If I Could Turn Back Time!                                                                09 July 2020

The latest Property Finder report points to a June improvement in the Dubai property sector, as month on month sale transactions were 60% higher. Low prices encouraged the increased demand that saw 570 sales a week, climbing 11% each of the last three weeks of the month. However, because of the lockdown since mid-March, quarterly transactions, at 5.6k, were 46.1% lower than the Q1 total of 10.3k; the first two quarters of 2020 saw values of US$ 5.9 billion and US$ 3.0 billion. The market has been struggling since 2014 – and although the pandemic has tried to put another nail in its coffin, there are signs that stability is returning at last. The top three locations for off plan transactions, accounting for over 36.5% of the market, were MBR City, JVC and Downtown Dubai. Apart from the pent-up demand, following lockdown, other drivers for the increased business include record low interest rates, attractive mortgage offers from the banks and property prices at 2014 base levels.

Although many “experts” are announcing the death for office space, with Covid-19 indicating that many could work just as well – or even better – from home, CBRE expects demand to remain intact. However, the consultancy reckons that when some sort of normality returns to the workplace, the demand for space may actually increase. There are many who consider that businesses may take up less space in the future as economic uncertainty, leaner workforces and continued cost-cutting make working from home a viable option for many. The opposite side of the argument is that future office space needs to ensure safer working conditions, and social distancing, which, in turn, should theoretically result in the need for more space. It will be some time before anyone really knows which direction the market will take.

According to the UN Conference on Trade and Development, and under a worst-case scenario, the GCC’s tourist sector could be on the receiving end of a US$ 50.7 billion deficit to their combined GDP, due to the impact of Covid-19. The biggest loser will be the UAE, with a possible loss of US$ 30.5 billion which would be lower if the impact is considered. “moderate” at US$ 10.2 billion or US$ 20.3 billion if ‘intermediate’; the three scenarios are based on standstill time periods – four months, eight months and a year above. But a more bullish outlook forecasts a recovery as soon as Q1 next year whilst, by the end of 2021, business will return to pre-Covid levels. 2018 figures indicate that tourism accounted for 11.1% (US$ 45.0 billion) of the UAE’s GDP. Tuesday, 07 July, was the official start to receiving international tourists again, after almost four months since the March lockdown and could prove a catalyst for an uptick in the sector. Today, 09 July, saw the start of the 23^rd  Dubai Summer Surprises, and seven weeks of huge discounts and promotions until 29 August, which will help move the sector forward.

The region’s first e-hospital is to be launched, with patient access to 2k international doctors from a wide range of worldwide hospitals, offering medical advice ranging from consultations, diagnosis, treatment and medication. Mulk Healthcare is confident that telehealth will be a major future disrupter, and that with the decline in the demand for the traditional face to face interaction, digital healthcare is set to grow exponentially.  The Mulk E-Hospital app provides the full 360 degrees of healthcare from consultation to post hospital care.

In KPMG’s annual Autonomous Vehicles Readiness Index, the UAE moved up one place in the ranking to eighth in the world. The country scored highest (of the thirty countries) when it came to change readiness for new technology infrastructure, mobile data speeds and the readiness of people to embrace driverless cars. The survey looked at whether countries are not only prepared but also whether they are open to AVT (autonomous vehicle technology). Singapore, followed by the Netherlands, Norway, the US and Finland made the top five, whilst the UAE came in ahead of UK and Denmark. The country has announced that it expects 25% of its transport will be autonomous by 2030. Only four months ago, the capital’s Mubadala joined a US$ 2.25 billion consortium investing in Alphabet’s autonomous vehicle technology, Waymo.

The DED special start-up licence, enabling new companies to conduct business activities online, and across social networking accounts, has witnessed an 83% growth in H1 to over 1.9k – no mean achievement considering the Covid-19 impact over the past four months. Dubai Economy also issued 577 Trader Licences, up 163% compared to H1 2019, and is keen to cement the emirate as the leading destination for regional e-commerce and a commercial hub for consumers. Dubai’s commercial agency also provides on-going support to these licence holders by linking them, and signing partnerships, with government and the private sector. “Lifestyle Coaching” is the most popular of the 382 activities, with ten the permitted number of activities in a single licence.

