Mother’s Little Helper 04 March 2021
According to the latest S&P Global Ratings report, Dubai’s Covid-battered economy will not return to 2019 levels until 2023, whilst key sectors – including hospitality, real estate, retail and tourism – will remain under pressure for the next 12-24 months. It notes the stunning progress that the country has made with its globally acclaimed vaccine drive and considers that Dubai’s GDP will soon start recovering from the sharp recession of 2020, that had been triggered by the pandemic and low oil prices. It added that Dubai’s residential real estate recovery would be led by a cutback of new supply and low mortgage interest rates. Last year, Dubai saw the sharpest population decline in the GCC – 8.4% against the region’s average of 4.0%; any fall in the population level will inevitably have an impact on the real estate sector. The agency expects that, with low prices, transaction volumes will remain robust and that villa prices, in the secondary market, will remain more resilient.
However, the rather bearish report did note that the normalisation of relations with Israel, as well as the restoration of ties between Qatar and the other four GCC states, previously boycotting the country, should support tourism and real estate investments. Official government figures indicate that in the year to 01 March 2021, Dubai’s population has actually grown 1.15% to 3.417 million. There is no doubt that the main factors in play to boost Dubai’s realty sector include the weakening greenback, historically low interest rates, increased energy prices (with Brent hovering around the US$ 65 level) and the upcoming six-month Expo 2020, starting in October. In certain locations, there is no doubt that property prices have been moving higher, specifically villas in well-established areas and prime apartments.
It is interesting to note that according to the latest Knight Frank report, Dubai comes second to London, with the highest number of prime properties, among all the major global cities. The consultancy defines prime property in different ways, according to location, with London’s threshold being US$ 2.8 million (GBP 2 million), Dubai – US$ 1 million, Sydney – US$ 2.3 million (AUD 3 million) and Hong Kong – US$ 645k (HK$ 5 million). The survey shows that London, Dubai, Sydney, Hong Kong and Singapore have 68.2k, 42.4k, 27.4k, 21.3k and 104.0k prime properties respectively. It also noted that Dubai’s 2020 property decline of 5.9% was the sixth highest ranked after Buenos Aires, Cape Town, Bangkok, Hong Kong, and Doha. Rather surprisingly, Knight Frank forecasts that only two locations in the survey – Dubai (minus 2%) and Buenos Aires (minus 8%) – will report declines in 2021. However, the study also stated that Dubai has certain hotspots, including villas and apartments, where prices actually rose – in Palm Jumeirah, with increases of 9.4% (villas) and 5.1% (apartments), and in District One (3.5%), recorded in H2.
Binghatti Developers has launched sales at its Binghatti Gate development in Jumeirah Village Circle, being built for US$ 41 million. The project, comprising 132 units, 84 of which will be 1 B/R apartments, is 50% completed. Its CEO, Muhammad Binghatti, estimates that sales prices will nearly be on par with secondary market prices and commented that his company has committed almost US$ 1 billion covering up to forty projects in Dubai including in locations such as Al Jaddaf, Business Bay, Dubai Marina and Dubai Silicon Oasis.
Earlier in the week, it was announced that Dubai will be extending its current coronavirus countermeasures, which were introduced in early February, until the beginning of the holy month of Ramadan, probably 12 April. Some of these measures include the maximum capacity allowed in venues with indoor seating – such as cinemas, entertainment and sports venues – to remain at 50%, shopping malls, hotels, swimming pools and private beaches in hotels permitted to only operate at 70% capacity, and restaurants and cafes, across the city, must close by 1 a.m. In addition, monitoring and inspection campaigns will be intensified across Dubai to ensure that all establishments follow safety protocols. Last month, daily new cases averaged over 3k, despite the government intensifying its inoculation campaign. By the end of March, the government is planning that 50% of the country’s 9.9 million population will have been vaccinated. (Recent UK studies have indicated that a single dose of the Pfizer Covid-19 vaccine could significantly reduce the risk of transmission).
