Truth Hurts 05 February
On the back of some positive drivers, (including public infrastructure spending, trade growth nudging higher, lower entry property prices and expat-friendly changes to certain legislation), the Dubai real estate sector looks set for a recovery in H1. Most analysts are pointing to the fact that they consider the worst is over, (after 2020’s 14.3% and 13.0% declines in prices for apartments and villas), and that prices have started to move off their six-year lows. Valustrat also noted that apartment rentals dropped 18.0% in the year, whereas villa prices were lower by only 1.0%. With the caveat that there will be some form of closure to the impact of Covid, probably by mass vaccinations, and the fact that the Dubai economy is set to grow 4% in 2021 the local property market prices must benefit, more so for villas rather than apartments. Add to the mix, a low US dollar and rising energy prices, now hovering around the US$ 60 level, with the possibility of a further 15% uptick during the year, then it augurs well for the market.
The Dubai Land Department reported that there were 51.4k real estate transactions, with a value of US$ 47.7 billion, last year, despite the negative impact of Covid necessitating periods of lockdown and other restriction movements. Of the total, 35.4k involved real estate transactions, 13k were mortgage-related and 3k were recorded as grants, valued at US$ 19.8 billion, US$ 23.9 billion and US$ 4.1 billion respectively. A further breakdown in the figures shows that: 6.7k GCC investors recorded 8.7k investments, valued at US$ 4. billion and 4.4k Arab investors – 5.3k transactions, valued at US$ 2.0 million. The top three GCC and Arab investors were from the UAE, Saudi Arabia and Kuwait and from Jordan, Egypt and Lebanon. Indians topped the list of foreign investors, followed by the Chinese, British, Pakistanis and the French, with the 19.8k foreign investors, recording 24.7k investments worth over US$ 9.7 billion. The top ten nationalities in the market were Indian, Emirati, Chinese, Saudi, British, Pakistani, French, Russian, Jordanian and Egyptian.
The top five locations in terms of the number of transactions were Dubai Marina, Al Barsha South Fourth, Business Bay and Burj Khalifa, whilst from the value angle, Jebal Ali First headed the list followed by Dubai Marina, Al Merkadh, Palm Jumeirah and Hadaeq Sheikh Mohammed Bin Rashid. Jebal Ali 1 also topped the list of areas in terms of the value of mortgages, followed by Palm Jumeirah, Al Merkadh, Al Yelayiss and Nad Hessa.
This week, HH. Sheikh Mohammed bin Rashid Al Maktoum made the surprise announcement that the UAE will allow selected expatriates to obtain citizenship, with the aim of attracting overseas talent. It appears that the likes of investors, specialised talents and professionals, (including scientists, doctors, engineers, artists and authors), and their families, could soon become UAE citizens. Nominations will be vetted by the UAE cabinet, local Emiri courts and executive councils. The UAE’s property market is not the only sector, which is expected to get a boost from this unprecedented citizenship initiative – it will also be a game-changer that sets the foundation for sustained growth, boosting the country’s knowledge based-economy. There are hopes that it will help local companies, universities and government authorities attract and retain top talent and the knock-on effect for the economy, with more savings being retained in the UAE rather than being remitted overseas. According to a recent report, the UAE is ranked at number sixteen in the world of “strong” passports, with holders able to travel to 173 countries, without the requirement for pre-visa requirements. The need for the country to attract and retain top global talent has seen the government making massive, (and what would have been unthinkable changes in the past), amendments to legislation, including bankruptcy consumer protection laws, commercial companies’ laws (including 100% foreign ownership and decriminalisation of bounced cheques).
The Ruler of Dubai also issued Decree No.3 of 2021 on the listing of joint stock companies in securities exchanges in Dubai, which mandates all such companies – whether registered on the mainland or in a free zone, including the DIFC – to list their stocks in local securities exchanges including the Dubai Financial Market and Nasdaq Dubai. Foreign companies, established and licenced outside the country, with branches, assets and activities in Dubai, will be allowed to list their shares in local markets in line with the rules and regulations of the local bourses. Non-local companies should list their stocks in local markets when their annual Dubai-generated profits or revenues reach 50% or more of their total annual profits or revenues, or when their total Dubai-owned assets owned amount to 50% or more of their entire assets. Subject to regulatory compliance, non-local companies, whose profits or assets have not reached the required percentage, can also list their shares in local markets, as can foreign companies.
