Don’t Stop Me Now!

Don’t Stop Me Now!                                                                                       O2 January 2020

According to Valustrat, the falling rate of Dubai monthly property prices slowed in 2019, from 1.0% to 0.8%, year on year. The consulting firm indicated that its November Residential Capital Values stood at 75.9 points, dipping 0.9%, month on month, and 10.8% lower on an annual basis. The report confirmed that all locations saw prices heading south, within a range between 0.6% (International City) and Jumeirah Village Circle -1.1%. It also estimated that, since 2014, the weighted average residential price has slumped 32.8% to US$ 263 per sq ft. A positive indicator was a stronger, month on month, buying activity, with the overall eleven-month sales volume, both off-plan and ready homes, 25% higher than last year, with still one month to go. Not surprisingly, the top five traded properties were from Emaar, Damac, Nakheel, Azizi and Meraas.

The DLD and Property Finder have joined forces to introduce a new monthly price index to the Dubai market. Mo’asher (the Dubai House Price Index) showed that there was a 1.4% hike in house prices in November, rising from 1.121 to 1.134, month on month, with average house prices 0.8% higher at US$ 319k. A month earlier, there was a 23% rise in the volume of transactions and a 33% jump in the value of investments. The index will help consumers with up to date Dubai property prices on a monthly basis and Property Finder also hopes to release data on specific locations in the coming months.

Following successful launches last year in New York and Miami, David Yeo is to open In DIFC in Q1; Hutong, one of the first Chinese restaurants to be awarded a Michelin star, can also be found at London’s iconic Shard. Hutong in Dubai will feature an indoor restaurant, a lounge bar, a private terrace and two private dining rooms, as well as displaying Chinese-inspired interior design, inspired by ‘The Four Arts’ of the Qing Dynasty.

Dubai authorities are pulling out all stops to not only make the emirate the region’s leading destination but also one of the tops for global cruise visitors. On Sunday, the Mina Rashid cruise terminal dealt with 60k cruise visitors, as six vessels berthed, including TUI Cruises’ Mein Schiff 5, Pullmantur Cruises’ Horizon, MSC Cruises’ MSC Lirica, Jalesh Cruises’ Karnika, Costa Cruises’ Costa Diadema and Royal Caribbean’s Jewel of the Seas. The latter two were on their maiden voyages to Dubai.

Dubai Culture and Arts Authority has teamed up with the Roads and Transport Authority to create a series of public land-based artworks. The agreement was signed by Sheikha Latifa bint Mohammed bin Rashid Al Maktoum, chairperson of the Dubai Culture, and RTA’s supremo, Mattar Al Tayer.  Under the Destination Land Art project, artists of different nationalities will work together to establish Dubai as a global centre for art and culture. The project also covers the rehabilitation of Zabeel High School, an iconic historical building, as well as supporting the development of the road network surrounding Al Fahidi Fort, a historical district founded in 1787.

It is estimated that the number of pupils, enrolling at some private schools for next term, has risen by almost 25%, with most consisting of children from families arriving in the country for the first time. For example, Taleem, which runs ten schools here and in Abu Dhabi, estimates that it “is currently looking at a 20% year-on-year increase in new enrolments for January.” Many reports last year pointed to the fact that an increasingly competitive private sector led schools to offer substantial discounts on fees to maintain their market share of pupils. According to the Knowledge and Human Development Authority, the eight new schools, due to open in Dubai before this September, will add a further 13k places for students in what could already be an over-populated market.

There were certain outlets that made their usual killings, on News Year Eve, because of their location close to the Burj Khalifa. Nando’s apparently charged US$ 681k each for at least 70% of their seats, whilst fast food chain Five Guys charged up to US$ 409. Charging a little less for ring-side fireworks seats were the likes of Starbucks and International House of Pancakes at US$ 327 and US$ 313, including food and beverages.

