Batten Down The Hatches

Batten Down the Hatches!                                                                   08 April 2022

For the past week, ending 08 April 2022, Dubai Land Department recorded a total of 2,102 real estate and properties transactions, with a gross value of US$ 1.44 billion. A total of 236 plots were sold for US$ 292 million, with 1,415 apartments and villas selling for US$ 807 million. The top three land transactions were for a plot of land in Hadaeq Sheikh Mohammed bin Rashid, worth US$ 20 million, a plot in Al Merkadh for US$ 6 million, and land for US$ 5 million in Al Satwa. The most popular locations, in terms of volume and value, were Al Hebiah Fifth, with 119 transactions, totalling US$ 73 million, followed by Al Merkadh, with 40 sales transactions, worth US$ 107 million, and Wadi Al Safa 5, with 15 sales transactions, worth US$ 20 million. Mortgaged properties for the week totalled US$ 1.05 billion. 53 properties were granted between first-degree relatives worth US$ 74 million.

The Central Bank of the UAE confirmed that Q4 non-oil economy expanded by an annual 7.8%, attributed to the easing of pandemic-related restrictions and travel curbs. Based on these figures, it still expects that GDP, which was 2.3% higher last year, will expand at 4.2% in 2022; the non-oil economy expansion is estimated to have grown at 3.8% in 2021 and projected to be 3.9% higher this year. Whilst the oil economy dipped 1.4% last year, it is expected to grow at 5.0% in 2022, driven by Opec+ members agreeing to bring additional crude to the market, as UAE’s oil production was ramped up by 9.3% in Q4. IMF estimates are slightly different indicating a 3.5% growth in the economy and 3.4% for the non-oil economy, with Emirates NBD forecasting growth of 4.0% and 3.5% respectively.

Etihad Rail and Dubai International City Plans have announced plans to develop a 510k sq mt advanced freight terminal. DIC is one of the region’s largest manufacturing and logistics hubs and part of TECOM Group, and this project is but one of several  to enhance the UAE’s position as an international trade hub and boost Dubai’s global competitiveness in manufacturing, logistics, transport, trade, and investment.

The RTA has noted a decrease in the number of complaints from customers using taxis, with just 0.03% out of total 88.9 million trips carried out in 2021; the previous two years had seen 0.04% and 0.05%. The RTA taxi sector comprises 11k taxis. with five franchise companies – Dubai Taxi Corporation, Cars, Arabia, National, and City Taxi, in addition to Hala Taxi e-hail.

The Ministry of Economy confirmed that the country attracted US$20.7 billion in foreign direct investment in 2021 – 3.9% higher on the year. FDI was directed at various “traditional” sectors such as renewable energy, financial services, insurance activities, real estate, health, industry and agriculture The Ministry also noted that various aspects of the digital economy, including AI, IoT, VR, blockchain and robotics also attracted “considerable FDI”. UAE’s total FDI balance increased 13.7% on the year to US$ 171.7 billion by the end of last year. The country ranked first in the Arab world and moved four places to 15th globally in Kearney’s FDI Confidence Index for 2021.

In a bid to support the genuine whistle-blower, Dubai Financial Services Authority has launched a new regulatory framework to provide enhanced legal protection to those who report misconduct internally within DFSA-regulated entities, or externally to either their auditor, the DFSA or a law enforcement agency. It will be applicable to all DFSA-regulated entities operating in, or from, the Dubai International Financial Centre. It also aims to increase transparency around how the authority handles regulatory concerns, to assess those concerns and, where appropriate, escalate them. It will also protect the identity of the whistle-blower and to protect them from suffering any negative consequences.