In a major restructuring move this week, HH Sheikh Mohammed bin Rashid Al Maktoum announced that half the federal agencies would merge with each other or within ministries, creating both new government ministerial positions and executive heads in specialised sectors. He reiterated the need for “a government that is faster in decision-making and is more up to date with changes and better in seizing opportunities and in dealing with the new stage in our history”. He also warned that “the new government has one year ahead to achieve the new priorities and the continuous changes will remain the motto of the next stage.”

Among the new ministries are that of State for Digital Economy, Artificial Intelligence and Remote Work Applications and that of Industry and Advanced Technology, tasked with developing the industrial sector in the country. Mergers will see the Ministry of Energy and Ministry of Infrastructure become one, as will the National Media Council and the Federal Youth Foundation with the Ministry of Culture. Other mergers will see the Federal Authority for Electricity and Water (FEWA), Emirates Post and Emirates Institution of Transportation and Emirates Real Estate Corporation come under the Emirates Investment Authority, under the chairmanship of the Minister of Economy. This Ministry will have three senior ministers – Economy, State for Business and Small and Medium Enterprises and State for Foreign Trade. The Insurance Authority is to be merged with the Securities and Commodities Authority, whilst the National Qualifications Authority will be merged with the Ministry of Education.

Business confidence is slowly returning to Dubai’s non-oil private sector economy, with June’s IHS Markit PMI rising to the threshold 50 level – up from last month’s 46 mark and an bringing an end to three months of disastrous returns, after Covid-19 ravaged the emirate’s economy. There was no surprise to see payroll numbers falling, whilst business activity nudged higher, as new work and output ticked up at a “solid rate”. Supplier prices increased in the month, leading to overall expenses nudging higher, whilst the rate of inflation was eased by additional salary cuts and lower workforce numbers. Although improvements were noted in the construction, retail and wholesale sectors, travel and tourism (an integral part of Dubai’s economy) remained entrenched in negative territory. However, with Dubai opening up to international visitors on Tuesday, for the first time since mid-March, and other countries relaxing travel restrictions, there is a valid expectation that a recovery is on the cards. Both local airlines are ramping up their schedules with Emirates resuming flights to fifty-two destinations and Flydubai to twenty-four locations.

It does also appear that the country is beginning to start its long economic road to normality, as June’s IHS Markit UAE Purchasing returns to positive territory with a 50.4 reading – 50.0 is the threshold between expansion and contraction. As a result of the recent lifting of many of the lockdown restrictions, the economy has picked up with new business on the rise, along with foreign new orders. June was the first month this year that the indicator moved upwards. However, firms continued to cut costs as both remuneration levels and workforce numbers once again headed south – an indicator perhaps that the recovery will take some time before ‘business returns to normal’. Furthermore, rising input demand saw a jump in purchase prices, which led to increasing total costs. Rising input demand meanwhile resulted in a rise in purchase prices, increasing overall costs for the second month running, as selling charges rose again for the twenty-first consecutive month. In order to attract more revenue, some companies continue to offer promotional prices.

Nomad Homes has secured seeding of US$ 4 million, led by Comcast Ventures and a range of international venture capitalists. The Dubai-based proptech, only founded last year, has developed an online real estate platform that brings the entire experience of buying and renting homes to interested parties. The platform provides potential buyers with all the requirements, including tools, virtual tours, and digital document signing, to offer an end-to-end online experience. The company will partner local realtors and its revenue stream comes from taking a commission percentage.

Amazon has opened a home services division, dealing with various professional services such as house cleaning, electronics repair, car wash, pet grooming and smart home services. Amazon.ae has been launched after Souq rebranded Helpbit which has now been integrated into Amazon’s ecosystem. Helpbit was launched by Souq in 2016 as an independent portal and had been offering different types of home services to users across UAE. All the services have fixed prices, with Amazon working with various service providers that will be vetted by them.

The bourse opened on Sunday 05 July and, 26 points (1.2%) lower the previous week was 5 points off (0.2%), to close on 2,082 by 09 July. Emaar Properties, US$ 0.03 down the previous week, regained US$ 0.02 to US$ 0.75, whilst Arabtec, US$ 0.01 lower the previous week, gained US$ 0.02 to US$ 0.18. Thursday 09 July saw the market trading at 290 million shares, worth US$ 50 million, (compared to 280 million shares, at a value of US$ 61 million, on 02 July).  