This week, HH Sheikh Mohammed bin Rashid Al Maktoum also launched a digital platform to help entrepreneurs to start a business in Dubai. To speed up the set-up process, 2k commercial activities will be unified under the Invest.Dubai.ae, with various local and federal entities linked to financial institutions. The Dubai Ruler thanked all parties involved which he said was the “culmination of four months and 80k hours of work”.
After the September White House signing of the Abrahams Accord, the UAE cabinet has approved establishing an embassy in the city of Tel Aviv. At the same time, the UAE and Israel agreed to promote investment and tourism, as well as launch direct flights. In the five months since the historic agreement, bilateral trade has reached US$ 281 million (over one billion dirhams), comprising imports (US$ 89 million), exports (US$ 165 million) and transit trade (US$ 27 million). Over the period, 423 kg was airlifted, valued at US$ 258 million, and 5.7k tonnes by sea, valued at US$ 23 million. Dubai main exports were diamonds, smart phones, engine spare parts, perfumes and lubricants, whilst the emirate’s imports from Israel comprised vegetables, fruits, diamonds, flat screens, hi-tech devices as well as medical and mechanical devices. The value of trade is expected to top US$ 1.1 billion (four billion dirhams) in the first full year. Israel has also expressed its interest in leveraging Jebel Ali Port as a re-export hub for Israeli products for easy access to fast-growing markets such as India, Pakistan, Bangladesh and Sri Lanka.
It is reported that Israeli is considering a road link with the UAE to further strengthen the bilateral trade corridor; currently, the main channels are by air – up to four hours – and by sea – around sixteen days. A new road link would see a three-day travel time for lorries and trailers. According to the Head of Mission at the newly-opened Israeli Embassy in Abu Dhabi, both countries would benefit, bringing their relative advantages – UAE links with the sub-continent and the East, and Israel with its trade agreements with the EU and US. Furthermore, he noted that 130k Israelis have visited the UAE since diplomatic links were formed last September and he expects at least 50k Israeli visitors a month to the UAE.
One of Donald Trump’s final acts was to exempt the UAE from the tariff on most aluminium imports, saying the two countries had reached a quota agreement that would restrict them, and designating the country a “major security partner” whilst signing a deal to sell it fifty F-35 fighter jets. This has been reversed by the incoming President, Joe Biden, who said “in my view, the available evidence indicates that imports from the UAE may still displace domestic production, and thereby threaten to impair our national security.” The tariff was first imposed in 2018 to revive idled US aluminium facilities, open closed smelters and mills, and boost domestic production; a drop of 25% in aluminium imports from the UAE, after the tariff, followed. In 2019. Aluminium imports from UAE totalled US$ 1.3 billion in 2019.
As part of the Abraham Accord, the UAE was promised a chance to acquire Lockheed Martin’s F-35 jets in a side deal when it established ties with Israel under a US-brokered agreement. Although Donald Trump signed agreements, valued at US$ 23 billion, for the UAE to buy up to fifty F-35s, eighteen armed drones and other defence equipment, the deal has to be reviewed by the incoming President, Joe Biden. It will be interesting to see what he does and whether he will be as “friendly” to this region as was his predecessor, as well as his future dealings with Iran.
There was some good news for the embattled local economy, as January’s Purchasing Managers’ Index posted an uptick in employment numbers for the first time in a year, as an improvement in business confidence encouraged some firms to slowly expand their operations. The latest IHS Markit UAE PMI remained steady at 51.2 which is its highest level since November 2019 – every reading above 50 indicates positivity. Sales were weaker in January but with the resumption of construction projects, activity grew in the month. Although nothing much to write home about at the moment, there is no doubt that business conditions are improving, albeit at a slower rate. LinkedIn has noted that there has been an increase in demand for specialised medical professionals (by 112%), digital content freelancers, professional/personal coaches and financial business staff.
Dewa has allocated US$ 1.2 billion to supply Expo 2020, with water and electricity, as well as supporting and maintaining the related infrastructure. As official sustainable energy partner of Expo 2020, it will provide the six-month event with 464 MW of clean energy from the MBR Solar Park, the largest single-site solar park in the world, using the Independent Power Producer (IPP) model. Dewa is building a smart grid to become the first network in the world to provide the entire value chain of generation, transmission and distribution systems to the Expo. Dewa will also install seventeen Green Charger stations for electric vehicles at the offices of Expo Dubai, as part of its efforts to make this a sustainable Expo.