The average seasonally-adjusted Q4 UAE Purchasing Managers’ Index rose 11.3% on the year, posting 55.6 at the end of December – its highest reading since mid-2019. The Central Bank noted the four main drivers for the improvement were “supported by the benefits of Expo 2020, the relaxing of the Covid -19 restrictions, that boosted travel and tourism, higher export orders, and a regain in domestic demand”. Over the quarter, inflation increased 2.3% on the year and 0.6%, quarter on quarter. The first quarter of this year saw inflation reach 3.3%, with a 2.7% average headline inflation forecast for 2022, with “the main drivers would be the pickup in energy prices, imported inflation, that is expected to be record high globally, rising wages and the continuation of the declining trend of rents.” Dubai real estate posted a massive 9.1% property price rise in Q4, as hotel occupancy rates rose to global highs of 82%, compared to 63% a year earlier.

Last year, investments in National Bonds jumped 36.0% to US$ 3.24 billion, as the Shari’a-compliant savings and investment company posted a 64.0% increase in sales, driven by the growth to its innovative savings programmes and services. The company, owned by the Investment Corporation of Dubai, earned savers returns of up to 3.33% and also paid out bondholders US$ 10.0 million in draw prizes; savers also received additional bonuses from the Mudarib’s own funds, based on their invested amount, tenure and savings behaviour.

The Abu Dhabi Commercial Bank lost in its attempt to have a US$ 1.2 billion trial held in London, with Judge Mark Pelling saying the trial should be heard in Abu Dhabi. The bank wanted the case, involving senior managers of plundering private healthcare group NMC before it collapsed in 2020, in London, with the bank hoping that its lawyers could cross-examine former directors of about the “massive fraud” that led to undisclosed debts of up to US$ 5.4 billion. Six executives, including founder Dr BR Shetty, are in court over a “sustained and deliberate” effort to mislead the bank about NMC’s finances to ensure that the bank kept lending money. According to the bank’s lawyer, Adrian Beltrami, “every accused has told the court they were innocent, while at the same time seeking to avoid giving a full account of their actions, distancing themselves from the affairs of NMC Plc, and blaming others.”

e&A shareholders have approved a US$ 0.109 dividend for H2 2021, meaning a full year dividend of US$ 0.218. UAE’s biggest and oldest telecoms operator, founded in 1976, has operations in countries across the Middle East, Asia and Africa, serving more than 156 million customers. Last year, both its revenue and net profit came in 3.0% higher at US$ 14.52 billion and US$ 2.53 billion. Prior to November, it was known as Etisalat but rebranded to its new name as it transforms into a global technology investment conglomerate.

DEWA will raise US$ 6.1 billion from its IPO on the DFM, making it the largest listing in the Middle East, Europe and Africa since Saudi Aramco went public in 2019. On Tuesday, the Dubai government confirmed the final offer price at US$ 0.676 (AED 2.48) – the highest point of the price range set earlier – valuing DEWA at US$ 33.8 billion.  A price range had been set at between US$ 0.61 and US$ 0.67, equitable to a market value of US$ 30.6 billion and US$ 33.8 billion. Nine billion ordinary shares, representing 18% of DEWA’s issued share capital, were offered, which was 37 times oversubscribed.

The DFM opened on Monday, 04 April 187 points (5.4%) up on the previous fortnight, nudged 5 points (0.1%) higher to close on Friday 08 April, at 3,542. Emaar Properties, US$ 0.28 higher the previous five weeks, was US$ 0.2 to the good at US$ 1.65. Emirates NBD, DIB and DFM started the previous week on US$ 4.09, US$ 1.69 and US$ 0.67 and closed on US$ 3.95, US$ 1.68 and US$ 0.77. On 08 April, trading was at 170 million shares, with a value of US$ 142 million, compared to 92 million shares, with a value of US$ 92 million, on 01 April 2022.

By Friday 08 April 2022, Brent, US$ 13.26 (11.8%) lighter the previous week, was US$ 3.36, (3.4%) higher, to close on US$ 102.78. Gold, US$ 29 (1.5%) lower the previous week, gained US$ 19 (0.9%), to close Friday 08 April on US$ 1,946.