It was a busy New Year’s Eve for the RTA with over 2.1 million using public transport over the twenty-four hours – 3.6% higher, year on year. Of the total, 907k used Dubai Metro, 689k – taxis, 441k public buses, 52k marine transport and 37k Dubai Tram. Not many cities in the world could boast of having firework displays in ten different locations in such a relatively small area., with the Burj Khalifa putting on an impressive record-breaking 8 minute and 43-second-long show, featuring 1.4k kg of fireworks, watched by over one million in Downtown Dubai.

Driven by a late December surge from its 36th three-day anniversary, that netted US$ 30 million, Dubai Duty Free posted over US$ 2.0 billion in 2019 sales – 1.5% higher than a year earlier. In 2019, there were 24.3 million sales transactions, with 64.6 million units of merchandise sold. The sale of perfumes (which rose 2.0% on the year) was the best-selling item accounting for 15% of overall sales, equating to US$ 305 million, followed by liquor, cosmetics, tobacco and electronics.

One of the main reasons there was a 1.7% decline in Emirates passenger numbers to 58 million last year, compared to 2018, was an enforced reduction in operations because of a forty five-day closure of one of the airport’s two runways earlier in the year; accordingly, the number of Emirates flights in 2019 fell 3.1% to 186k. Over the past “year of recalibration”, Emirates has had to amend its fleet and network plans in the light of the fast changing political and socio-economic environment. Last year, the airline extended the number of its code-share partners to twenty-six with the addition of India’s SpiceJet. China Southern Airlines, Africa World Airlines, LATAM Airlines, and Interjet. Emirates also signed US$ 24.9 billion worth of agreements at November’s Dubai Air Show, including for fifty of Airbus’ A350s and thirty Boeing’s 787 Dreamliners.

Meanwhile Emirates has temporarily closed its US$ 88 million 1.6k hectare One&Only Wolgan Valley resort, as a result of the Australian bush fires which have ripped through the south-east of the country.

There are surveys and surveys and Which? UK has asked holidaymakers to rate recent trips to cities around the world. The study used certain parameters such as quality of the cultural attractions, accommodation, shopping, food, value for money and how crowded it was. There was good news and bad news for the emirate as its 62 points rated higher than Las Vegas, Los Angeles and Miami but the bad news is that it came fourth from the bottom of the survey, having been deemed “poor value for money”.  At the other end of the table, the top five were New Orleans (90 points), Singapore, Sydney, Chicago and Jaipur. In contrast, a survey by Post Office Travel Money, pointed to Dubai being one of the best long-haul destinations for British holidaymakers, more so because of the weakening dollar, down 4.5% last year; it estimates the cost of a one-week holiday package in early January, to be US$ 1.4k. On the downside, Dubai meals and drinks were the most expensive, at US$ 512, of the destinations surveyed.

For the first time, since petrol prices were regulated on a monthly basis, in August 2015, the previous month’s prices have been carried forward without any amendment. January prices will remain at US$ 0.578 per litre for Special 95 and diesel at US$ 0.648, as announced by the Fuel Price Committee. Then Special 95 was fixed at US$ 0.583 (up 23.6% from July 2015) and diesel at US$ 0.559 (down 29.0% on the month).

2020 will witness Dubai’s highest ever spending budget of US$ 18.1 billion, as announced by HH Mohammed bin Rashid Al Maktoum, as part of the emirate’s three-year fiscal plan (totalling US$ 53.4 billion). This figure is 16.9% higher than in 2019 and comes ahead of Expo 2020 and the Dubai Plan 2021. Over 30% of the spend is accounted for by salaries and wages and 24% taken by the health, education and social services. A further 12% will be utilised on construction projects, which includes sums for the continued development of Expo 2020 infrastructure, whilst 3% will be set aside to hedge and prepare for the big event. There is no doubt that the government is keen to take positive steps to move the economy forward in 2020. Estimates for public revenue this year are in the region of US$ 17.4 billion – year on year a 25% increase.