The government agency has also built three 132/11 kilovolt (kV) substations, with 45km of high-voltage (132kV) cables; they have been named Sustainability, Mobility and Opportunity after the three sub-themes of Expo 2020 Dubai. It is also building water-transmission networks, with pipelines that are 600 and 1,200 mm in diameter, with pumping and distribution stations. It is also working on the Green Hydrogen project, in collaboration with Expo 2020 Dubai and Siemens., which is the first project of its kind in the Mena region to produce hydrogen form clean energy.
UAE petrol prices for February remain unchanged for the eleventh consecutive month, whilst diesel prices dipped; this comes even as global oil prices have moved higher over recent weeks, with Brent crude now nearing the US$ 60 level, as global economic activity starts to pick up. The UAE Fuel Price Follow-up Committee announced that Special 95 petrol will remain at US$ 0.490 per litre, whilst diesel has dipped 2.4% to US$ 0.548 per litre.
The December UAE inflation rate ticked slightly higher on the month by 0.09% to 105.97, driven by spending improvements in nine out of the thirteen sectors that make up the index. The only sectors that witnessed declines were housing, utilities and F&B, whilst spending on health services remained flat. The Dubai index was the only emirate to show a decline – 0.38% – whilst Abu Dhabi showed the biggest increase of 0.40%.
Latest figures from the Federal Competitiveness and Statistics Centre saw the country’s automotive trade, including cars, tractors and other vehicles amounted to US$ 18.7 billion during the first nine months of 2020. The UAE has always been a leading regional reexport hub for many products including the automotive sector. Over the period, car and tractor reexports reached almost US$ 7.0 billion, with exports coming in at US$ 343 million; imports were valued at US$ 11.4 billion. Official statistics show that the UAE vehicle trade accounts for 6.6% of the country’s non-oil trade.
According to the Brand Finance report, ten UAE banks are included among the world’s top 500 most valuable and strongest banking brands of 2021, with a combined brand value of US$ 13.7 billion, down 13.7% in value over the year because of Covid-19. Although losing 10% in brand value – because of the pandemic and increased impairment provisions – Emirates NBD came in 74th, worth US$ 3.5 billion, with First Abu Dhabi Bank and ADCB declining 10% and 19%, with values of US$ 3.6 billion and US$ 2.1 billion. Two other Dubai-based banks to make the list were Mashreq and CBD – both down 7% and 4% to US$ 484 million and US$ 334 million. On the global stage, China’s ICBC retained its title as the world’s most valuable banking brand, worth US$ 72.8 billion.
Because of not achieving appropriate levels of compliance, regarding their anti-money laundering and sanctions-compliance standards, the UAE Central Bank fined eleven banks a total of US$ 13 million last week, under Article 14 of the Federal Decree Law No 20 of 2018. All banks were requested in 2019 to ensure compliance by the end of that year and had been warned that penalties would follow non-compliance. The country has strict legislation in relation to money laundering and the financing of terrorism, and these laws have been further strengthened over the past twelve months. In June last year, the UAE become the first GCC country to launch ‘goAML’, a reporting platform developed by the UN to curb organised crime.
The bourse opened on Sunday 31 January and having shed 38 points (1.4%) the previous week, shed a further 28 points (1.0%) to close on 2,669 by Thursday 04 February. Emaar Properties, US$ 0.08 lower the previous week traded US$ 0.03 higher, to close at US$ 1.05, Emirates NBD and Damac started the week on US$ 3.31 and US$ 0.38 and closed on Thursday at US$ 3.16 and US$ 0.37. Thursday 04 February saw the market trading at 167 million shares, worth US$ 72 million, (compared to 176 million shares, at a value of US$ 78 million, on 28 January).
For the month of January, the bourse had opened on 2,492 and, having closed the month on 2,654 was up 162 points (6.5%) in the month. Emaar traded higher from its 01 January 2021 opening figure of US$ 0.96 – up by US$ 0.06– to close January on US$ 1.02. Two other bellwether stocks, Emirates NBD and Damac, started January on US$ 2.81 and US$ 0.36 and closed on 31 January on US$ 3.16 and US$ 0.37 respectively.