2020 was a bad year for IPOs in the MENA region, registering an annual fall of some 40%, to US$ 1.86 billion, but, according to the latest EY report, 2021 will be the year of the rebound, driven by sweeping reforms, as well as changes to foreign ownership law and listing requirements. The most radical change saw the 51% UAE ownership requirement for most entities scrapped, with companies now being 100% foreign owned. Other changes include founders of private joint-stock companies may now sell up to 70% (rather than the previous 30%), of their capital, by way of a public offering,
Despite the pandemic, 2020 saw a 3.5% growth, to 3.2k, in the number of Gulf and other foreign companies operating in the UAE, according to the UAE’s National Economic Register. The split between Gulf and foreign was 23.8% to 76.2%.
A recent report by consultant management firm BCG, and recruitment alliance, The Network, saw Dubai ranked third in the world of top cities for foreign workers to relocate. London and Amsterdam were placed ahead of the emirate followed by Berlin and Abu Dhabi. The survey, involving 209k people in 180 countries, aimed to ascertain if, and under what circumstances, people would move to a foreign country for work. The top three placings saw a surprise with Canada taking over the number one spot from the USA, with Australia in third. Despite being rated the top country, Canada did not have any city in the top ten, with Toronto coming in at fourteenth.
Mini history was made in the UAE, with monthly fuel prices rising for the first time in a year. The UAE Fuel Price Follow-up Committee announced that petrol prices for March have risen, with Special 95 at US$ 0.057 (11.7%) higher to US$ 0.548. However, the diesel price – that had dipped 2.4% to US$ 0.548 in February – will retail US$ 0.038 (6.9%) higher at US$ 0.586 per litre. The new prices became effective on Monday, 01 March.
On Monday, the Multipurpose Terminal (MPT) at the Port of Luanda was handed over to DP World, following the twenty-year concession agreement, signed in January. The new CEO for the project will be Panamanian, Francisco Pinzón, who joined DP World in 2016 as COO for DP World Djibouti. DP World Luanda is investing US$ 190 million to improve the terminal to help Angola to make it a major trade hub, along the western coast of Southern Africa. This project is the eighth port facility, currently managed and operated by DP World in its Africa and Middle East region.
Jebel Ali power and desalination complex has been recognised by the Guinness World Records, as the world’s largest single-site natural gas power generation facility. The complex, valued at US$ 12.3 billion, has a total capacity of 9,547 MW and is part of Dewa’s long-term power generation plans to meet the needs of over “one million customers”.
In yesterday’s budget, Rishi Sunak unveiled the Thames Freeport in East London’s Thames Estuary as one of eight winning bids to turbocharge post-Brexit Britain; this gives the digitally linked special economic zone, which comprises the Dubai-backed DP World London Gateway port, along with Tilbury port and a Ford factory in Dagenham, advantageous tax and customs duty relief. London Gateway site has almost ten million sq ft, with planning permission and the capacity to expand. Freeports are areas that allow companies to import and export from the UK under simplified customs, tax and planning rules.
Mastercard has introduced Click to Pay in the country which will see the end of clients having to complete time-consuming details, when they purchase goods and services online; the service was first launched in the US in October 2019, followed by the Asia-Pacific region last July. Apart from doing away with all the paperwork, and hassles associated with the old process, users are no longer required to store their sensitive financial details with different merchants and can instantly checkout after making a purchase. The payments technology company is confident that the new solution will not only speed up the process but will also reduce fraud risk. The UAE is the first country in the region to have Click to Pay, whilst Visa has had a similar service in local operation since last July.
Following a slight tightening of lockdown restrictions, it was no surprise to see a dip in the country’s February non-oil PMI data with the headline index dipping 0.6 to 50.6, month on month. However, with the figure over the 50.0 threshold, it shows that there is still a slight expansion. This was down to the output subcomponent which continued to hover above the 50.0 level but new business failed to rise for the first time since October and output has softened in the first two months of 2021, whilst the employment level remained unchanged.