For the first nine months of 2019, Dubai’s non-oil foreign trade surged 6.0%, year-on-year, to US$ 277.6 billion, boosted by the contributions from the emirate’s fifty plus free zones. Of that total, exports showed a 23% increase to US$ 32.2 billion, whilst re-exports and imports both headed north, by 4% to US$ 85.0 billion and 3% at US$ 160.4 billion respectively. Volumes for the period were 22% higher as exports, re-exports and imports were all up by 47% to 14 million tonnes, 48% to 13 million tonnes and 13% to 56 million tonnes.   China remained the emirate’s number one partner, accounting for 27% of China’s exports to the Arab World and 29% of exports. The emirate’s top five trading partners were China, India, US, Switzerland and Saudi Arabia contributing US$ 29.7 billion, US$ 27.2 billion, US$ 15.5 billion, US$ 12.8 billion and US$ 11.4 billion. The top traded commodities continue to be gold (US$ 35.1 billion), mobile phones (US$ 32.4 billion) and diamonds (US$ 11.4 billion).

There are reports that the Arab world’s first commercial nuclear plant could start operations in Q1, with the first of four planned reactors, Barakah Unit 1, going live in Abu Dhabi. It will take several months before the plant starts full commercial operation, after it has loaded nuclear fuel. Emirates Nuclear Energy Corp and Korea Electric Power Corp will manage, operate and maintain the Barakah complex, which will eventually produce a combined 5.6k megawatts of power.

Dubai Aerospace Enterprises has bought back US$ 450 million of its own shares, with the early partial repayment of a note receivable from certain shareholders, as it strengthens its balance sheet ahead of the 31 December year end. The Middle East’s biggest plane lessor remains “committed to running our business with low levels of leverage and optimal amounts of capital.” The company operates from seven global locations, from which it serves the needs of 125 airlines, with its portfolio of 410 Airbus, ATR and Boeing aircraft, valued at more than US$ 15.5 billion. Its latest nine-months’ figures to September 2019 saw profit dip 10.3% to US$ 261 million, as costs rose, including depreciation and finance, by US$ 12 million and US$ 35 million, although revenue nudged up 1.2% to US$ 1.7 billion.

In the Dubai Financial Market, the value of foreign investors’ trade last year totalled US$ 28.7 billion, including buying and selling worth US$ 13.8 billion, with a year-end net investment of US$ 813 million.

The bourse opened on Sunday 29 December and, having shed 4 points the previous week, was 4 points higher at 2770 by 02 January 2020. Emaar Properties, having lost US$ 0.03 the previous fortnight, was flat at US$ 1.10, whilst Arabtec, US$ 0.02 lower the previous week, also did not move the scoreboard, remaining at US$ 0.35. Thursday 02 January saw the market with a New Year hangover, with almost non-existent trading of only 30 million shares, worth US$ 11 million, (compared to 169 million shares, at a value of US$ 37 million, on 26 December). Over the year, the bourse traded 235 points (9.3%) higher, ending on 31 December at 2765, whilst Emaar lost US$ 0.03 to close the year on US$ 1.10 and Arabtec shed US$ 0.17 to US$ 0.35.

By Thursday, 02 January, Brent, US$ 3.95 (6.3%) higher the previous three weeks, gained a further US$ 1.75 (2.6%) to US$ 68.29. Gold, up US$ 43 (2.9%) the previous fortnight, jumped a further US$ 26 (1.7%), closing on Thursday 02 January at US$ 1,541.

After a 1.4% decline in the global smartphone market, the International Data Corporation expects that, after three years of declines, the industry will bounce back in 2020 on the back of new affordable fifth-generation handsets and the rising popularity of foldable phones. A 1.5% increase will see shipment volumes top 1.4 billion units. A decade after the introduction of 4G units, which then accounted for 1.3% of total shipments, this year will see 5G handsets take up to 14% of the market. After eight years of development, Samsung finally released its Galaxy Fold, (which initially had screen problems), and Huawei’s Matt X – both with prices around the US$ 1.8k mark; when the initial euphoria dies, and prices come down, the market will see a marked rise in numbers.