By Thursday, 04 February, Brent, US$ 0.33 (0.6%) lower the previous week, gained US$ 3.74 (6.8%) in this week’s trading to close on US$ 58.84. Gold, US$ 37 lower the previous fortnight, lost US$ 46 (2.5%), by Thursday 04 February, to close on US$ 1,792.
Brent started the month on US$ 51.80 and gained US$ 3.65 (7.0%) during January to close on US$ 55.43 Meanwhile, the yellow metal lost US$ (1.7%) in January, having started the month on US$ 1,895 to close on 31 January at US$ 1,863.
BP saw its Q4 profit slump, year on year, from US$ 2.57 billion to just US$ 115 million, driven by the triple whammy of depressed demand, poor downstream sales and lower refining margins, which dented profitability; quarter on quarter, it was up 31.5% from US$ 86 million. Q4 operating cash flow, excluding Gulf of Mexico oil spill payments of US$ 100 million, was 55.6% lower at US$ 2.4 billion. Asset sales brought in US$ 4.2 billion, including US$ 3.5 billion on completion of the disposal of its petrochemicals business to Ineos, for US$ 5 billion. The energy giant posted a 2020 loss of US$ 5.7 billion. As part of it continuing divestment programme, on Monday, it agreed to sell a 20% stake in an exploration block in Oman to Thailand’s largest oil and gas producer, PTT Exploration and Production Public Company, for US$2.6 billion. This sees BP halfway to its US$ 25 billion divestment planned total by 2025.
2020 saw Exxon posting its first annual loss in decades, driven by the same forces that saw BP, Shell and Chevron returning disappointing annual returns. The energy giant recorded a massive US$ 22.4 billion loss, compared to a US$ 14 billion profit a year earlier, on a 30% slump in revenue to US$ 181.5 billion. The firm wrote down the value of its shale business by US$ 20 billion and took on billions of dollars in debt. By 2023, it said additional cuts, including payroll, would reduce costs by an estimated USS 6 billion a year. The ever-changing economic climate has eventually forced BPto bow to activists’ pressure to expand its focus to more climate-friendly technology.
The company declared a full-year loss of US$ 5.7billion, compared to a US$ 10 billion profit a year earlier, caused by lower oil and gas prices, significant exploration write-offs, reduced refining margins and depressed demand. Its debt levelfell 14.3% to US$ 39.0 billion at year end but this is expected to move higher in H1 because of severance payments, the annual Gulf of Mexico oil spill payment and payment following completion of the [US] offshore wind joint venture with Equinor.
Not to be outdone by the other three energy giants, Royal Dutch Shell sank to a 2020 net loss of US$ 21.7 billion, with it noting that “significant uncertainty” would continue to have a negative impact on demand for oil and gas products. Consequently, it will introduce further cost reducing measures to cut production, having already announced in September that it would lose 9k from its global payroll and last month. A further 500 from its operations in the North Sea.
It is reported that Boohoo is in “exclusive” talks with Philip Green’s failed retail group to buy the Dorothy Perkins, Wallis and Burton brands. Last week, the online fashion retailer paid US$ 75 million for the Debenhams’ brand and website – but not its physical shops. This was not the first company that Boohoo has bought from administrators, having acquired Oasis & Warehouse (for US$ 7 million), Coast and Karen Millen, but again not the associated stores. Boohoo’s owner is on record saying that “our ambition is to create the UK’s largest marketplace” and that Debenhams was expected to relaunch on Boohoo’s web platform later this year.
The 2019, 25% US sanction, in retaliation to the EU subsidies given to Airbus, has already cost the Scotch whisky industry US$ 700 million, with estimates that single malt exports have fallen by more than a third since then. The Scottish Whisky Association, describing the situation as “unsustainable”, noted that distillers were “continuing to pay the price for an aerospace dispute that has nothing to do” with them. The US had been the most lucrative market for the industry and should have expanded during the lockdown, as Americans seem to have moved away from beer to spirits; Diageo, the leading spirits company, observed that the US market has seen “strong activations in the at-home occasion”. Although it seems that tequila has benefitted most from this market shift, all whiskies, except Scotch, have done well, as Irish, Canadian and US have seen sales rise, helped by their cheaper prices. Interestingly, Diageo noted that H2 sales for malts were 33% lower, with Johnnie Walker blended range up 11% – the former were subject to the 25% tariff, the latter not.
