Such A Mess!                                              11 March 2022

For the past week, ending 11 March 2022, Dubai Land Department recorded a total of 2,333 real estate and properties transactions, with a gross value of US$ 3.65 billion. A total of 245 plots were sold for US$ 569 million, with 1,542 apartments and villas selling for US$ 896 million. The top three transfers for apartments and villas were all apartments – one was sold for US$ 107 million in Marsa Dubai, a second sold for US$ 98 million in Burj Khalifa, and the third sold for US$ 78 million in Al Wasl. The top two land transactions were for a plot of land in Trade Centre Second, worth US$ 54 million, and one in Palm Jumeirah for US$ 44 million. The most popular locations in terms of volume and value were Al Merkadh, with 74 transactions, totalling US$ 215 million, followed by Al Hebiah Fifth with 53 sales transactions, worth US$ 31 million, and Wadi Al Safah 5, with 33 sales transactions, worth US$ 46 million. Mortgaged properties for the week totalled US$ 1.04 billion, with the highest being for land in Palm Jumeriah at US$ 272 million. 145 properties were granted between first-degree relatives worth US$ 1.09 billion.

For the previous week, ending 04 March 2022, Dubai Land Department recorded a total of 2,131 real estate and properties transactions, with a gross value of US$ 1.91 billion. A total of 329 plots were sold for US$ 392 million, with 1,455 apartments and villas selling for US$ 896 million. The top three transfers for apartments and villas were all apartments – one was sold for US$ 148 million in Palm Jumeirah, a second sold for US$ 79 million in Marsa Dubai, and the third sold for US$ 68 million in Al Khairan. The top two land transactions were for a plot of land in Marsa Dubai, worth US$ 112 million, and one in Al Wasl for US$ 17 million. The most popular locations in terms of volume and value were Al Hebiah Fifth, with 90 transactions, totalling US$ 55 million, followed by Jabal Ali First, with 29 sales transactions, worth US$ 27 million, and Wadi Al Safah 5, with 22 sales transactions, worth US$ 30 million. Mortgaged properties for the week totalled US$ 591 million, with the highest being for land in Hadaeq Sheikh Mohammed bin Rashid at US$ 144 million. 59 properties were granted between first-degree relatives worth US$ 45 million.

Sobha Realty expects 2022 revenue to come in at US$ 1.6 billion, 60% higher than last year, on the back of continued economic growth, as the emirate’s impressive recovery from the impact of the pandemic continues. The developer is constructing its mega eight million sq ft Sobha Hartland, with 9k residential units, (comprising villas, townhouses and apartments), and located near Mohammed bin Rashid City. It is also planning a similar project, Hartland Sanctuary, also near MBR City, comprising 9k units and eleven million sq ft, with work starting later this year. By the end of 2022, it expects to have handed over 3k units in its Sobha Hartland development, which is slated for completion by 2026.

HH Sheikh Mohammed bin Rashid Al Maktoum has approved a new law to regulate virtual assets, and that an independent regulatory body called the Dubai Virtual Asset Regulatory Authority (VARA) will oversee the implementation of the law, in line with best international practices. It will be responsible for licensing and regulating the sector across Dubai Mainland and Free Zone territories (excluding the DIFC), with the law being applicable throughout Dubai – including special development zones and free zones. The VARA has legal personality and financial autonomy, and will be linked to the Dubai World Trade Centre Authority, with any fines or penalties imposed on a violator, being determined by a decision issued by the board of directors of the DWTC. The law stipulates that anyone wishing to practice any of the virtual assets’ activities must establish a presence in Dubai to conduct business and must have clearance from VARA.