Shell, who were slower than most to quit Russia, has confirmed it will take a hit of up to US$ 5 billion from offloading its Russian assets, as part of plans to withdraw from the country, including quitting JVs with Gazprom. As part of Shell’s withdrawal plans, it will offload a 27.5% stake in a Russian liquefied natural gas facility, a 50% stake in an oilfield project in Siberia and an energy JV, as well as walking away from its involvement in the Nord Stream 2 pipeline between Russia and Germany,

A US jury has found Roger Ng, the former head ofGoldman Sachs in Malaysia, guilty on all charges in the trial, relating to the theft of billions of dollars from Malaysia’s 1MDB sovereign wealth fund. He is the only Goldman Sachs banker to face a jury over the scandal and his lawyers are declaring that he was “a fall guy`’. The case revolved from bond deals, between 2012-2013, that the US bank helped arrange, that raised US$ 6.5 billion for the 1MDB fund, which had been set up to finance public development projects; it was claimed that more than US$ 4.0 billion was stolen. Prosecutors said 49-year-old Mr Ng, who received US$ 35 million in kickbacks, was central to the scheme, introducing Tim Leissner to Chinese-Malaysian financier Jho Low, the alleged mastermind and a confidant of former Malaysian Prime Minister Najib Razak, who has been subsequently sentenced to twelve years in jail for abusing his power, laundering money and breaching the public’s trust. Goldman has paid out US$ 3.9 billion in a settlement with the Malaysian government and US$ 3.0 billion to authorities in four countries to end an investigation into work it performed for 1MDB.

A keen user of the micro-blogging site, Elon Musk, has just acquired a 9.2% stake, (and a seat on the Board), in Twitter, with the 73.5 million shares bought, valued at US$ 2.9 billion; the Tesla chief, who joined the site in 2009, has over eighty million followers. There was no surprise to see its share value skyrocket 26% on the news. Recently, Twitter’s new biggest shareholder has been critical of the social media platform and its policies, saying the company is undermining democracy by failing to adhere to free-speech principles. 

Musk has been selling his stake in Tesla since November, when he said he would offload 10% of his holding in the electric-car maker and has subsequently sold US$ 16.4 billion worth of shares. Despite the ongoing supply chain problems, and strict coronavirus policies in China, in the first quarter of the year, Tesla delivered a record 310k vehicles – almost 70% higher than the 185k in the corresponding period a year earlier. The bulk of deliveries were of Tesla’s Model 3 sedan and Model Y, the latter launched in 2019, (two years after Model 3), and has a bigger market potential, with its longer range per charge than the Model 3. It has a ‘giga factory’ in Shanghai, which is a high-volume car manufacturing plant, which also produces the lithium-ion batteries that power the vehicles; most of the city is currently under a staggered Covid lockdown.

It could not come at a worse time for, as its Kinder chocolate factory in Belgium has been ordered to close after it was linked to dozens of salmonella cases, in the UK, Germany, France and Belgium, just a week before Easter. Belgium’s food safety authority has also ordered the recall of all Kinder products made at the factory in Arlon, which is owned by Ferrero, who have apologised and acknowledged “internal failures”. Investigations are ongoing but the factory will not reopen until Ferrero provide the necessary guarantees that it complied with food safety regulations. The recall includes all Kinder Surprise, Kinder Surprise Maxi, Kinder Mini Eggs and Kinder Schokobons products, as well as a number of Kinder Surprise chocolate egg products in the UK.

UK’s biggest private employer, Tesco is set to introduce a 5.8% pay rise to US$ 13.20 (GBP 10.10) in July, as its delivery drivers and click and collect assistants will get an 8.9% increase to US$ 14.37 (GBP 11.00) an hour. This will bring the supermarket in line with Lidl and Aldi, which became the UK’s highest-paying supermarkets this year with the same hourly rate. Twelve months ago, Morrisons became the first UK supermarket to announce its minimum staff pay would be US$ 13.10 (GBP 10.00), with Sainsbury’s following suit in January 2022. Tesco will also increase its “colleague clubcard” discount allowance by 50% to take the annual total allowance to US$ 1,960, (GBP 1,500), with immediate effect. It is estimated that, with its 300k employees, the new pay rises will cost an extra US$ 261 million. The National Living Wage, which applies to workers over the age of 23, has increased 6.6% to US$ 12.52 (GBP 9.50), from this month and the National Minimum Wage, for those aged 21 to 22, has gone up to US$ 12.00, (GBP 9.18).