Marston‘s confirmed that it had received an “unsolicited” takeover offer from US private equity firm Platinum Equity Advisors and will not make another announcement until they have fully analysed the proposal. The UK pub giant saw its shares climb 20% on news of this US intervention. but added there could be “no certainty that any firm offer will be made for the company”. Prior to this, its shares were languishing at near 20-year lows and even its current price of the equivalent of US$ 1.03 is US$ 0.40 lower than it was at this time last year. The company runs nearly 1.4k pubs across the country, all of which are currently closed because of the latest lockdown. Its latest financials reported a drastic fall in Q4 revenue from US$ 1.64 billion to just US$ 74 million. In 2020, Marston’s combined its brewing operations with Carlsberg UK in a US$ 1.07 billion merger and in December, agreed to take over the running of all 156 pubs owned by Brains, the largest brewer in Wales.
In a US$ 420 million deal, Asos has acquired the Topshop, Topman, Miss Selfridge and HIIT brands from Philip Green’s failed retail group Arcadia, which fell into administration last November. According to Asos chief executive Nick Beighton, the online retailer has not bought the stock but only the brands and no mention was made by either party about the future of the 2.5k jobs which are at risk. He also noted that acquiring the brands would accelerate Asos’s mission to become “the number one destination for fashion-loving 20-somethings throughout the world”.
With the UK’s Competition and Markets Authority ruling that a proposed US$ 4.1 billion merger between ticketing site Viagogo and StubHub could harm customers’ interests and result in a “substantial reduction in competition” in the UK secondary ticketing market, it has meant that Viagogo will have to sell all of StubHub’s business outside North America to satisfy competition concerns. This will see StubHub’s international business being independently owned and run by a separate company, with no input from Viagogo. In the UK, these two companies account for more than 90% of secondary ticketing platforms.
Drugs giant Pfizer is forecasting 2021 revenue of over US$ 15 billion because of sales this year of the coronavirus vaccine it developed, with German firm BioNTech; vaccine sales of some two billion doses represent will represent 25% of its expected revenue for this year after posting US$ 154 million worth of sales in Q4. To meet its annual target, Pfizer will have to deliver ten million doses a week for the rest of 2021, with forty million doses earmarked for the UK. Supply of the vaccine has faced delays in parts of Europe due to changes in manufacturing processes to boost production but now they have been resolved and BioNTech noted that firms were back on track to meet their European timeline.
Not only assisted by booming payment volumes and an increased number of businesses digitising because of the pandemic, but also by the October introduction of enabling cryptocurrency transactions, PayPal’s Q4 profit jumped 206% to US$ 1.6 billion on the year; revenue came in 23.0% higher at US$ 6.1 billion. Its 2020 annual profit was 70% higher at US$ 4.2 billion, on the back of a 22% hike in revenue to US$ 21.5 billion. During the year, it added 16 million new accounts, bringing the total at year end to 377 million. PayPal also posted record growth in 2020, with 72.7 million new users and handling payments worth US$ 936 billion; Q4 saw volumes 36% higher, valued at US$ 277 billion, and with growth like that it will soon hit the US$ one trillion level, as it aims to grow revenue 19%, to US$ 25.5 billion, and add 50 million new users.
Having invested more on research, and seeing production and overhead expenses moving higher, Merck posted a loss of US$ 2.1 billion, compared to a US$ 2.4 billion profit in 2019. Q4 figures included a US$ 2.7 billion charge for acquiring cancer drug developer VelosBio in a move to expand Merck’s cancer drug franchise. This company has been focussing on immunotherapy treatment Keytruda, an approved drug for dozens of different cancer treatments, which saw sales top US$ 14.4 billion last year. Merck has recently announced that it was scrapping two of its Covid vaccines but will continue to work on a pair of potential treatments for the new coronavirus.
At least there is some good news at last for Jack Ma, who founded Alibaba with the e-commerce giant posting a 37% Q4 hike in revenue to US$ 34.2 billion, helped by strong sales on Singles Day and the fact that the Chinese economy was the only major one in the world to advance in 2020. Its cloud computing revenues rose 50% to US$ 2.5 billion over the same quarter last year, posting a profit for the first time. However, the good news is clouded by the fact that its financial technology (fintech) affiliate Ant Group remains under intense scrutiny from local regulators. The planned November launch in what would have been the world’s biggest ever market debut was pulled by regulators, with Ant’s share market launch remaining on hold indefinitely. On Wednesday, both parties seem to have agreed to a restructuring plan that will see Ant become a financial holding company, making it subject to more stringent capital requirements like those for banks. It was thought that Ant would have preferred putting only financial operations into the new structure – not all of its businesses, including its tech entities in the blockchain and food-delivery sectors.