New data from International Data Corporation sees consumer spending on technology in the Middle East and Africa climbing 4.1% to US$ 130.8 billion this year and that a five-year 3.5% compound annual growth rate (CAGR) is expected, with the figure to top US$ 149.4 billion by 2023. This year, 86.3% of sales will emanate from traditional technologies such as mobile phones, personal computing devices, and mobile telecom services, dominated by mobile telecom services (voice and data) and mobile phones taking 68.7% and 26.6% of the total spend. It is expected that growth in emerging technologies, (including AR/VR headsets, drones, on-demand services, robotic systems, smart home devices, and wearables), will register a 10.2% five-year CAGR and will account for 17.1% of consumer spending on technology by 2023 – up from its current 13.7%.

Reliance Industries has joined a conglomerate to set up a grocery delivery service that it hopes will rival Amazon, Flipkart and Walmart, and other existing local online retail titans, such as Big Basket and Grofers, in India. The new entity, JioMart, including Reliance Retail and Reliance Jio, is hoping that its massive mobile phone customer base will be a major boost to the start-up, as will its offer “free and express delivery” for a list of grocery goods, which currently numbers some 50k items. A unique selling point is that JioMart will connect local stores to customers via an app, rather than providing and delivering the goods itself. The sector is still in its infancy, with just a meagre 0.15% of the population using such services, and there are forecasts that over the next three years it will grow from its current US$ 870 million to US$ 14.5 billion – a huge jump by any measure.

There is no doubt that the past decade has been a disaster for the UK High Street, with many famous brands going into administration. Some managed a rescue deal with their creditors but there are many that have subsequently gone out of business forever. In April 2018, Toys R Us shut down all of its US and UK stores mainly because they did not keep up with the times and suffered from having massive unnecessary warehouses and not refreshing design and infrastructure. Earlier in the decade saw the demise of the Borders bookshop chain, probably killed off by Amazon and other  fierce competition. June 2016 was when the department chain British Home Stores, with debts of US$ 1.7 billion and a pension deficit of US$ 750 million, went out of business for good. The 88-year old retailer, with 163 stores, finally fell over because it failed to innovate and keep up with competition. Two years earlier, stationery store chain Staples disappeared from the High Street, after the UK arm of its business was sold to restructuring firm Hilco. Earlier a planned US$ 6.3 billion merger with fellow US office supply giant Office Depot was abandoned on competition grounds.  It failed to embrace e-commerce and lost business to cheaper alternatives.

In 2013, Blockbuster, a highly popular video rental chain, with more than 9k stores around the world, saw the end of its UK and US stores. It failed to get into the DVD mail-order rental delivery service that Netflix started off with. 2018 was the year that Maplin, with 200 outlets and 2.3k staff, closed its doors. One of the biggest electronic retailers was not helped by weak consumer confidence and a slump in sterling following the Brexit vote – problems faced by most retailers at the time – but fell because it failed to utilise e-commerce to its advantage. Tie Rack was yet another that failed to focus on its core business and paid the price as it collapsed in 2013. At its peak, it boasted 450 global stores but as ties gradually fell out of fashion, the company was also hit by global recession and online shopping. Poundworld was another retail icon that struggled from the Brexit referendum that saw the pound drop in value, making imports more expensive.  The discount goods retailer, with 5.1k employees and 335 stores, also suffered from intense competition from the likes of Poundland and Poundstretcher.

Barratts Shoes, once boasting 400 stores, sold only its own brand of shoes but was badly hit by cheaper imports and by 2013 had finally closed 61 of its 75 remaining outlets. By that time, its shoes were comparatively more expensive than its competition and it had no brands to back them up. One of the biggest failures was Phones4U in 2014. The independent mobile phones retailer, with 5.6k employees and 700 outlets, collapsed when it lost vital deals, with EE and Vodafone pulling out of negotiations to agree fresh contracts; it focused too much on big contract clients and not on their various customer bases.

