You Get What You Give!

You Get What You Give!                                                                     17 September 2020

A report by ValuStrat reported a 1.6% monthly price decline, along with strong activity levels, much in line with Property Monitor’s latest findings that the average August property price in Dubai reached its lowest level in eleven years dipping to just US$ 220 per sq ft, with rentals declining at comparative levels. Annually, residential capital values fell 13.8%. These figures see gross rental yields remaining “relatively stable” at 6.49%, still at a healthy return level. August is a traditionally quiet month for this sector, but this year – with monthly sales of 2.5k 1.3% down on the month, (compared to August 2019 sales volumes which were 48.5% lower than July 2019) – this is not the case. Interestingly, 52.8% of last month’s home sales were for properties valued at less than US$ 272k (one million dirhams), with 23.9% of the total for properties under US$ 136k (AED 500k). With developers delaying new launches, it is no surprise to see more completed homes being sold than off plan ones. The report indicated that the two most popular areas for secondary market sales were Town Square and Dubai Marina, while Jumeirah Village Circle, Arjan and International City remained the three more popular for off plan deals.

Colliers International note that the most of Dubai’s new developments are aimed at buyers looking for affordability so that a large proportion of units are townhouse style properties. Accordingly, many of the villas are built on reduced plot sizes and more rooms of a smaller size.The global property management and consultancy pointed out that developers “also cut back on lakes, large parks and have reduced the sizes of communal swimming pools and play areas.”

Investment in a leasehold staff blue-collar worker development, Sakany, located in Dubai South, has now topped US$ 136 million. The project, with ten buildings all equipped with dedicated medical and fit-for-purpose quarantine rooms, is already 80% full, with 7k occupants; the recently launched phase 2 will have nine hundred rooms in six buildings. The development will also house a Grand Supermarket, four restaurants, a cafeteria, barbershop, pharmacy, clinic, retail outlets and a money-exchange. There is no doubt that Sakany, with a 2k seating dining hall and extensive sports facilities, will not only be an ideal location for Expo 2020 site workers but also be a regional benchmark for safe and secure housing. It will also have a female-only building with its own grocery store.

Despite the pandemic, Danube Properties have posted a record H1 18.0% growth in sales of over 300 units, worth US$ 68 million, whilst delivering units, valued at US$ 78 million. In contrast to its peers, who have cut staff numbers and payrolls across the board, the developer appointed sixty more people, bringing its total workforce to 250. The company plans to intensify work over the next two years so as to deliver more than 6k units to the market. Danube has a development portfolio of 6.2k units, valued at over US$ 1.2 billion and expects two of its projects – Miraclz and Bayz – to be handed over by the end of this year, whilst the other three, Jewelz, Elz and Lawnz will be ready by the end of 2022.

The first ever virtual matchmaking event between DMCC and China’s Innoway took place this week. The Beijing and Haidian Government established the platform that, to date, has incubated 3.8k start-ups and raised US$ 11.4 billion in funding; Innoway will soon set up a presence in DMCC’s Jumeriah Lakes Towers. The event, following both parties signing an MoU in May, was joined by UAE companies and Chinese innovators; five “unicorn” companies – Beijing NOBOOK Education Technology, MEGVII, Terminus Group, Guangzhou Hongyu Science & Technology Co. Ltd and Neolix Technologies Co. Ltd – were among the virtual attendees.

On Tuesday, at the White House, the UAE and Israel signed the Abraham Accord to formally normalise relations between the two countries and encourage bilateral trade and investment opportunities in a wide range of sectors. Two days later, an agreement, to develop closer ties, was signed by the diamond exchanges of Dubai and Israel, with the twin aims of promoting bilateral trading opportunities and partnering on initiatives to grow regional trade. Both parties will open representative offices in each other’s country. It is hoped that this new relationship will not only attract new businesses to Dubai but also boost the regional and international trade in diamonds. Last September, the Dubai Diamond Exchange opened the biggest global diamond trading floor at its headquarters in Almas Tower. In 2019, the total value of rough and polished diamonds handled through the emirate stood at US$ 22.9 billion. Another early venture sees Emirates NBD, Dubai’s largest bank, signing an MoU with Israel’s Bank Hapoalim, that country’s largest lender.