US sanctions played havoc with Huawei’s Q4 sales of smartphones, with revenue slumping 44% to 18.8 million, as data from International Data Corp (IDC) showed overseas shipments plunging 43% to 32 million. Because of US sanctions, the Chinese tech giant was unable to meet the high global demand, as well being restrained to serve its domestic market. Donald Trump also introduced sanctions that saw it being cut off from access to vital components and also pressured allies to shun its telecom networking gear, with the then US President claiming that Huawei’s telecom equipment could be used by China for espionage purposes.
The continuing farcical state of the global economy can be seen by the fact that Elon Musk only has to tag the cryptocurrency in his Twitter account for Bitcoin to climb 14% on the day. The Tesla chief did that last Friday by writing just “simply” in his Twitter biography, which is followed by 43.7 million people, and the cryptocurrency jumped by almost US$ 5k to US$ 37.3k within an hour of the billionaire entrepreneur adding the hashtag #bitcoin to his bio. Earlier this week, Musk joined the battle between short sellers and retail traders over videogames retailer GameStop, tweeting a link to Reddit’s WallStreetBets forum along with the word “Gamestonk!!” As a result, the stock surged 50% on the day.
A fairly new phenomenon has hit High Streets around the world and has become a problem area in Australia; now it seems that UK regulators are beginning to take a close view of pay later firms such as Klarna, Clearpay, and LayBuy. Such platforms are used by more than ten million in the UK and allows shoppers to split payments, without paying interest; it is estimated that 4% of all spend is via pay later companies. The Financial Conduct Authority is so concerned that especially the young could soon rack up debts of over US$ 1k, more so because the value of these services almost quadrupled in 2020, with sales totalling US$ 3.8 billion. The FCA also found that 10% of users already had debt arrears elsewhere, that women make up 75% of the total and 90% of transactions involve fashion and footwear; 75% of users were under the, age of 36, with a third of the total being between ages of 18 – 24. The government realises that although buy now, pay later was convenient for some people, for others it was “a really easy way to fall into problem debt”. The government confirmed it would legislate as soon as possible, following consultation.
It is estimated that Australian house prices are at their highest ever, following a 0.9% hike last month, and 1.0% higher than they were pre-pandemic and 0.7% up on the previous record high in September 2017. Capital city price rises have been slower than those witnessed in the regions, with figures showing that capital city annual increases, averaging 1.7%, ranged from 0.4% in Sydney and Melbourne to 2.3% in Darwin. This compared to a much higher 6.5% increase in regional home prices. Prices in Sydney and Melbourne are still 4% shy of their record highs, whilst prices in Perth and Darwin are still 19% and 25% lower than their 2014 peaks. Another interesting feature was that apartment prices, especially in Sydney and Melbourne, have lagged house prices and indeed apartment prices fell by 0.6% last year. Apartment rentals also dropped 7.8% in Melbourne and 5.6% in Sydney.
Much of the activity has emanated from first time buyers, with data showing that first home buyer loan commitments jumped 9.3% in December and 56.6% over the past year, with 15.2k new buyers acquiring their own property for the first time; this was the highest level of first home buyers in the market since the GFC when the then Rudd government temporarily tripled the first homeowners grant as part of an economic stimulus package. In the month, the value of new home loan commitments rose 8.6% to nearly US$ 20 billion. Furthermore, the value of construction loan commitments grew 17.1% in December – double that of the amount in June when the implementation of the HomeBuilder grant. Some economists are forecasting an 8% hike in property prices this year, with houses 9% higher and apartments at a lower 5%.
The Reserve Bank of Australia maintained its cash rate target at the historical record low of 0.1% and, at the same time, indicated that it would pump more cash into the economy, starting with an additional U$ 76 billion (AUD 100 billion) worth of bonds, spread over twenty weeks, starting mid-April, issued by the Australian Government and states and territories. Along with the US$ 76 billion, the bank committed to purchase in long-term government bonds over a six-month period, this brings the total to US$ 152 billion (AUD 200 billion). At their Tuesday meeting, the RBA (which always holds their monthly meeting on the first Tuesday of the month) was cautiously optimistic about Australia’s recovery, whilst noting that “the outlook for the global economy has improved over recent months due to the development of vaccines.” The economy was expected to return to pre-pandemic levels by mid-year and their forecast growth for the next two years was for 3.5% a year. However, there were two notes of caution – inflation will continue to grow at its “slowest rate on record” and the unemployment rate will remain high at 6.0% by year end, and 5.5% by the end of 2022. The bank expected little rate changes for thenext two years, unless the housing market starts to boil over.