Both Emaar Properties and Emaar Malls have decided to merge both companies in a bid to create a larger entity to better face the negative impact of the pandemic. The developer noted that “as part of the transaction, the existing business of Emaar Malls will be reconstituted in a wholly owned subsidiary of Emaar Properties.” It will be business as usual for Emaar Malls that will continue to develop a portfolio of retail assets. The proposed merger still has to be approved by shareholders of both entities, and, if agreed, a share swap would see Emaar Malls’ shareholders (excluding Emaar Properties) receiving 0.51 Emaar Properties’ shares for every one of Emaar Malls’ shares held.
Latest data shows that thirty-eight companies, listed on the country’s bourses, will pay out a total of US$ 7.9 billion in cash dividends, despite the impact of the pandemic and “flat” business conditions. To date – and not all possible dividends by listed companies are known – banks and telecoms are the biggest dividend payers; eight Emirati banks will distribute US$ 4.1 billion and US$ 2.1 billion respectively.
The bourse opened on Sunday 28 February and having shed 263 points (10.4%) the previous five weeks, gained 32 points (1.3%) to close on 2,569 by Thursday 04 March. Emaar Properties, US$ 0.08 lower the previous fortnight, regained US$ 0.06 to close at US$ 1.01. Emirates NBD and Damac started the week on US$ 3.05 and US$ 0.32 and closed on US$ 3.02 and US$ 0.33. Thursday 04 March saw the market trading at 153 million shares, worth US$ 64 million, (compared to 338 million shares, at a value of US$ 43 million, on 25 February).
For the month of February, the bourse had opened on 2,654 and, having closed the month on 2,552 was down 102 points (3.8%) in the month. Emaar traded lower from its 01 February 2021 opening figure of US$ 1.02 – down US$ 0.04 – to close February on US$ 0.98. Two other bellwether stocks, Emirates NBD and Damac, started February on US$ 3.16 and US$ 0.37 and closed on 28 February on US$ 3.04 and US$ 0.32 respectively.
By Thursday, 04 March, Brent, US$ 9.68 (17.0%) higher the previous three weeks, gained US$ 0.18 (1.7%) in this week’s trading to close on US$ 66.86. Gold, US$ 105 (5.6%) lower the previous five weeks, continued its downward trend, tumbling a further US$ 83 (0.3%), by Thursday 04 March, to close on US$ 1,688. At today’s Opec+ extraordinary ministerial meeting, seen as a bellwether of the recovery in oil markets, the alliance, led by Saudi Arabia and Russia, acknowledged that it has managed to rein in production and has seen prices 25% higher since the onset of Covid last March. Then it had started the process of cutting production by a record 9.7 million bpd from the markets between May and July. Today, it agreed to rollover its current pact as it keeps a tight lid on output, with Saudi Arabia also extending its outsized voluntary cut of 1 million bpd until end of April.
Brent started the month on US$ 55.43 and gained US$ 8.99 (16.2%) during February to close on US$ 64.42 Meanwhile, the yellow metal lost US$ 90 (4.8%) in February, having started the month on US$ 1,863 to close on 28 February on US$ 1,773.
Last year, Rio Tinto was held accountable for the destruction of two 46k year old ancient Aboriginal rock shelters. The mining company was praised for eventually overseeing the resignations of the then-chief executive, Jean-Sebastien Jacques, and two deputies, after a public and investor backlash. However, they lost a lot of public goodwill when the mining company decided to hand out large pay-outs to all three executives. Now Simon Thompson will step down as chairman after next year’s AGMs, while non-executive director Michael L’Estrange will retire from the board, after this year’s meetings. Having been accused by regional elders that he had broken a personal promise, he has admitted that “I am ultimately accountable for the failings that led to this tragic event.”