Earlier in the month, Etisalat started phase one of rolling out 5G services on fixed-line networks, with the second phase starting in Q3 next year. The Telecommunications Regulatory Authority has allocated a new frequency band (24.25 – 27.5 gigahertz) for the 5G application to be expanded, which will see the country able to deploy applications such as self-driving cars, robots, smart industry, big data and the Internet of Things. This will see the internet speed move from its current 1.2 gigabits per second to an eventual 10Gbps – more than 100 times faster than 4G – and enhance data volume on wireless broadband services.

The recently released 2020 Smart City Index by The Institute for Management Development sees Abu Dhabi and Dubai ranked at 42nd and 43rd in a list of smart cities. Over the year, Dubai has nudged two places higher in the index which ranks 109 cities on a number of factors, including economic and technological data, as well as by their citizens’ perceptions of how “smart” their cities are. It also considers the technological provisions of each city across five key areas – health/safety, mobility, activities, opportunities and governance. Dubai is ahead of Beijing and Tokyo in a list which places Singapore, Helsinki, Zurich, Auckland and Oslo in the top five, with Rabat, Cairo, Abuja, Nairobi and Lagos being at the other end of the scale.

The Central Bank has confirmed the country’s commitment to the Financial Action Task Force standards to combat all types of financial crimes; the FATF is the global watchdog, monitoring and controlling money laundering and terrorism financing. The bank’s new governor, Abdulhamid Alahmadi, reiterated that “we shall continue to adhere to FATF standards in order to ensure the UAE’s financial system is sound and inclusive.” The country has strict laws to deal with money laundering and the financing of terrorism and has recently introduced a smart tool named ‘Fawri Tick’ to monitor and curb terrorism financing. Another recently introduced rule makes it compulsory for all hawala providers – informal funds transfer agents that typically do not use banks – to register with the regulator to “enhance transparency in financial transactions.

Du is expected is expected to make a US$ 142 million profit, as it sells its 26% stake in Khazna Data Centre to Abu Dhabi’s Technology Holding Company, for US$ 218 million. Du’s share in Khazna was held as an “indirect stake”, which includes du’s exposure to shareholder loans, as part of the telco’s “strategy of pursuing data centre development through either full ownership or commercial partnerships”. This profit will boost the company’s Q3 results to be released next month.

The bourse opened on Sunday 13 September and, 12 points (0.5%) lower the previous week, gained 38 points (1.7%) to close on 2,321 by 17 September. Emaar Properties, US$ 0.02 lower the previous week, regained the US$ 0.02 to close at US$ 0.81, whilst Arabtec, having shed US$ 0.03 the previous week, remained flat at US$ 0.16. Thursday 17 September saw the market trading at a much improved 555 million shares, worth US$ 397 million, (compared to 284 million shares, at a value of US$ 111 million, on 10 September).

By Thursday, 17 September, Brent, US$ 6.69 (3.0%) lower the previous fortnight was US$ 3.46 (8.6%) higher at US$ 43.49. Gold, up US$ 20 (1.0%) the previous fortnight, nudged US$ 9 higher (0.4%) to close on US$ 1,960, by Thursday 17 September.

In a December 2015 blog – Move On – wrote

“It was only three months ago that Seb Coe was elected president of the International Association of Athletics Federations, taking over from the 16-year reign of the disgraced and allegedly corrupt 82-year old Lamine Diack. At the time, the former Olympic gold medallist made light of his own six-figure ambassadorial role with Nike and chairmanship of CSM – a leading sport and entertainment agency. There are reports accusing him of lobbying for the Oregon city of Eugene (with close ties with Nike) to host the 2021 World Championships that was granted earlier in the year, without a bidding process taking place.