Latest figures indicate that the Indian economy contracted 7.7% in the 2020-21 financial year, but regulators are confident that it will claw back 11.0% in the next fiscal year beginning in April; Q1 to June saw the economy tank 24.0%, followed by a 7.5% contraction in the September quarter It indicates that the recovery will be driven by a resurgence in demand for power and steel, rail freight and tax collections on goods and services. One of the highlights of last year’s figures was that agriculture moved 3.4% higher, whilst Finance Minister Nirmala Sitharaman forecast that it will take two years for the economy to return to pre-pandemic levels; this is in line with the IMF forecasts of 11.5% and 6.8% over the next two years. The Modi government has introduced two stimulus packages – one for US$ 266 billion in May and later smaller one for US$ 35 billion – to boost consumer demand and manufacturing. However, much of the first package comprised bank loans, many of them without collateral.
India is on record of having the world’s largest diaspora population, with eighteen million living abroad, of which 3.5 million count the UAE as their second home; in addition, they are also among the biggest sources of remittance to India. The country’s finance minister Nirmala Sitharaman had described the upcoming paperless budget as unlike anything seen before, with non-resident Indians (NRIs) in the Arabian Gulf expecting incentives that will allow them to remit more and make long-term investments back home more attractive. Because of the impact of Covid-19, many Indians would like to see further clarification when it comes to residency; the pandemic has seen many NRIs “marooned” in India for various reasons, including lockdowns, health and safety reasons, and being unable to spend more than 180 days in the Arabian Gulf. The budget could also help by allowing more freedom when it comes to duty free imports. The Indian economy would benefit if NRIs had more choices to invest freely in India and perhaps given more time to set up businesses in their home country, without any impact to their existing residency or tax treatment status. Time will tell if Ms Sitharaman comes to the party.
It seems that India’s Finance Minister Nirmala Sitharaman has surprised the market by presenting a spending budget, as the country continues to struggle with the impact of Covid-19 that has led to soaring unemployment queues, a shrinking GDP and a crisis-ridden banking sector. The main beneficiary seems to have been the health sector, that has always been underfunded, with its budget doubled to over US$ 30 billion, with more than US$ 8.5 billion to be used to upgrade healthcare infrastructure at the primary, secondary and tertiary levels over a period of six years. The Modi government has already committed another US$ 4.8 billion to the country’s vaccination programme.
A new Development Finance Institution (DFI), with a starting capital of US$ 2.7 billion, will be set up to help fund large-scale infrastructure projects, with overall spending rising 35%. Places like Tamil Nadu, Kerala, Assam and West Bengal will see national highway projects and infrastructure corridors, whilst textile parks will be established all over India. This is expected to kickstart spending and offer some relief to banks, which are reeling from a mountain of debt. The administration is looking at setting up an asset reconstruction and management company or a “bad bank” that will take on unpaid debt from existing banks to free up their lending capacity. The government will continue to divest its assets including the national airline, Air India, and other public sector companies, along with privatising two public banks and an insurance company. Another positive move was the budget increasing foreign investment limits in insurance companies, allowing foreign ownership and control.
The country’s fiscal deficit is expected to reach its highest ever level of 9.5% this year but the target next fiscal year is 6.8%, with the aim to halve the total within five years. Experts are also predicting a sharp rebound in India’s economy – which is now projected to contract 7.7% in the current financial year, but grow by 11% in 2021-22, making it among the fastest growing economies in the world. The sharp rebound comes from a much lower base, given that GDP entered the negative zone in 2020-21. However, the global ratings are not currently impressed with the Indian economy as S&P, Moody’s and Fitch all have the lowest investment grade rating, just a notch above junk.
