer thin trading again of only 75 million shares worth US$ 38 million, (compared to 181 million shares, at a value of US$ 92 million on 20 June). Even for summer, these figures are worryingly low.

By Thursday, 27 June, Brent, having gained US$ 3.05 (5.0%) the previous week, was US$ 1.83 (2.8%) higher at US$ 66.28. Gold, up US$ 100 (3.9%) the previous three weeks, closed US$ 26 (1.9%) higher to US$ 1,423, still driven by continuing tensions in the Gulf and trade worries prior to this Friday’s G20 meeting in Osaka.

To settle US charges that its Brazilian unit violated the Foreign Corrupt Practices Act, Walmart has agreed to pay a US$ 282 million settlement to the US Justice Department (US$ 138 million) and the Securities & Exchange Commission (US$ 144 million). It is alleged that its Brazilian offshoot had paid US$ 527k to an intermediary for assistance in acquiring construction permits. Last year, the retailer indicated that it had spent about US$ 900 million on legal fees and other costs stemming from the investigation, including a global overhaul of its internal compliance system.

A Tokyo paper has published a report that a car distributor in Oman had paid over US$ 3 million in to a Lebanese investment company controlled by former Renault SA Chairman Carlos Ghosn; in addition, money had been channelled into the same account from Renault alliance partner Nissan. If substantiated, there is every chance that the Tokyo authorities will widen the case against Ghosn, who has also been indicted for financial misconduct involving money from Nissan.

Ford announced that it is planning to cut its European workforce by 12k (23.5%) to 39k before the end of 2020 as it restructures to curtail current losses. It indicated that 2k of the jobs would be salaried employees after previously announcing that 7k such positions would be cut on a global scale. One of the five plant closures will be in Bridgend. The whole industry is in turmoil as it takes on the challenge of falling sales, rising costs and the need for higher investment in electric vehicles.

In a US$ 8.7 billion deal, Eldorado Resorts Inc agreed to buy Caesars Entertainment Corp., which, including debt taken on board, puts the deal at US$ 18 billion; the merger will see both parties taking roughly equal shares. On Friday’s price, the deal saw a 30% premium on Caesar’s closing numbers, which is now trading at 24 times reported earnings. Over the past twelve months, Eldorado has seen its market value rise 17%, whilst Caesar’s has headed in the other direction, down 12%.

As the flight date for the comeback of the troubled 737 Max keeps getting pushed back for one reason and another, US regulators have uncovered a possible new flaw, indicating that it had identified the “potential risk” during simulator tests, but did not reveal details. There were initial hopes that the plane would be back in the air next month, but that timetable was subsequently extended towards the end of the year. If what initially was thought to be a software problem becomes a hardware issue, there is every chance that the 737 Max will not be seen in the skies until 2020.

Five people have been arrested by UK’s Serious Fraud Office over alleged accounting fraud at the Patisserie Valerie chain, eight months after the arrest of former finance director Chris Marsh. The café chain, which previously had 206 outlets and 3k staff, went into administration in January with a US$ 120 million black hole; at the time, it was discovered that its cash position was overstated by US$ 39 million and a US$ 13 million overdraft facility was not disclosed. Earlier in the year, the company was acquired for US$ 7 million by Causeway Capital and now has 96 shops.

Bitcoin started the week with a 10% hike to be trading at US$ 11,248 by Sunday – a 15 month high – partly attributable to Facebook launching its own digital currency, Libra. It had a turbulent trading week rising to US$ 13,844 by Wednesday, only to lose 21.6% (US$ 2,996) the following day to close on 27 June on US$ 10,848. Many analysts pointed to Facebook’s entrée to the digital currency sector as a forerunner for major companies adopting cryptocurrencies. Bitcoin, which has doubled in value since March (and trebled since the start of the year), is also being helped by escalating tensions in the Gulf region and the continuing US-China trade war. Slowly, it seems that the currency is becoming acceptable on the world stage.

As reports indicate that annual global car sales have fallen by over four million, Australia vehicles sales, having fallen for the 14^th straight month, are heading for its biggest annual decline in nine years; sales are expected to be 7.7% lower with 1.1 million vehicles sold come 30 June year end. The industry is being further hit by slower credit growth (at a six-year low), weakening consumer confidence and household spending. Unfortunately, studies show that when house prices fall, car sales decline in tandem and this adds to the toxic mix. No wonder then that car sharing is becoming more popular with the Australians; GoGet – the biggest company in the country – is claiming that one of its cars can, and will, replace ten vehicles.

Three separate reports point to the fact that the US economy may be weakening. After plunging by a revised 2.8% last month, May new orders fell a further 1.3%, compared to analysts expecting an 0.2% turnaround. However, durable goods orders rose by 0.3% in May after edging down 0.1 percent in April.  

There was an unexpected steep 7.8% fall in May new home sales to 626k, coming on the back of a 3.7% decline a month earlier. The slump was particularly bad in the West and NE where sales dropped by 35.9% to 125k and 17.6% to 28k.

A Conference Board report showed that US consumer confidence deteriorated in June, falling 9.8 to 121.5, month on month; this was its lowest level since September 2017 and mainly driven by the escalation in trade and tariff tensions. Continued uncertainty will inevitably have a negative impact, with the index certain to continue its downward trend over the coming months. On top of all this, median prices were 8.1% lower at US$ 335k – and 2.7% down on the same month in 2018 when prices were at US$ 317k.

This comes after Q1 GDP increased at a healthy 3.1% annualised rate, compared to 2.2% the previous quarter, driven by spending on highways and defence. Q1 trade deficit narrowed to US$ 905.0 billion, with the trade gap contributing 0.94% to GDP. The US-China trade tensions continue to spook the markets and this issue is set to dominate what will be a stormy two-day G20 summit starting tomorrow – 28 June.

To be fair to the US President, he has criticised not only China, saying Beijing wanted to do a deal because its economy was “going down the tubes”, but also some of his allies. India was accused of “unacceptable” tariffs on American goods. He accused Vietnam as the “single worst abuser” on trade, Germany as “delinquent” on its relatively low funding contributions to NATO, and Japan. Tweeting about the host nation – “If Japan is attacked, we will fight World War III. We will go in and protect them with our lives and with our treasure, but if we’re attacked, Japan doesn’t have to help us. They can watch it on a Sony television.” Add to the mix, the current geopolitical problems emanating from places like Iran, North Korea, Venezuela and Yemen and this could be an explosive get together.

Donald Trump may have To Give A Little, Take A Little.