It has to be remembered that he was also vice president to the Senegalese for the previous eight years and referred to him as the IAAF’s “spiritual leader”. This is the same person who is now charged with taking millions of dollars to cover up positive doping tests and was reprimanded by the IOC 4 years ago for his role in a FIFA scandal”.

This week, the octogenarian has been found guilty of corruption, having accepted bribes from athletes suspected of doping to cover up test results and letting them continue competing, including in the 2012 London Olympics. Lamine Diack’s lawyers will be appealing against the four-year prison sentence, and a US$ 600k fine, indicating it was “unfair and inhumane”. His son, Papa Massata, was sentenced to five years, along with a US$ 1.2 million fine. In November 2015, the current head of the sport, Seb Coe, labelled as “abhorrent” allegations of doping bribery within athletics after his predecessor was arrested by French police.

Another (hopefully former) corrupt sports body FIFA is also in the news, with reports that Zurich-based group, Julius Baer is in “advanced talks” with US regulators to resolve allegations in a corruption and money-laundering case involving the world football body. In 2017, a former employee of the private bank pleaded guilty to facilitating payments from a sports marketing company to FIFA officials. The 2015 investigations by the Department of Justice led to the eventual demise of the disgraced Sepp Blatter – despite more than a decade of rumblings into the shenanigans of the disgraced official and his cronies.

Finally some good news for Lionel Messi, after his clubBarcelona refused to allow him a free transfer, insisting that any team that took him on would have to honour an US$ 850 million release clause; he threatened to take his boyhood club to court but later changed his mind, saying he did not want to face “the club I love” in court. This week his luck changed, with the EU’s top court confirming that he could can register his name as a trademark after a nine-year legal battle against Spanish cycling company Massi and the EU’s intellectual property office, EUIPO. He can now finally trademark his surname as a sportswear brand. The decision could see his annual earnings increase quite significantly from their current US$ 126 million level.

A  damming US report into the two fatal 737 Max crashes has come out with criticism for two of the major stakeholders concluding that “Boeing failed in its design and development of the Max, and the FAA failed in its oversight of Boeing and its certification of the aircraft.” Indeed, it found a series of failures in the plane’s design, combined with “regulatory capture”, an overly close relationship between Boeing and the federal regulator, which compromised the process of gaining safety certification. The 250-page report also pointed to the fact that the regulator was, in effect, in Boeing’s pocket and that the FAA’s management “overruled” its own technical and safety experts “at the behest of Boeing”. It will take years for Boeing to recover its once vaunted position in the aviation sector, whilst fliers will take little comfort from some of the grim reading which narrates how Boeing could well be accused of putting cost saving at the expense of safety and human life – and paid the ultimate penalty. The much-modified plane will probably return to the skies by March 2021 – two years after being universally grounded.

A major faux-pas by mining giant, Rio Tinto, that resulted in the unwarranted destruction of Aboriginal cultural heritage sites earlier in the year, has seen its chief executive Jean-Sebastien Jacques – and two other senior staff members – being forced to leave.  Even chairman Simon Thompson should be a worried man about his Rio future, as yet another conglomerate shows little concern about the microenvironment. It seems that shareholder disquiet played a significant role in the eventual decision to part ways with the three executives who were seen as directly accountable for the Juukan Gorge blasting. In previous times, such actions would have gone largely unnoticed and many would argue that most major mining companies have probably done a lot worse to the environment and local populations in global areas where they have mined. It is exactly fifty ago that Milton Freidman hypothesised that the main purpose of a company is to maximise profits for its shareholders – these days executives have to be very careful and consider all their stakeholders.

SoftBank is set to receive over US$ 40 billion for selling UK chip designer Arm to US-based Nvidia in a cash and stock deal, that will create a mega player in the chip industry; the Japanese company bought Arm in 2016 for US$ 32 billion, as part of its then strategy to expand into the Internet of Things technology. The core business of Nvidia is graphics chips that power video games, but it has recently moved into other sectors including AI, self-driving cars and data centres. It does not make chips itself but licenses out the underlying technology so others can make chips with it.