Despite the judge finding Barclays guilty of “serious deceit” over an investment deal with Qatar, at the height of the GFC, UK financier Amanda Staveley has lost her US$ 23 billion legal battle against the international bank. She had claimed thatsenior bank managers had lied to her during a 2008 fund-raising operation to secure the ailing bank’s future out of UK government control. Unfortunately, the ruling found that her company, PCP Capital Partners, would have been unable to raise enough money to be part of the rescue plan and decided she was not entitled to damages. The case was about Barclaysbeing desperate to stave off government control during the crisis and being accused of giving preferential rates to Qatari investors to ensure their involvement in a fund-raising operation to secure the bank’s future. Ms Staveley is considering the merits of an appeal.
On Monday, Spanish police raided Camp Nou, the home of FC Barcelona and reportedly arrested three people associated with the club – its former president, Josep Maria Bartomeu, the club’s CEO, Iscar Grau, and legal counsel, Roman Gomez Ponti. In what has become known as Barcagate, the three have allegedly been involved in the club hiring outside groups to defame Bartomeu’s adversaries on social media. 2020 was not a good year for the club both on and off the field. Bartomeu fell out with his star player, Lionel Messi, results started to disappoint and Covid was the main reason why Barcelona lost US$ 121 million – another one was the news that the uncommitted and unhappy Messi was on a US$ 555 million four-year contract. Furthermore, the club has to urgently address its US$ 1.2 billion debt problem. Presidential elections to replace Bartomeu, who resigned last October, are due to take place on Sunday, as 140k members decide.
Walt Disney Co has decided to focus more on e-commerce and to close at least sixty Disney retail stores in North America, (about 20% of its global total), in 2021, as it revamps its digital shopping platforms to focus on e-commerce; it is mulling over the future of many of its European outlets, but Japan and China will not be affected. Job losses are currently unknown. The pandemic has seen an accelerated shift to digital shopping with many other major retailers, including Walmart and Macy’s, closing more of their physical outlets. However, Disney will continue to sell its merchandise inside other retailers, such as Target in the United States and Alshaya in the ME, as well as in their own theme parks. The entertainments company will also invest in overhauling its shopDisney apps and websites, with the aim of creating “a more flexible, interconnected e-commerce experience that gives consumers easy access to unique, high-quality products across all our franchises.”
Zoom’s latest forecast, that it expects a 2021 sales increase of more than 40% to US$ 3.7 billion, from 2020’s US$ 2.6 billion, sent its shares trading 6% higher in Monday’s New York trading; 2020 profit was US$ 672 million, compared to just US$ 21.7 million a year earlier. There were concerns that, as more people get vaccinated and social distancing rules are relaxed, growth would slow but, according to its boss, Eric Yuan, Zoom is here to stay with business remaining strong; however, Q4 370% growth figures to US$ 883 million are unlikely to be replicated.
There is no doubt that the pandemic has been kind to companies like Deliveroo, as restaurants were forced to close during lockdowns so that the demand for food home delivery soared. The company, founded in London by Will Shu in 2013, has stated that the UK is its “long-term home”. The platform operates in twelve markets and is planning a London IPO that could value the company in the region of US$ 7 billion. The decision comes about after the government proposed new stock market rules, (similar to those in the US), that would benefit start-up technology firms, such as creating two different classes of shares with differential voting rights, giving founders more say in key decisions.,
The UK economy will benefit from two pieces of drink-related, non-related budget news. One is that Budweiser is planning to invest US$ 175 million at its two UK breweries – its Welsh site in Magor and the other In Samlesbury in Lancashire. The US brewer, which employs more than 1k at its two sites, will spend US$ 100 million to create 32 new jobs at Magor, with the balance invested at its English brewery, creating 23 new jobs. On completion, both capacity and efficiency. will improve, as a total of 3.6 million hectolitres, equating to 630 million pints a year, will be produced. In Q3 and Q4, Budweiser posted that it had hit its highest-ever sales levels in the off-trade, with growth levels of 19.6% and 23.4%.