The law defines the activities subject to VARA authorization as follows:

  • Operating and managing virtual assets platforms services
  • Exchange services between virtual assets and currencies, whether national or foreign
  • Exchange services between one or more forms of virtual assets
  • Virtual asset transfer services
  • Virtual asset custody and management services
  • Services related to the virtual asset portfolio
  • Services related to the offering and trading of virtual tokens

After declining to a four-month low the previous month, February’s seasonally adjusted IHS Markit PMI gained 1.5 to 54.1 in February driven by the impact of Expo 2020, boosting the travel and tourism sector, (posting its strongest growth since June 2019), as well as new orders rising; any number above the 50.0 mark indicates economic expansion. January’s figures had been dampened by the continuing Omicron variant, but since then, new orders have resulted in an uptick in client demand and a better-than-expected economic recovery has improved confidence levels and enhanced PMI figures. Indeed, the new order figure was one of the highest seen since the start of the pandemic two years ago. Although new business growth, in both the wholesale and retail sectors, remained strong, construction companies reported only a modest increase in new work. In the month, cost inflation eased so that businesses lowered their output charges at a much quicker pace, with the result that the rate of discounting was the second-fastest since September 2020. Dubai Statistics Centre has reported Dubai’s economy growing at 6.3%, year on year, in the nine months to September 2021, driven by the hospitality, trade and real estate sectors.

Since its 01 October opening, Expo 2020 Dubai has recorded 17.4 million visits, and 174 million virtual ones up to 07 March, driven by a “spectacular line-up of events and performers”. There is no doubt there is more to come over the next three weeks before the world symposium closes on 31 March.

On Monday, Dubai’s Crown Prince opened the new Meta regional headquarters in Dubai Internet City. HH Sheikh Hamdan bin Mohammed commented that the establishment of   the parent company of Facebook “reflects Dubai’s growth as a global business hub and the continued confidence of leading technology companies in the city as a base for tapping new opportunities and advancing innovation”. Serving millions of customers in the Mena region, and employing over one hundred staff, it has introduced training and business resource centres, and a MetaBoost programme, to help businesses expand.  It has also awarded grants to more than one hundred Dubai-based SMEs, as part of its efforts to support businesses impacted by the pandemic.

He also opened the five-day Dubai International Boat Show 2022, noting that the event is one of the world’s top three most influential international yacht shows. The Crown Prince also commented that it reflects Dubai’s status as a prominent global maritime destination and demonstrates Dubai Harbour’s capabilities, as a dedicated superyacht marina. Now in its 28th year, the show, which has such a positive effect on growth and investment in the global maritime sector, features more than eight hundred brands.

Surpassing pre-pandemic returns, flydubai posted a 2021 profit of US$ 244 million, driven by an 86% surge in revenue to US$ 1.44 billion, with passenger numbers 76% higher at 5.6 million.  Flight numbers rose by 12.8% to 6.4k, from January 2020’s level of 5.7k. The demand for connecting traffic has jumped 34%, as passengers connect on to its network or through its codeshare with Emirates. During the year, the budget airline introduced twenty-two new routes, thirteen of which were unserved destinations from Dubai. From this month, the carrier will start taking delivery of twenty Boeing 737 MAX 8 aircraft. Over the year, its five busiest routes were Alexandria, Bahrain, Bucharest, Doha, and Karachi, whilst it launched flights for the summer season to Batumi, Bodrum, Mykonos, Santorini and Trabzon. Its CEO Ghaith Al Ghaith commented that “as the momentum for travel continues to build, we will increase frequencies and introduce new destinations on our network during 2022.”

In a move that promises to capture more market share and to expand its business offerings, Al Fardan Exchange has teamed up with Singaporean cross-border payments FinTech Thunes. The combination will introduce real-time remittances, permitting customers to make instant payments to bank accounts in eighty-seven countries, as well as to monitor the status of their transactions in real time. Chief executive, Hasan Al Fardan, commented that “this collaboration with Thunes will further digitise our payment services and help boost our business growth strategy.” Earlier in the year, the Dubai-based exchange teamed up with US blockchain tech company Ripple to offer instant cross border payments, as an increasing number turn to using mobile apps to remit money home, rather than queuing at physical branches. The World Bank estimates that, in 2021, there had been a 7.3% increase, to US$ 589 billion, of global remittances to poor and middle-income countries, and that outward remittances from the MENA region had jumped 9.7%.