It is reported that ByteDance, the Chinese owner of video-sharing app TikTok, is planning to make Singapore its Asian headquarters in a move that will see it spend several billion dollars in the city state; it will also boost local employment by hundreds of jobs, in addition to the four hundred already working there. The Beijing-based company has already considered the US, (where it was forced to sell TikTok operations, following pressure by the Trump administration), UK, (where TikTok faces a likely ban from moving local user data out of the country), and India, (where TikTok is banned by the government on security concerns), as  regional hubs, outside of its home base of China.  Last year, ByteDance generated US$ 17.0 billion of revenue and a US$ 3.0 billion profit, driven by the likes of news aggregation app Toutiao, and TikTok’s Chinese twin Douyin, which have more than 1.5 billion monthly active users.

After almost a decade – and sales of over 76 million units – Nintendo has discontinued its 3DS handheld which had the ability to trick the human eye into seeing 3D images like those in some cinema screenings – but without special glasses. The announcement has been long expected, as in 2019, the Japanese company announced it no longer planned to make any new first-party games for the system. Nintendo will now focus their attention on Nintendo Switch – a hybrid handheld-and-home machine.

With November launch dates, it seems that the Sony will match the price of its flagship PlayStation 5 with that of Microsoft’s Xbox Series X. At the last launches, Sony’s PS4 came in with a price lower than the Xbox One and to date they have outsold their US rival by a factor of almost two to one. But this time the tables may be turned when both consoles are launched in the UK on 19 November, a week later than in most other locations. Some analysts point to the fact that Microsoft’s combination of a US$ 340 price for the XBox Series S, allied with the value offered by the Xbox Game Pass subscription service, could give the US firm an advantage.

For the first time in sixty years, the Asian Development Bank has confirmed that the region of forty-five countries has gone into recession. It expects the region to post a 0.7% contraction this year but expects a 6.8% rebound in 2021. South Asia is expected to be worst hit, with big variances between different countries. For example, China will buck the trend, forecast to post a 1.8% hike, whilst India will head in the other direction, with an expected 9.0% contraction, although both economies are expected to rebound next year with expansions of 7.7% and 8.0% respectively. Major economic damage will be felt in tourism-dependent island economies, with the Maldives and Fiji expecting their 2020 economies to shrink by 20.5% and 19.5%.

Questions have to be asked about the state of the German economy as one of its leading companies, MAN, announces 25% job cuts of 9.5k in a bid to save US$ 2.14 billion in costs. The loss-making truck and bus manufacturer, one of the main brands of VW’s truck maker subsidiary Traton, posted a H1 34% slump in revenue, whilst recording a US$ 500 million deficit, compared to a US$ 300 million profit over the same period last year. Eurozone industrial production is slowing, with German expansion faltering, as the bloc’s July growth of 4.1% was more than a half down on the preceding month’s 9.5%, which in turn was 7.7% lower compared to the 2019 return.

If the state of the global countries’ employment sector is anything similar to that of the UK, then we are in for a turbulent twelve months. Latest August figures see the number of people claiming jobless benefits since March rising a massive 121% to 2.7 million. In Q2, the number of young people in employment dipped 156k to 3.6 million. The furlough scheme, which has assisted companies retain about ten million during the pandemic, is expected to close by the end of October and this presents the Chancellor a quandary; for if no further action is taken by Rishi  Sunak then there will be an inevitable sharp rise in the unemployment rate. With the rising unemployment rate, allied with the ever-growing number of payrolls lost, it is clear that the negative labour market impacts of the coronavirus crisis are here to stay for a while longer. The Q4 unemployment figure should be just south of 9.0% before dropping back again during 2021.