By Thursday, 09 July, Brent, up US$ 3.49 (8.9%) the previous week, shed most of that gain trading US$ 3.14 (7.3%) lower to close on US$ 39.62. Gold, having gained US$ 75 (4.4%), the previous four weeks, was US$ 16 (0.9%) higher to close on Thursday 09 July, at US$ 1,806.

After being dubbed “The Queen of the Skies” for the past fifty years, and having been on life support for several years, the end of Boeing’s 747 is nigh, with Covid-19 having hastened its departure. During the epidemic, it was estimated that 91% of 747s, and 97% of the European jumbos were parked. The plane-maker has just fifteen unfulfilled orders and its production schedule sees one 747-8 freighter being made every two months; twelve of the planes are heading to UPS and the remaining three to Russia’s Volga-Dnepr Group. Interestingly, the last passenger 747 was built in 2017 for Air Force One. It appears that both the last 747 and Airbus 380 will be completed by early 2023, having been superseded by the smaller, and more fuel-efficient, twin-engine jets – Boeing’s 777 and 787 Dreamliner, along with Airbus’ A320, A330 and A350. Over the years, 1,557 747s have been manufactured, of which 457 remain in service, far outnumbering the 242 380s ever made to date. Since, 2007, it is estimated that Boeing has lost US$ 40 million on each 747 that has been built, whilst Airbus has spent over US$ 22 billion, on its jumbos, and has only ever broken even between 2015-2017 in its 20-year history.

For three months of the YTD, Airbus has failed to secure any aircraft orders, with only net orders of 298 aircraft this year. In May and June, the plane maker delivered sixty jets, as the industry continued to be battered by the collapse in global air travel and the demand for new planes nose-diving. It is estimated that Airbus will do well to deliver six hundred planes this year, whilst 2021 could see handovers drop to around 350. Boeing is also reeling and, by the end of May, had seen orders for 602 planes, mostly the 737 Max, cancelled; the grounding of the Max for more than fifteen months allows buyers to walk away, without incurring penalties.

One of the world’s largest airlines has notified 36k employees (45% of their workforce) that they could lose their jobs, once the federal aid expires in September. United confirmed that 3.7k have already taken voluntary separation packages and warned that “the reality is that United simply cannot continue at our current payroll level past October 1 in an environment where travel demand is so depressed.” It expects that travel demand will remain moribund until a vaccine becomes readily available and the market does not like what it sees – YTD, its share value has tanked by 62%. The other two leading US carriers, Delta and American, share the same problems, with the former informing 2.6k pilots about a possible furlough and American indicating that it has 20k more employees than it needs to operate its much-reduced timetable.

According to its auditors, Ernst & Young, the survival of Asia’s biggest budget airline, Air Asia, is in “significant doubt”, as its current liabilities were US$ 430 million higher than its current assets. Like any other global carrier, Air Asia, founded by its current chief executive, Tony Fernandes, (also co-owner of Queens Park Rangers FC), has been badly impacted by Covid-19. The pandemic has resulted in a slump in passenger traffic, because of the severe travel restrictions, which in turn has led to a major drain on the airline’s liquidity and a record quarterly loss of US$ 188 million.

It is reported that HSBC is planning to cut 33% of its Paris-based investment banking and markets team over the next two years. In an announcement, the bank said it aims to “reallocate capital and resources to overcome the structural challenges in this business, to focus on profitable activities, reduce the cost base and thus safeguard our competitiveness.” Earlier in the year, the bank confirmed plans that it would be reducing staff numbers by 12.8% to 205k to save costs, as it faces historically low rates, for the foreseeable future, expensive IT investment and a turbid economic environment. It is also looking at divesting its 250-branch French retail banking arm.

Deutsche Bank will have to pay a US$ 150 million fine for “significant compliance failures”, as it failed to properly monitor the bank’s dealings with convicted sex offender Jeffrey Epstein. Evidently, it dealt with hundreds of transactions for the disgraced paedophile, including payments made to Russian models and US$ 800k in “suspicious” cash withdrawals. The bank worked with the financier, said to be worth over US$ 800 million, and helped him transfer millions of dollars, including US$ 7 million to resolve legal issues and more than US$ 2.6 million in payments to women, covering tuition, rent and other payments.