The Biden administration has agreed to a four-month suspension of tariffs on UK goods including single malt whiskies that were imposed in retaliation over subsidies to the aircraft maker Airbus. (Other UK goods, including pork, cheese, cashmere and machinery, will also benefit from this decision). On 01 January, the UK dropped its own tariffs on some US goods put in place over a related dispute about US subsidies to Boeing – the US/EU decades-old tariff war continues but with Brexit, the Johnson administration has been able to lobby on its own behalf, as opposed to being one of twenty-seven states. Th scotch tariff has been in place for sixteen months during which time, US exports have slumped by 35%, costing the industry at least US$ 700 million, as well as losing its place, as the US’s number one whisky supplier.
The year started badly for the UK motor trade, with January car production 27% lower at 86k, compared to a year earlier. This was the worst January performance since 2009 and the seventeenth straight month of decline. The industry is petitioning for Covid-secure car showrooms to open before the current date of 12 April and hopes that the government unveils measures to extend Covid-19 support schemes, including the furlough programme, reform business rates to encourage manufacturing investment and to increase support for skills and training. It is estimated that the pandemic has cost the industry US$ 15.8 billion, driven by dwindling production. Other drivers, behind the sector’s demise, include global supply chain issues, hassles with post-Brexit trade with the EU and the fact that it is difficult to arrange test drives.
Aston Martin had a disastrous year, as losses almost quadrupled to US$ 585 million, from US$ 165 million in 2019, with revenues 37.6% lower at US$ 860 million, driven by the pandemic and a policy of destocking dealerships. The company’s new management wrote off US$ 140 million from previous engine and technology development and also expanded a deal with Mercedes Benz to take parts and some technology. It plans to make 500 jobs redundant and introduce cost cutting measures, saving US$ 35 million. Last year, Canadian billionaire Lawrence Stroll led a bailout with new management changing strategy based on F1 and restoring the brand’s luxury credentials. The company expects to sell 6k units this year, 50% of which will be their SUV model.
Meanwhile European car marker Stellantis confirmed that negotiations with the UK government, over the future of Vauxhall’s Ellesmere Port plant, were “productive but not conclusive”. There is no doubt that this is another nail in the coffin of car-making in the UK, but the government could do worse than investing a lot more in the production of batteries for vehicles to make the country a world leader in this field. Last year, production of battery electric, plug-in hybrid and hybrid vehicles rose 18.9% to 21.8k units. The government has to have a serious look to actively attract battery gigafactory investment and transform the supply chain.
February saw Australian house prices posting their sharpest monthly increase since August 2003, as the market is now entrenched in one of its strongest growth phases on record. In the month, capital city prices were 2.0% higher (with the best performing being Sydney and Hobart both recording 2.5% increases) and regional prices marginally better at 2.2%. February turned out to be a good month for Queensland real estate, as it marked the sharpest monthly increase in Brisbane house prices since 2007, driven by low mortgage rates and a shortage of housing stock, as well as net interstate migration to Queensland being at its highest level this century. Monthly and annual increases noted in Brisbane, Gold Coast and Sunshine Coast were 1.5% and 5.0%, 2.6% and 10.5% and 2.5% and 11.2% respectively.
Chinese investment in Australia plummeted 61% to US$ 790 million in 2020, the lowest figure in six years, attributable to a growing diplomatic rift between the two countries; a year earlier, there had been a 47% decline to US$ 1.57 billion. In recent years, the Chinese had invested across all sectors in Australia but last year, they only dealt in three sectors – real estate, mining and manufacturing with deals of US$ 350 million, US$ 320 million and US$ 120 million. According to the UN, 2020 foreign direct investment fell 42% but Australia suffered more because, at the onset of Covid in March 2020, the government announced temporary measures that would subject every proposed investment to scrutiny by Australia’s Foreign Investment Review Board; this extended the review period from one month to six months. However, a more important cause is political, with Australia calling out China on a number of issues including a request for a rigorous investigation into the origins of the Covid-19 pandemic in April, the treatment and persecution of Chinese Uyghurs and the country’s handling of the Hong Kong crisis. In response the Chinese quickly fired back, imposing tariffs or trading restrictions on Australian goods such as coal, timber, barley, wine, beef and lobster. This has caused alarm in Australia, as China is its biggest trading partner, accounting for close to 40% of exports, but despite all that, Australia’s trade balance with China hit a six-month high in December, driven by China’s insatiable appetite for Australian iron ore.