In forty-four days, the government’s Job Retention Scheme comes to an end and yesterday was the deadline for employers to give notice of redundancy. There is no doubt that over the next few days there will be a rise in the unemployment ranks. Even in June, a Freedom of Information request showed that 1.8k firms were intending to cut more than 139k jobs. The worrying fact is that since March, nine million people have been furloughed for at least one three-week period whilst over the past five months, only 695k have gone from the payrolls of UK companies. It is unlikely that the government will continue with furlough scheme into November.

In contrast, Germany is extending its Kurzarbeit job subsidy measures until the end of 2021, whilst the French may extend their equivalent scheme by two years. The German scheme is different to that of the UK’s in as much that it is about short-time working. This allows employers to cut the hours worked and the government will pay workers a percentage of the money they would have got for working those lost hours. (The UK scheme was based on paying workers to stay at home and get paid 80% of their normal pay). It is estimated that at the height of the pandemic, half of all German firms had at least some of their staff on the scheme.

In June, the Organisation for Economic Cooperation and Development forecast the global economy was expected to decline 6.0% and this week revised the figure down to 4.5%; although the UK economy is still forecast to contract by 10.1%, down from June’s 11.5%, it is no longer the worst hit in the developed world as the latest forecast sees Italy, India and South Africa posting larger contractions. The OECD is now forecasting a weaker global rebound in 2021, including UK’s expected 7.6% expansion; however, by the end of 2021, the economy will still be smaller than it was in 2019. The US forecast has been upgraded from a 7.3% level in April to the current 3.8%.

Oxford Economics’ latest forecast sees ME GDPs shrinking by 7.6% this year – much higher than their April forecast of a 3.9% contraction. However, it is relatively bullish about the future with annual 4.0% growths predicted for the next two years, assuming that lockdowns are fully eased, global travel picks up and Brent oil prices move closer to US$ 50 per barrel. The report noted that the outlook for the non-oil economy in the GCC countries remains challenging, whilst exports levels in oil-producing countries were experiencing severe damage, caused by the price slump in March and April, and are expected to decline by between 6.0% – 12% this year.

New Zealand is now suffering from being one of the few global nations to have kept a lid on the spread of Covid-19 as is chose lockdown and border closures, and the population’s health, ahead of any economic benefit. Q2 figures show that the country’s GDP shrank 12.2% which has pushed the country into its first recession since 1987. The measures have had a massive impact on many of the country’s industries including retail, accommodation, restaurants, and transport – sectors that were more directly affected by the international travel ban and strict nationwide lockdown. The economy is likely to be a key issue in next month’s election, which was delayed after an unexpected spike in Covid-19 cases in August. Pre-Covid polls had Jacinda Arden’s Labour Party running closely behind the National Party in second place but this has all changed since then with the Labour Party now well ahead in the polls.

The South African economy was struggling even before the onset of Covid-19 which has only exacerbated the problem; in March, the country was in technical recession, with Moody’s downgrading the country’s sovereign credit rating to junk status. The days of up to 5% growth numbers have long gone and current GDP levels are at Q2 2007 GDP levels – with all post-2008 financial crisis growth having been wiped out. Q2 figures were 51% lower, compared to the same period in 2019, and it is expected that South Africa’s GDP will reach US$ 295 billion – a level last seen over a decade ago. Some of the economic damage can be laid at the door of the former president, Jacob Zuma, who will go on trial next month for allowing associates to gain access to state-owned entities and redirecting spending for personal profit. His successor, Cyril Ramaphosa, has estimated that Zuma may have squandered US$ 30 billion in corruption during his tenure. Whether the new administration can rein in corruption remains to be seen. The short-term outlook is not good – tax revenues have fallen to catastrophic levels, the construction industry has just entered its eighth straight quarter of decline and the debt-ridden (of over US$ 40 billion) state-run electricity utility Eskom, overseeing an aged, unreliable and inefficient portfolio of mostly coal-fired stations, has witnessed numerous blackouts and hours of ‘load shedding’.