The bloodbath on UK’s High Street continues, with news that Boots is set to make 4k staff redundant and John Lewis a further 1.3k as it closes eight stores. The country’s largest pharmacy is also looking at cutting more staff at its head office and stores as well as to shut forty-eight of its six hundred Boots Opticians practices; last year, the retailer announced plans to close two hundred outlets. Even before the onset of Covid-19, both retailers were in trouble and the pandemic has just brought their restructuring plans forward. Most of the Boots stores remained open during the crisis but the footfall was “dramatically reduced” and quarterly revenue in all Boots UK outlets was 50% lower, and 70% at Boots Opticians.

The pandemic has claimed yet another US economic victim, with Brooks Brothers being laid low, joining the likes of J Crew, JC Penney and Neiman Marcus who have recently filed for bankruptcy protection. The firm, one of the country’s oldest clothing brands, being founded in 1818, has already closed some of its five hundred global stores, 50% of which are in their home base country. The company, formerly owned by Marks & Spencer for thirteen years to 2001, and then sold on to Italian businessman Claudio Del Vecchio, is hoping to find a buyer but this could take time.

Travelex has had a difficult H1, starting the year with a cyber-attack, which paralysed the firm’s systems and a US$ 7 million demand from cyber pirates, followed by liquidity constraints, as a consequence of the collapse into administration of BR Shetty’s NMC Health business and the Covid-19 pandemic, which took off 90% of its customer base revenue at airports. The firm posted a Q1 loss of US$ 56 million, as revenue dipped 36.0% to US$ 140 million, which resulted in its net debt jumping 55.0% to US$ 415 million. Acquired by BR Shetty in 2014 for US$ 1.25 billion – and valued at over US$ 1.5 billion when it was listed on the London Stock Exchange in May 2019 – it was worth only US$ 97 million when its shares were suspended ten months later in March 2020.

With its lenders agreeing to take full control of Travelex, the deal sees its debt level reduced by 84%, as US$ 400 million Senior Secured Notes were converted into equity; a US$ 84 million cash injection will also be implemented. The other part of the restructure of the company, previously owned by BR Shetty’s Finablr Group, sees the company split between an Initial FundCo arm focused on servicing the wholesale foreign exchange market, (as well as its retail businesses in the ME and Turkey, Asia Pacific, Nigeria and Brazil),  and an Optional FundCo business concentrating on its UK, North American and European retail markets.

Never in Fitch’s 104-year-old history has the agency downgraded thirty-three sovereign ratings, whilst putting forty countries on negative outlook. If global governments cannot bring down their ever-growing debt levels, and government finances continue to be stretched, there is every chance that further country downgrades will be on the cards. Fitch mused that up to 60% of these ratings will experience further downgrades over the next twelve months and that an economic relapse is more likely than a faster than expected recovery.

The Australian Tax Office is in court trying to extricate US$ 650 million, (US$ 150 million in back taxes and US$ 500 million in interest), from Alcoa, claiming that the aluminium giant has been under-pricing alumina sales that finally ended up with Aluminium Bahrain, also known as Alba; the case has rumbled on for more than twenty years. The Australian company, 60% owned by Alcoa and 40% owned by ASX-listed Alumina, could also face further administrative penalties. The ATO has increased its pressure on tax avoiders and is using transfer-pricing laws under previous governments, as well as stronger anti-avoidance laws introduced in 2016, to crack down on alleged multinational tax avoidance. Since legal cases are inevitably time consuming and expensive, it seems the tax agency favours out of court settlements; in the June 2019 tax year, it settled with ninety-eight companies, ending up receiving US$ 1.4 billion from initial assessments of US$ 2.5 billion and over the past four years, US$ 7.6 billion out of US$ 12.0 billion.