Finally, the House of Representatives have approved President Joe Biden’s US$ 1.9 trillion Corona relief package, though two Democrats sided with the Republicans, considering the plan as too expensive. Now the bill goes to the Senate – where Democrats and Republicans each have fifty members – and it may prove a big ask for this to pass the final stage; only recently, the Senate turned down the US minimum wage to be US$ 15 an hour. With US unemployment almost at 10%, and ten million jobs already lost dueto Covid, if it passes this stage, the money would be used for emergency financial aid to households, small businesses and state governments. It does seem that the President is receiving some of his own medicine, having appealed for bipartisan unity when he took office last month, he has seen little of that since then – a case of quid pro quo.
It is reported that the African Union will be paying US$ 9.75 per dose for 300mm of Russia’s Sputnik V jab, which equates to almost triple the price of the Oxford/Astra Zeneca and Novavax vaccines. The government-run Russian Direct Investment Fund, which oversees Sputnik V’s foreign sales, has claimed that not only is its international price the same globally but also that the jab’s cost is “two times lower than that of other vaccines with similar efficacy rates”. This flies in the face of the fact that the AU has signed a deal for US$ 3 a jab from Astra Zeneca and Novavax vaccines made by the Serum Institute of India, US$ 6.75 a dose for the BioNTech/Pfizer vaccine and US$ 10.00 for a Johnson & Johnson’s single dose.
Cases of official corruption, along with seemingly unethical and illegal behaviour, seem to be rampant throughout the world with the latest high-profile one being the former French president Nicolas Sarkozy, found guilty of trying to bribe a judge and of influence-peddling. He had been accused of trying to illegally obtain information from a senior magistrate in 2014, about an ongoing investigation into his campaign finances. It was alleged that Sarkozy had offered to secure a plum job in Monaco for judge Gilbert Azibert, in return for confidential information about an inquiry into allegations that he had accepted illegal payments from L’Oreal heiress Liliane Bettencourt for his 2007 presidential campaign. Unluckily for him, investigators had originally been wiretapping conversations between Sarkozy and his lawyer Thierry Herzog, after Sarkozy left office, in relation to another investigation into alleged Libyan financing of the same campaign.
Another ex-leader in the news this week was the UK’s ex-prime minister, David Cameron, who was hired by Greensill Capital as an adviser in 2018, and regularly promoted the controversial lender which operated in the world of supply chain finance. This week, the German financial watch dog filed a complaint against Greensill bank’s management, citing balance sheet manipulation. At the same time, its parent company, Greensill Capital is applying for insolvency protection in the UK but is trying to transfer viable parts of the business to Apollo Global Management, Such a deal would invariably wipe out the funds of all the shareholders including the US$ 1.5 billion poured in by Soft Bank’s Vision Fund. The German regulator, BaFin, has all but frozen the bank’s operations, indicating “there is an imminent risk that the bank will become over-indebted”. It is estimated that 85% of the bank’s deposits of US$ 4.2 billion are covered by Germany’s public deposit insurance scheme, but that would still leave Institutional depositors picking ap a US$ 600 million tab.
The Council of Europe’s anti-graft report has noted that Austria’s government has repeatedly failed to tackle corruption among its lawmakers and the judiciary. The CoE’s group of 49 European states and the US, (known as Greco), castigated the country for “globally unsatisfactory” progress into tackling corruption. The latest case involves its finance minister, Gernot Blumel, in a widespread corruption probe into the connections between some of the country’s ministers and Novomatic, one of the largest casinos in the world, that could see the end of Sebastian Kurz’s time as Chancellor. The report places Austria behind Turkey, but just ahead of the Czech Republic and Serbia, in terms of its implementation of the council’s anti-corruption standards.