In the first eleven months of this financial year, the US administration has already spent US$ 6.0 trillion, including US$ 2 trillion on coronavirus relief, whilst tax receipts have totalled  US$ 3 trillion, resulting in  a US$ 3 trillion YTD deficit; the shortfall is more than double the previous full-year record, set in 2009 – and triple the expected figure of US$ 1 trillion forecast pre the onset of the pandemic. With a full-year US$ 3.3 billion shortfall now expected, it will bring the country’s total debt to well over US$ 26 trillion.

By the end of Thursday’s trading, most global markets traded downwards including the three major US bourses – Nasdaq (-1.3% at 10,910), S&P 500 (-0.8% to 3,357) and Dow Jones (-0.5% to 27,902) – along with  Europe – FTSE and DAX, 0.5% lower at 6,050 and 0.4% to 13,208. One of the drags was the fact that the Bank of England indicated there was a chance at cutting interest rates into negative territory, with the UK facing a triple whammy of rising COVID-19 cases, and an increased possibility of a national lockdown, a possible no-deal Brexit and higher unemployment, as the furlough scheme nears to its conclusion.

Meanwhile, the number of Americans filing new claims for unemployment fell 33k to 860k on the week which the Labor Department considers an extremely high level. By the end of last month, it is estimated that almost thirty million Americans were receiving ongoing jobless benefits indicating the devastation Covid-19 has imparted on the US economy. It is fairly obvious that much of the damage may have been averted if the politicians, (on both sides of the House), could have agreed on implementing much-needed fiscal stimulus measures; the knock-on effect will be a slower recovery time period with an economy more scarred that it needed to be. Fed chair Jerome Powell once again confirmed his intention to keep interest rates near zero, for at least the next three years, in an on-going attempt to lift the world’s biggest economy out of a pandemic-induced recession but admitted that central bank’s tools to achieve that were limited.

With the help of a US$ 200 million funding from China, the Maldives built a 2.1 km four lane bridge which linked its capital Male and the airport on the island of Hulumale. Not only did it help with reducing traffic congestion, it also led to a boom in new property and commercial developments on Hulumale. The structure, known as China-Maldives Friendship Bridge, was one of several major projects built under the presidency of Abdullah Yameen. Elected in 2013, he was pro-China and wanted to kickstart the economy, with the help hundreds of millions of dollars from Chinese President Xi Jinping who was embarking on his grand “Belt and Road Initiative” to build road, rail and sea links between China and the rest of the world, excluding the Americas. However, the nation voted in a new president in 2018 and the new government discovered that it was indebted to China for US$ 3.1 billion which included government-to-government loans, money given to state enterprises and private sector loans guaranteed by the Maldivian government. Now it appears that none of the projects had any back-up business plans and there are worries that the cost of projects was inflated and the debt on paper is far greater than the money actually received. Some estimates put the figure at US$ 1.4 billion and even this is far too much for an economy that relies so much on tourism which has been in lockdown since March.

It looks as if the Maldives is following in the footsteps of its neighbour Sri Lanka. That island state owes billions of dollars to China and has defaulted on one loan – US$ 1.5 billion to build a port in Hambantota – which proved to be economically unviable. The end result is that China now has a 70% stake in the port on a 99-year lease and has been given 15k acres around the port for China to build an economic zone. This has given the country an entrée to one of the busiest shipping lanes in the Indian Ocean and a base some hundreds of miles from its rival India. In 2019, US Secretary of State accused China of “corrupt infrastructure deals in exchange for political influence” and using “bribe-fuelled debt-trap diplomacy”.

These are not the only Asian countries involved in acquiring Chinese funding, which also appears rampant in parts of Africa. In 2019, a change of government in Malaysia saw a Chinese-funded railway project, being cut by a third to US$ 11 billion and a year earlier, Myanmar reviewed a Chinese-funded multi-billion-dollar deep-sea port project and scaled it down to 75% of the original cost. Economic history is just repeating itself as this could have been the modus operandi for another superpower in the 1970s in two South American countries and Indonesia. Some governments are now realising that they were wrong to think that You Get What You Give!

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