Next week sees the so-called EU meritocracy meeting to finalise its US$ 840 billion economic recovery plan to revise the bloc’s economy, after months of pandemic-induced fiscal hibernation. There are still major obstacles, mainly from the ‘Frugal Four’ – the Netherlands, Austria, Denmark and Sweden – who are against the plan to dish out grants to those countries hit worse by Covid-19. They are in favour of amending the proposal so that loans – which have to be repaid – are used instead of grants that do not have to be repaid by the recipient counties, but then becomes a burden for the bloc as a whole. The leader of this group appears to be Mark Rutte, the Dutch Prime Minister, who is also advocating that recipients should carry out sweeping economic reforms to their bureaucratic and oft-archaic tax, pension and labour systems. Some hope there, with countries like Greece and Spain pleading such action would be “politically unacceptable”. In true EU style, there will be a last minute patched up agreement that will see the Euro on the backfoot for a time.

Despite several states reporting a pickup in coronavirus cases, US unemployment benefits applications declined by 1.3 million this week, with continuing claims down to 18.1 million against market expectations of 18.8 million. The markets responded with this better than expected news and it seems that investors now seem to be focusing on the benefits of economies slowly returning to some form of normality, rather than the rising number of cases in some locations – and the possibility of a second wave. Time will tell whether this is the right road to choose.

There are reports that the Johnson government may pull the pin on its arrangement with China’s Huawei technology in its 5G network by the end of the year. It would seem that, based on US sanctions, the Chinese company will be prevented from using US IP which could have a “severe” impact on the firm and could make the use of its technology “untrusted”. The initial government decision to invite Huawei limited access in UK’s 5G network irked the Trump administration and there has been tension in bilateral relations since then.

With the pandemic still killing Its citizens, there are some who think that the Chancellor’s move to cut his furlough scheme in October, a tad early. However, this week he did introduce a US$ 37.5 billion boost to the economy, so as to keep millions returning from furlough into unemployment, with measures including:

• a US$ 2.6 billion “kickstart scheme” to create more jobs for young people, subsidising 16-24 year olds in six-month work placements
• a temporary stamp duty holiday, costing US$ 4.6 billion, to provide a welcome boost to the property market
• cutting VAT on food, accommodation and attractions from 20% to 5%, costing US$ 0.8 million
• a US$ 1.2k job retention bonus for every staff member kept on for three months, when the furlough scheme ends in October, that could cost as much as US$ 11.8 billion if every one of the 9.8 million furloughed workers are brought back to employment
• costing US$ 0.6 million, an “Eat Out to Help Out” 50% discount, of US$ 12 per person, which could help protect 1.8 million jobs in the F&B sector
• a US$ 2.0 billion package for the arts and heritage sector
• a wider US$ 3.8 billion plan to cut emissions, including US$ 6k vouchers for energy-saving home improvements
• a pledge to provide 30k new traineeships

With the latest boost this week, the total cost of supporting the pandemic-hit economy stands at US$ 240 billion which somehow has to be repaid by the taxpayers who will have to see more of their earnings going to the public purse, with future increased tax measures a certainty. This level of spending equates to over US$ 3.7k for every person in the country and has risen by over 40% in one month. Prior to the pandemic it was estimated that the annual deficit to March 2021 would be US$ 68 billion – now it is forecast to be in the region of US$ 440 billion. Over the past two months, the economy has lost eighteen years of gains – and maybe there is worse to come!

A salutary message from Australia to those businesses to be careful what they wish for. When news of the effects of Covid-19 started to become more of a reality in March, hoarding became a reality, with households preparing for movement restrictions and lockdowns. Although common to many countries, it was Australians that hit the world headlines by their penchant to target toilet paper and soon none could be found on supermarket shelves. This was the time that subscription companies like No Issues and Who Gives a Crap saw their order books increase at least fifty-fold. In the first two weeks of the lockdown, No Issues went from an annual couple of hundred online orders to a massive 10k orders, with a workforce of only seven. On 03 March, Who Gives A Crap saw an 1,100% in business, with 10k daily orders. The demand was so high that they were unable to keep up with orders, resulting in long delays, and a dissatisfied customer base, either complaining or demanding refunds. A short-term massive boost will inevitably come back and bite you if not handled properly, and if there are insufficient systems and people in place to deal with such an event.  There has to be some sort of sympathy for small companies that find themselves out of their depth in such extraordinary circumstances. If I Could Turn Back Time!