Saudi Arabia has issued a ban on travellers from twenty countries as from yesterday, 03 February. This comes as the kingdom is taking increased steps to try to reduce the increasing case numbers arising from new variants of coronavirus. The full list of countries barred is Argentina, Brazil, Egypt, France, Germany, India, Indonesia, Ireland, Italy, Japan, Lebanon, Pakistan, Portugal, South Africa, Sweden, Switzerland, Turkey, the United Arab Emirates, the United Kingdom and the United States of America. The Ministry of Interior announced that the temporary suspension and said the ban also applies to those who had passed through any of these twenty countries listed in the previous fortnight.
Earlier in the week, France became yet another country to close its borders to people arriving from outside the EU in a vain attempt to put a lid on the spread of the virus and to avoid a full-blown third lockdown. All large shopping centres in the country have been forced to close, as the government becomes increasingly concerned about the spread of new variants of Covid.
The Lebanese central bank governor has been charged over foreign exchange misuse. Riad Salameh, who has held the position since 1993, has been accused of dereliction of duty and breach of trust over the alleged misuse of millions of dollars, provided by the regulator last year. It appears that up to U$ 7 million were squandered in H2 last year, with thirty-seven financial institutions profiting from the fact that dollars provided by the central bank, through an electronic trading platform to help people pay for essential needs and expenses, were sold on the black market, where they fetched a much higher price. The central bank continues to subsidise fuel and wheat at the official exchange rate of 1,500 per dollar. The subsidised rate that applied to the electronic platform was 3,900 and on the black market rates are a high as 8,800 pounds. The governor is also being investigated by the Swiss authorities into possible embezzlement from the Lebanese central bank, in relation to a US$ 400 million transfer linked to him. Strangely, the head of the central bank enjoys immunity from legal prosecution under Lebanese law.
There is no doubt that the Turkish economy is struggling, as January’s inflation rate mushroomed to 14.97%, up 0.37% on the month. The economy has been plagued by double-digit inflation for most of the past three years, well above the government’s 5.0% target. Since Naci Agbal, the new governor of the central bank, was appointed three months ago, the key rate has moved from 10.25% to its current 17.0% level and despite the Turkish economy having the tightest monetary policy of any major developed country, he has promised to continue with the current policy. The bank’s governor is confident that inflation would drop to single digits this year, whilst the Turkish lira has gained 5% already in 2021.
In a bid to assist municipalities and businesses, struggling as a result of Covid-19, the Norwegian government has proposed US$ 1.9 billion in extra fiscal spending this year; this includes US$ 175 million for a hybrid loan to Norwegian Air, which is undergoing financial restructuring. This follows the government backing a plan by the airline to emerge from a court-ordered bankruptcy protection to become a leaner and more local carrier focused primarily on the Nordic region rather than the behemoth that existed prior to the pandemic when it was the fastest growing airline in the world.
As businesses in their major economies weather the autumnal storms of further lockdowns in Q4, the European economy shrank by a smaller-than-expected 0.7%; for the year, the figure was 6%. Initial Q4 estimates were looking at a 2.5% contraction, whilst Germany actually posted a 0.1% quarterly expansion, with France declining by 1.3%. However, the 19-member bloc is still struggling – not helped by their inept vaccine policy – and are expected to lag behind China and the US in their post-Covid recoveries. It is difficult to forecast what’s going to happen in the future especially past figures like the eurozone’s Q2 and Q3 retail sales figures of an 11.7% contraction, followed by a 12.4% rebound. The ECB expects the eurozone to return to pre-pandemic levels by mid-year whilst the IMF has downgraded its 2020 growth forecast from 5.2% to 4.2%.
According to the latest IHS Markit/CIPS UK Composite Purchasing Managers’ Index, the UK economy is heading for a Q1 contraction, (having slumped from 50.4 to 41.2 on the month), but will recover from thereon in, on the back of the increased vaccine programme. The services PMI dipped from 49.4 to 39.5 over the two months. The reason for these readings – the lowest since May – comes about because of the recently severe lockdown protocol throughout the UK. To date, the vaccination has covered 14.5% of the population and is ahead of the government’s aim to vaccinate fourteen million by mid-February. Because of the speedy delivery of vaccines business confidence is at its highest since May 2014.
As expected, the UK will make a formal request to join a trans-Pacific free trade pact between eleven countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The UK government confirmed that negotiations will start later in the year to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The CPTPP will remove most tariffs between the members, including food, drink and motor vehicles, as well helping to boost the technology and services sectors. This is a positive step by the Johnson administration and those still expounding the benefits of remaining in the EU will eventually realise that the Truth Hurts.