One of Donald Trump’s staunchest political adversaries, Governor Andrew Cuomo, is now facing his day of reckoning, which is fast approaching, as he encounters the wrath of the state of New York. After becoming a national hero for his statesman-like leadership at the height of the virus late last year, it is now discovered that his administration made the decision to order elderly patients being treated for Covid, back into the nursing homes; he was desperate to free up hospital beds for other patients. Now the state attorney-general is accusing him of undercounting nursing home deaths by 50% and then stonewalling state legislators requesting further information. On top of that, he is facing accusations, by two former female aides, of sexual harassment. Six months ago, Cuomo was a shoo-in for a fourth term in office – now he is in real trouble.
Both Germany and France seem to be struggling when it comes to Covid vaccines. Initially it was because the EU were months behind say the UK in ordering the vaccines and now when, they have got supplies, having trouble with distribution. At the beginning of the week, it was estimated that Germany had only distributed 364k doses out of a possible 1.45 million (about 25%), whilst France fared even worse with only 21% of its 1.1 million doses distributed so far. All vaccines should be cleared for use in the bloc by the European Medicines Agency, but some countries, including Hungary and the Czech Republic, have side-tracked this rule and have started using the Russian Sputnik jab, yet to be approved by the EMA. Despite French president Macron saying in January that the Astra-Zeneca jab was “quasi-ineffective”, (but now indicating he would take it), the EU leaders have started to talk up the brand, as stocks are piling up, amid widespread doubts about its efficacy among Europeans. By the end of the week, it was reported that Italy had halted a delivery of 250k doses of AstraZeneca to Australia because the Draghi administration considered it a ‘non-vulnerable’ country and ‘the high number of vaccine doses covered by the request. . .. compared to the quantity of doses supplied so far to Italy and, more generally, to EU countries’.
Prior to his Wednesday budget, Rishi Sunak announced a US$ 175 million boost for traineeships in England, which will include a new “flexi-job” apprenticeship that will enable apprentices to work with a number of different employers in one sector. In announcing the package, the Chancellor noted that it was “vital” that support continued to get people back into work. He has also introduced paying up to double the current cash incentive to firms who take on an apprentice, regardless of age. The scheme is expected to see 40k new apprenticeships. Currently, firms are given US$ 2.8k for every new apprentice they take on under the age of 25, and US$ 2.1k for those over 25, in addition to a US$ 1.4k grant they are already getting under another project.
Earlier in the week, it was announced that grants, to as high as US$ 25k per firm, will be made available to help shops and hospitality firms reopen once the current lockdown is eased; the scheme is expected to cost the Exchequer up to US$ 7 billion, with even more support later. The Chancellor also noted that this latest package was part of a range of support measures that would continue and that “we went big, we went early – and there’s more to come.” It is estimated that up to 700k businesses will be eligible for the so-called “restart gains”, which will replace the current monthly grant system. To date, US$ 35 billion has been spent on direct grants to businesses, since the onset of Covid-19. In 2020, there has been 180k jobs lost in the country’s High Street, attributable mainly to lockdown measures and the huge swing towards online shopping.
Other announcements made ahead of Wednesday’s annual economic speech included: a new government-backed mortgage guarantee scheme for home buyers with small deposits;; an “elite” visa to encourage high-skilled workers including researchers, engineers and scientists to come to the UK, (obviously very similar to Dubai’s earlier initiative); US$ 2.3 billion towards ensuring that every UK adult is offered a vaccine dose before the end of July; raising the limit on a single payment using contactless card technology to US$ 140 later this year; and a “world-first” green savings bond for retail investors to help boost the UK’s transition to net zero emissions.