DP World Limited posted a 26.3% rise in 2021 revenue to US$ 10.78 billion, driven by acquisitions and new concessions including Angola, Unico and Transworld, and resulting in adjusted EBITDA growing 15.3% to US$ 3.83 billion, equating to a 35.5% margin.  Higher storage and reefer monitoring revenue saw containerised revenue 14.2% higher, as like-for-like revenue rose by 11.7% with like-for-like containerised revenue up 14.2%, driven by volume growth; like-for-like non containerised revenue grew 9.5%. Cash from operating activities jumped 27.3%, to a record US$3.69 billion in 2021, whilst capex came in 29.5% higher at US$ 1.39 billion with 2022 guidance figures at US$ 1.40 billion.

Emirates Central Cooling Systems Corporation has announced a US$ 136 million 2021 dividend, equating to 53.4% of its 2021 US$ 255 million net profit. Empower posted a 9.3% hike in revenue to US$ 628 million, and operates in over 1.4k buildings, including real estate developers, owners, and end-users. It has recently concluded three deals – in Nakheel, Meydan and Dubai International Airport – to acquire their district cooling schemes for US$ 545 million. These three additions will boost top line figures this year, as will the start of operations, with new generation district cooling plants in Za’abeel and Dubai Production City.

Driven by rising regional sales and higher exports, Ducab posted a 35% hike in 2021 revenue, and is fairly confident of another boost to its top line this year, as it targets “a much closer and deeper partnership with our clients”. Ducab’s total production of cables and metal reached 170k tonnes last year. The company, jointly owned by the Investment Corporation of Dubai and Abu Dhabi holding company ADQ, benefited by global economies recovering after the impact of Covid, as well as the higher oil prices resulting in a marked rise in capex. The company will continue to focus on exports to established markets in Europe, the Americas, India, Australia and the GCC region but sees its “biggest potential in African and European markets”. As oil prices continue to head north, and with more financing available for belated expenditure in the oil and gas sector, along with massive infrastructure projects, such as Etihad Rail, Al Dhafra solar plant in Abu Dhabi, Mohammed bin Rashid Al Maktoum Solar Park in Dubai, Barakah nuclear plant plus Sudair solar plant in Saudi Arabia, Ducab’s growth prospects look highly promising.

Drake & Scull International has “officially completed” its restructuring plan after gaining the required two-thirds voting majority, (in terms of value), from its 600+ creditors for a consensual agreement. The Dubai contractor’s chairman, Shafiq Abdelhamid, noted that “we are hopeful that Drake & Scull will return to the path of growth and prosperity in the coming years.” Five years ago, DSI’s first restructuring plan resulted in US$ 462 million worth of shares being cancelled to clear historic losses, with private equity firm Tabarak Investment committing US$ 126 million for a strategic stake in the company. Last year, it applied to Dubai Courts for a further restructuring procedure, in accordance with the emergency provisions of UAE Bankruptcy Law, and now awaits their final decision.

Dubai Holding has posted a record 1,244% increase in 2021 net profit to US$ 735 million, driven primarily by its 50% subsidiary, Emirates Global Aluminium, which has benefitted by soaring global prices of aluminium, as well as good operational performance. The investment arm of Dubai Government, in the commodities and mining, power and energy, and industrial sectors, (in a JV with multiple partners), is currently constructing Dubai Waste Management Centre at Warsan – one of the world’s largest Waste-to-Energy plants – which will treat annually about 1.9 million tonnes of solid municipal waste and provide electricity to around 100k households. The project is scheduled for completion within thirty months.

Last June, Damac Properties’ founder, Hussain Sajwani, advised the DFM that he would buy the remaining 28% of shares in his company for US$ 595 million, via his fully owned company Maple Invest, which submitted a notice for the mandatory acquisition of all its shares. In October, it was announced that the remaining shareholders would receive US$ 0.381 per share, and shares stopped trading on the DFM on 15 February 2022, Last Monday, the general assembly meeting approved “the conversion of the legal form of the company from a public joint stock company to a private joint stock company” and now it will formally delist from the local bourse.