In a shock move – and an embarrassment to Japanese authorities – 65-year old Carlos Ghosn skipped the country and flew to Lebanon, just a year after he was arrested in Tokyo for financial crimes. The disgraced automotive supremo, and former head of both Nissan and Renault, said he “will no longer be held hostage by a rigged Japanese justice system where guilt is presumed, discrimination is rampant, and basic human rights are denied”. Although he denies all charges, claiming to be a victim of a conspiracy, his critics accuse him of a pervasive pattern of financial misconduct and raiding of corporate resources for personal gain. Both US and Japaneseauthorities consider that Ghosn and Nissan violated the law by being compensated US$ 140 million more than the company reported to shareholders. It is also claimed that he transferred personal investment losses to Nissan and also moved money from an Omani dealership to a company he controlled in Lebanon.

Nissan was also in the news because in a bid to deal with declining sales, reduced margins and slumping profits, senior management have been told to slash non-essential spending on the likes of unnecessary travel, sales incentives and promotional events. The cost-cutting drive will continue well past the carmaker’s 31 March financial year. The company is still reeling from the Ghosn scandal, as well as the departures of some senior executives and increasingly strained relations with its partner, Renault. Despite a wide-ranging turnaround plan last April to revive sales and boost profits, Nissan posted a 70% Q2 fall in profit and in November cut its full-year forecast to an 11-year low.

There appears to be strong interest to take over the Thai and Malaysian operations of Tesco, with several parties showing interest in an acquisition that could raise over US$ 7 billion for UK’s largest supermarket chain. Among those include Thai billionaire Dhanin Chearavanont’s Charoen Pokphand (CP) Group and Central Group, controlled by Chirathivat family. Tesco is keen to divest itself of its SE Asian operations, that include 2k hypermarkets and convenience stores in Thailand and seventy shops in Malaysia, to raise funds to restructure its core UK business.

The IMF has expressed concern about the state of the Turkish economy, highlighting the need for a comprehensive reform package to ensure more resilient growth, as its recovery remains “fragile” amid persistent fiscal vulnerabilities. It wants the government to adopt “prudent” policies to enhance stressed bank and corporate balance sheets and strengthen low reserve buffers; despite the recent introduction of fiscal stimulus, there has been a marked increase in the underlying deficit, expected to touch US$ 13 billion this year – and be 72.3% higher next year at more than US$ 23 billion. Its current bank interest rate stands at 7.75%, but the central bank has introduced measures that have raised reserve requirement ratios for foreign currency deposits and participation funds by 200 basis points; this is expected to result in US$ 2.9 billion of forex liquidity being withdrawn from the market and boosting official reserves. Inflation is expected to end 2019 at over 11%.

For a decade, Ireland has seemingly milked the likes of Google and others by offering an effective tax rate in the single digits on non-US profits – in some cases saving companies up to 75% in their tax bill if paid under other regimes. This would seem to be a win-win for both the Irish government and the tech giant, with another country losing out on its “rightful” tax. Now Google has decided to “play fair” and heeded President Trump’s warnings and 2017 tax law changes, by bringing its intellectual property ownership and licensing structures back to the US. There is no doubt that Ireland has benefitted greatly from this arrangement that has helped the country post yet another annual fiscal surplus this year, with critics arguing that it had become a dumping ground for multinationals’ tax avoidance policies. A US study estimated that in 2015, foreign multinationals moved US$ 106 billion of corporate profits to Ireland – a great fillip for the country’s coffers, as some of its EU allies missed out on their legitimate tax revenue.

2019 saw China launch a series of pro-growth measures including increased infrastructure spending, rate/tax cuts and reductions in the amount of cash banks must keep on reserve to boost credit. Furthermore, as from yesterday, financial institutions were prohibited from signing floating-rate loan contracts based on the previous benchmark bank lending rate, which will be priced in line with the Loan Prime Rate and linked to the medium-term lending facility (MLF), a key policy rate of the PBOC. The one-year LPR, currently standing at 4.15%, acts to make interest rates more market-driven and helps lower financing costs which in turn should push the economy forward. 2019 growth is expected to come in at around 6.0% – such a low figure has not happened in thirty years; more of the same is expected for 2020.