Although many more have suffered financially from the impact of Covid-19, it is reported that up to six million people in the UK have become “accidental savers” because they managed to keep their jobs, whilst financial outgoings, including lower travel costs and fewer holidays or meals out, were being reduced. Most people are under the false impression that pent up demand is good forthe economy – for example, car sales spiked the month after the first lockdown was lifted and Dubai’s real estate sector did likewise. Now there is a fear – not without foundation – that when the next lockdown, now happening in many countries, is lifted, there would have been more than a year of constrained supply meeting what could be a once-in-a-lifetime demand surge, that would inevitably result in higher prices and stoke up the embers of inflation.
By Thursday, having already fallen 10% from February’s record high, the tech-heavy Nasdaq index had wiped out its 2021 gains, to close on 12,464, with the Dow dipping 1.1% to 30,924 and the S&P 1.3% lower at 3,768. These falls were attributable to the Fed chairman, Jerome Powell, taking no steps to assuage market volatility which has been pushing up bond yields to 1.533%. He commented that the increase was “notable and caught my attention”, but that “our current policy stance is appropriate.” It appears the fact that investors had pushed up borrowing costs in this way has not concerned the Fed, with him reiterating his promise to keep US interest rates near zero and monthly US$ 120 billion bond-buying intact. It seems that the Fed continues to hang fire and will only change policy, if conditions change materially but there has to be concern about inflation becoming a problem in the not too distant future.
Because of the unique feature of the current economic environment, nobody really knows what will happen when the lockdown curtain is lifted, but it is highly likely that there will be a much sharper increase in the inflation curve. What is known is that central banks worldwide have been printing money and, to put it lightly, monetary policy has been “loose”. It is nearly time for those very same regulators to change tack and act more assertively and tighten policy now, otherwise the inflation problem will only get worse and more difficult to overcome. It is estimated that people in the US and the eurozone have US$ 1.5 trillion and US$ 500 billion in savings because of not being able to spend as much during the lockdowns. The worry is that if a big percentage of that was splurged over a short period of time, inflation could easily run riot, with disastrous economic results, including higher interest rates, and much higher prices, as supply, which had suffered greatly during the pandemic, will be unable to meet the increased demand. It is a strange world that twelve months ago, it was a lack of inflation that was the major economic worry in the developed world and several rate cuts, by most global central banks, failed to move inflation higher. Now the opposite is going to happen. There are some outliers who think that future inflation levels will be set by the financial markets – and not the central banks.
What has to be remembered, is that government assistance has cost the UK taxpayer a lot of money that needs to be repaid. To date, the Johnson administration has borrowed US$ 380 billion this financial year, pushing the national debt to US$ 3 trillion. The Chancellor has faced calls to raise taxes from some parts of the Tory party, while Labour and other Conservative MPs have opposed increases. On Wednesday, Rishi Sunak did not disappoint and the payback for all his Covid-related borrowing is a massive US$ 22.5 billion hike in Corporation Tax and US$ 11.2 billion changes to thresholds for the last two years of this parliament. More than one million people are set to be paying income tax for the first in the next five years, with the Chancellor indicating that the thresholds, at which the tax starts being paid, will be frozen until 2025 after a rise next month, with the tax allowance being US$ 17.5k. Corporation Tax will jump 6% to 25% in April 2023, but the 19% rate will remain in place for about 1.5 million SMEs, with profits of less than US$ 70k.
Ann Hebert, Nike’s general manager for North America, has resigned, after twenty-five years with the company following revelations that her son’s booming sneaker resale business became public. Her nineteen-year-old son, Joe, is connected with the West Coast Streetwear firm and it is reported that he used a credit card, in his mother’s name, to purchase shoes for his business, which he resold for a profit. In one case he allegedly bought US$ 132k worth of shoes, from which he made a profit of US$ 20k. Nike defended their manager, indicating that they had been aware of her son’s business since 2018 and saying, “there was no violation of company policy, privileged information or conflicts of interest, nor is there any commercial affiliation between WCS LLC and Nike, including the direct buying or selling of Nike products.” It appears that bots were used to swarm online sale sites which negated systems meant to restrict purchases, to buy up popular, limited edition sneakers. Her son has done well but now Ann Herbert can no longer rely on her Mother’s Little Helper.