The DFM opened on Monday, 07 March 122 points (3.7%) higher on the previous week, shed 27 points (0.8%) to close on Friday 11 March, at 3,402. Emaar Properties, US$ 0.09 higher the previous week, was flat at US$ 1.44. Emirates NBD, DIB and DFM started the previous week on US$ 4.10, US$ 1.72 and US$ 0.66 and all closed lower on US$ 4.06, US$ 1.63 and US$ 0.61. On 11 March, trading was at 94 million shares, with a value of US$ 67 million, compared to 119 million shares, with a value of US$ 111 million, on 04 March 2022.

By Friday 11 March 2022, Brent, US$ 24.34 (26.0%) higher the previous fortnight, shed US$ 5.34 (4.6%), to close on US$ 112.67, having hovered around US$ 130 earlier in the week. Gold, US$ 85 (4.5%) higher the previous week, gained US$ 17 (0.9%), to close Friday 11 March on US$ 1,992. The Minister of Energy and Infrastructure, Suhail Al Mazrouei, has confirmed that the country had not agreed to raise output individually outside the OPEC+ framework and that the UAE believes in the value the pact brings to the world oil market. Earlier OPEC acknowledged the UAE’s stance to maintain consensus among the group’s members on all issues related to the global oil market.

Last Friday, the Food and Agriculture Organisation’s February food price index, was 5.3 points higher on the month, and up 20.7 points, year on year, at 140.7 – a record high, attributable to a surge in vegetable oils and dairy products. Higher food prices are one of the main drivers behind global surging inflation and these figures were collated before the onset of the Ukraine crisis; factors such as energy costs, a marked rise in transport/supply expenditure and rising fertiliser expenses all came into play. Everybody will lose but the FAOhas warned that the higher costs are putting poorer populations at risk in countries reliant on imports. The FAO food indices mostly headed north on the month with the likes of vegetable oils, cereal, maize, wheat, meat and dairy up 8.5%, 3.0%, 5.1%, 2.1%, 1.1% and 6.4% respectively; sugar was the only index to head lower – by 1.9%.

At this week’s Senate Select Committee on Job Security meeting, it was alleged that Sunny Ridge, one of Australia’s largest labour hire firms, oversaw Pacific and Timorese workers pocketing just US$ 67 (AUD 100) per week, after it deducted hundreds of dollars in additional costs.  The company’s chief executive, Matthew Collard claimed at the meeting that workers had earned more than expected under the Australian government’s Pacific Labour Scheme. Yesterday it heard about a Victorian strawberry picker who had earned US$ 685 for. working 30.38 hours, equating to US$ 22.54 per hour, but ended up with less than US$ 65 after labour hire company MADEC Employment’s deductions. (MADEC is one of Australia’s largest employers of overseas seasonal workers and operates the national Harvest Trail). MADEC’s chief executive Laurence Burt told the hearing that costs were recovered for several reasons, including air fares, visa costs, other expenses and cash advance payments, as well as accommodation, transport, and health insurance.

As indicated in a recent blog, Swedish telecoms company Ericsson, has finally had its day in court.  Last Friday, chief executive, Borje Ekholm, along with his CFO, have been named as defendants in a US class action lawsuit for misleading investors about the company’s dealings in Iraq, involving possible payments to the terrorist group ISIS, with the US DoJ arguing it was in breach of a 2019 deferred prosecution agreement for failing to fully disclose details of its operations in Iraq. (Under the conditions of the 2019 DPA, Ericsson paid more than $1 billion to resolve a series of corruption investigations, involving bribery in China, Vietnam and Djibouti, and agreed to co-operate with the Department for investigations). The filing said that Ericsson, among other things, had misled investors by overstating the extent to which it had eliminated the use of bribes. The Swedish telecom confirmed that it and “certain [company] officers” had been named as defendants in connection with “allegedly false and misleading statements” concerning Iraq. Over the past six weeks, when the news first broke, the company has lost over 30% in its share value.