At year end, it is normal to look how the global economy has performed and look forward to what may happen in 2020.  

    2020Unit    2019201920182017201620152014
102.00Iron OreUS$lb28.37%91.5371.3071.2875.0047.0073.00
69.45Oil -Brent23.92%66.6753.866.6256.8236.457.33
7,777FTSE 10012.22%7,5426,7217,6887,1426,2426,548
3,400S&P 50028.88%3,2312,5072,6742,2382,0442,091

The table shows that all indicators moved upwards in 2019 except for cotton and, not surprisingly, the euro – down 4.50% and 1.93% for the year respectively. The blog expects that these two will continue their downward trend this year and that they will be joined by the Australian dollar, whilst the other fourteen markers continue to head north in 2020.

It will be no surprise to see the lucky country struggle this year but will probably not enter recession, which would be for the first time in nearly thirty years. Figures indicate that the Australian economy grew slower in the twelve months to June 2019 than it had any time since 2001. Its labour market will remain weak, as wage growth continues to disappoint, and inflation remains below the RBA’s 2.0%+ inflation target; there will be one final rate cut earlier in the year. Bubbling under the surface is the fact that the country has the world’s second-largest household debt, hovering around 120% of GDP. Then there will be the longer-term impact of the on-going deadly bushfires to worry the economy in. 2020.

With the upcoming US presidential election in November, the re-election of Donald Trump is almost certain so long as the economy continues to fire on all cylinders. This will mean that there will have to be some sort of resolution with regard to the Chinese trade tariff war and that the US dollar will be kept on the lower side to boost domestic exports. A weaker dollar will result in other leading currencies strengthening against the base greenback.

The global bourses will continue to move higher but at a much slower rate than was seen in 2019. It is interesting to note that the Dubaiindex stood at 3774 at the back end of 2014; five years later it has shed 1009 points (26.8%) to 2765 and is probably one of the few bourses not to have moved ahead over the period. 2020 will see a major boost, with the DFM being one of the best performing stock markets in the world.

2019 global growth – at 2.6% – was the slowest since the 2009 GFC and this year will see an improvement – by how much depends on some factors, including the potential end of the tariff war, as well as peace in the Yemen and other war-torn areas. On a global scale, it could touch 3.4% but the likes of the lacklustre EU will be lucky to top 1.0%, whilst most rich companies will hover under the 2.0% mark. China and India are expected to return around 6.0% growth again in 2020, with Indonesia posting over 5%. On a global scale, the two fastest growing economies will be Guyana (35%) and Rwanda (9%) and, at the other end, Venezuela (-21%) and Zimbabwe (-13%).

There is no doubt that 2020 will be a watershed for the local property market sector for numerous reasons including higher energy prices, the Expo halo, newly introduced government policies and the fact that since it has been under the cosh for more than five years, it could be time for the cycle to change. Expect to see some positive moves from the recently formed higher committee for real estate planning, headed by Sheikh Maktoum bin Mohammed, Dubai’s Deputy Ruler.  Another cut in bank rates could be a possibility and this will encourage more buyers into the sector. Finally, if the central bank were to ease the rules regarding the cap on lending to the real estate sector, that would indeed be a game changer for the sector.

Although official figures for 2019 have yet to be posted, it is estimated that there could currently be 522k apartments and 110k villas in Dubai.  By the end of the year, this will climb by 8.4% to 565k apartments and 120k villas, at which time the emirate’s population would have grown from 3.35 million to 3.6 million – a 7.5% annual increase. Inflation is expected to decrease from 1.5% to 1.0% over 2019, whilst growth figures will improve to above the global average. Then there is Expo on the horizon. The economy has bottomed out and it is about time that confidence returned to the emirate. After a Year of Happiness and a Year of Tolerance, now should be the Year of Confidence to get the economy moving. Don’t Stop Me Now!

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