By the end of last week, Zara, Paypal and Samsung became the latest international firms to suspend trading in Russia. The clothes retailer’s owner, Inditex, has shut all 502 stores of its eight brands, including Bershka, Stradivarius and Oysho. PayPal closed down its services because of “violent military aggression in Ukraine”, whilst Samsung cited “geopolitical developments”. Even if they had not closed operations, it would have been difficult to continue business in Russia because of the collapsing rouble – making prices even higher for local consumers – and the logistic difficulties of importing goods into the country. These three companies pulling out of the country, along with the likes of LVMH, Hermes, Kering and Chanel, will hit the younger Russians and their reaction to all these closures will prove interesting. On Saturday, US payments firms Visa and MasterCard both suspended operations in Russia, indicating that they would work with their clients and partners to cease all transactions in the country.

Much later in the week, Goldman Sachs, with a total Russian credit exposure of US$ 650 million became the first Wall Street bank to pull out of the country, as mega money transfer conglomerate, Western Union indicated that it would suspend operations there. Later, JP Morgan Chase also said it was “actively unwinding Russian business. Earlier on Thursday, the owner of Uniqlo made a U-turn and decided to suspend operations in the country.

According to an FT report, BlackRock could have taken a US$ 17 billion loss on its Russian securities holdings because of the military offensive in Ukraine. At the end of January, the US asset manager was holding more than US$ 18.2 billion in Russian assets, with their value being subsequently battered by global sanctions and the local market tanking; at the end of February, the book value had fallen to US$ 1.0 billion. The report noted that the majority of assets are “vast majority unsaleable, leading BlackRock to mark them down sharply”. The asset manager, which has some US$ 10 trillion under management, has suspended all trading in the country.

Meanwhile, Moody’s Investor service has slashed the ratings of ninety-five non-financial Russian companies. As expected, it also downgraded Russia’s ratings deeper into “junk”, (from B3 to Ca, with a negative outlook), or non-investment grade territory, for the second time in a fortnight; it is also forecasting that the country will contract by 7.0% in 2022, driven mainly by the sanctions which has forced the Central Bank to introduce capital control measures.  These will restrict cross border payments including debt service on government bonds. The Ca rating is a sign that Russia may not have enough cash reserves to meet its financial obligations, as well as making it more difficult – and more expensive – to raise funds globally. Furthermore, an increasing number of Russian banks have had sanctions imposed including exclusion from the global payments system Swift, which in turn has “significantly disrupted” the country’s ability to receive payments for exports, pay for imports and make cross-border financial transactions. Higher inflation and lower living standards are an inevitable result of the depreciation of Russia’s rouble.

A plethora of global MNCs have already exited or stopped providing their Russian markets, and by mid-week pressure, was growing on both McDonald’s and Coca-Cola to do likewise; other firms still operating there include KFC, Pepsi and Starbucks and Burger King. Last year, KFC reached a total of 1k restaurants in the country and had planned a further one hundred this year, whilstMcDonald’s can boast 847 stores in Russia, most of which are owned by the company, different from their usual global franchise approach. By Wednesday, further outside pressure, including from major pension funds, saw all these food firms eventually falling in line and cut off ties with Russia.

Having already been the recipient, from the IMF, of US$ 2.7 billion in emergency relief last August, and a US$ 700 million disbursement in December, Ukraine received a further US$ 1.4 billion in emergency funding from the world body. The IMF is in continuous discussions with Ukrainian authorities to assist them manage their economic crisis and to mobilise financial support and resources. Kristalina Georgieva, head of the IMF, noted that it was too early to predict the impact on the global economy, but it would result in the displacement of millions of people, higher energy/food prices and an erosion of business confidence, (which is already happening). The US House of Representatives approved a US$ 13.6 billion aid package to Ukraine, aimed at helping with bolstering the country’s forces as it battles Russian invaders as well as providing humanitarian assistance. House Speaker Nancy Pelosi indicated that this is likely to be just the tip of a much broader aid effort, as “all of us will have to do more” to help Ukraine in coming weeks or months and over the long-term to help it rebuild.

Because of its offensive manoeuvres in invading Ukraine, with Western countries responding with severe economic and financial sanctions, as well as freezing assets of HNWIs, including several oligarchs and the President himself, it is expected that the Russian economy will shrink by more than US$ 250 billion this year. At the beginning of 2022, the Russian economy was the eleventh biggest in the world – by the end it is estimated that it would have fallen to fourteenth with its GDP 15.2% down to US$ 1.86 trillion. Since 24 February, when Moscow launched its first military attack, the rouble has lost more than 30% in value, and Russian billionaires’ fortunes have, fallen by some US$ 88 billion according to Bloomberg Billionaires Index. There is no doubt that the economic damage, being suffered by Russia, will spill over into the global arena and there is the distinct possibility that Russia will become increasingly dependent on China whilst the international economy could easily slide into recession. Notwithstanding, the financial and economic woes, it must never be forgotten that Putin’s latest foray has already cost thousands of lives and seen a possible five million Ukrainians going into exile.

With several nations baying for a ban on Russian exports of thermal coal, one short-term beneficiary could be Australia. Russia, which supplies 70% of Europe’s thermal coal imports, could lose out on two fronts, as any ban will see other countries taking up the sizeable slack, and as prices skyrocket, it may speed up the transition to renewables. Late last week, the spot price for shipments leaving the Australian port of Newcastle soared to US$ 418 a tonne, easily surpassing the previous November record of US$ 269. Only two years earlier, prices had dipped to below US$ 50 a tonne, and if there is only marginal demand for Australian coal, in the current very tight market, any extra incremental demand could support higher prices probably for the rest of 2022. However, much of the coal sales are sold under long-term contracts and, that being the case, not much of the current coal sales will be leaving Australia valued at US$ 400 million a tonne – at least in the short-term. Longer-term, the outlook is not as rosy, as the calls, for fossil fuels to be replaced by renewable energy, grow louder.

A government forecast, delivered by Premier Li Keqiang to the national legislature, sees China’s economy growing at 5.5% in 2022; last year, the economy expanded by 8.1%. Other parts of the strategy are the creation of eleven million new jobs, maintenance of an unemployment rate at a maximum 5.5%, keeping grain output at over 650 million metric tonnes and to lower the ratio of its deficit to GDP to 2.8%. The legislature is also looking at tax cuts and refunds, amounting to a massive US$ 395 billion, and extending policies that support SMEs and self-employed individuals.

An executive order signed by Joe Biden this week requires the likes of the Treasury Department, the Commerce Department and other key agencies to assess the pros and cons of creating a central bank digital dollar, as well as other cryptocurrency issues; in January, a paper by the Federal Reserve, commented on the risks and benefits of a US-backed digital currency. There is no doubt that the Biden administration is keen to promote responsible innovation, and at the same time to mitigate the risk to consumers, investors and businesses. The lawmakers in the White House appear to be “clear-eyed that ‘financial innovation’ of the past has too often not benefited working families, while exacerbating inequality and increasing systemic financial risk”. As an aside, the Biden administration continues to play down the significance of cryptocurrency, and Russia’s misuse of it to evade sanctions, but it remains a concern. What is certain is that cryptocurrency will remain a part of the US economy for years to come and the desire to maintain the centrality of the dollar in the global economy.

Even before the onset of the Ukrainian crisis, the US was reporting inflation levels at forty-year highs, with housing costs, accounting for a third of the CPI, continuing to head north. The main drivers include supply chain problems, further accelerated price increases, robust consumer spending and solid pay rises. Many prices have risen because of steady job growth, and increased consumer spending has led to higher demand which in turn has driven reduced supplies of items such as cars, building materials and household goods. Now with 7.9% inflation running faster than pay rises, many are now struggling to afford basic necessities, such as food, energy and housing. Over the past two months, inflation has risen 0.8% and 0.6%, and an interest rate hike of up to 0.5%, as early as next week, is all but certain, despite the economic consequences of Russia invading Ukraine. The world is now suffering because of the inaction of many governments and central banks, (including the Fed, ECB and BoE), in not addressing the unfolding issue of inflation. What is the purpose of setting a 2.0% inflation target and then letting it slide to as high as 8%? On top of that, sanctions will  not only badly effect Russia but could also push global economies into recession. Such A Mess!

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