Maggie Thatcher first term as UK Prime Minister saw her popularity drop because of a recession and a jump in unemployment and her re-election in 1983 was not a sure bet but she was saved by the Falklands War. It seems that the electorate do not like change in the midst of any crisis. Likewise, one would expect the same for French President Emmanuel Macron but he is now realising that the expected bounce in the polls has failed to materialise; one month ago, Marine Le Pen was trailing Macron by ten points and fighting for a place in the second round against him, now she is a clear favourite to face Macron in the second round. Many think that Macron has had his day in the sun and France is ready for a change but the polls have been wrong in the past – Brexit, Trump and Le Pen would be some trifecta.

Canada has some of the worst housing affordability issues in the world, so bad that Prime Minister Justin Trudeau has proposed a two-year ban on some foreigners buying homes. With average prices having climbed more than 20.0% to US$ 650k – more than nine times household income – it seems that this move will have little impact, mainly because foreigners account for just 1% of purchases in 2020, down from 9% in 2015 and 2016.  However, the Prime Minister has pledged to tackle the housing affordability problem and, apart from the temporary two-year ban on foreign buyers, his administration has set aside billions to spur new construction and introduced new programmes, such as a tax-free savings account for first-time buyers. He has also discussed banning certain bidding processes that favour investors, who by some measures have accounted for about one in five homes purchased in Canada since 2014. The problem has not been helped by soaring housing costs, a strong population growth and a supply shortage, along with historically low interest rates.

Yesterday, the Pakistani rupee slumped to an all-time low of nearly 189 rupees to the US$ due to political uncertainty in the South Asian country, the impact of high oil prices on the country’s balance of payments and US Federal Reserve’s hawkish policy to contain inflation. To make matters worse, forex reserves declined 3.9% in March, on the month, and it seems there is worse to come. By Friday, the Supreme Court decided that President Arif Alvi could not dissolve parliament on recommendations of prime minister Imran Khan but opposition parties could oust him through a no-confidence vote. Embattled Pakistan Prime Minister Imran Khan on Friday accepted a Supreme Court verdict reinstating the dissolved National Assembly “albeit with a heavy heart”. On Thursday, the Central Bank lifted rates by 250 bp to 12.25% to support the flagging currency and take a grip on the surging inflation rate the 2022 forecast of which has recently been revised upwards to 11.0%. Its current account deficit stands around the 4% mark, whilst liquid foreign reserves are at US$ 17.5 billion, with net foreign reserves held by commercial banks at US$ 6.15 billion, and the State Bank’s US$ 11.32 billion.

Yesterday, 07 April, the Central Bank of Sri Lanka appointed P Nandalal Weerasinghe as the new governor of the country’s central bank, replacing Ajith Nivard Cabraal who resigned on Monday, amid mass protests over rising living costs and power cuts. The new incumbent had been the deputy governor for eight years to 2020, following which he became an independent consultant in Australia. The country, enduring its worst economic crisis in over seventy years, is facing a massive crisis of confidence, exacerbated by shortages and soaring inflation, after the country steeply devalued its currency in March. This week, its rupee has plunged to a record low, as President Gotabaya Rajapaksa struggles to contain a worsening economic and political crisis. By Wednesday it was hovering around the 330 rupees to the US$ – 32% lower YTD – and seen as the world’s worst performing currency, even surpassing the Russian rouble. All 26 of Sri Lanka’s ministers have submitted letters of resignation – but not Prime Minister Mahinda Rajapaksa or his brother, Gotabaya Rajapaksa.

With Australia formally signing a trade deal with India this week, it will see 96% of Indian goods imports entering Australia duty-free and the removal of 85% of tariffs on Australian goods exports to India, worth US$ 9.45 billion. Tariffs will be scrapped on sheep meat, wool, copper, coal, alumina, fresh Australian rock lobster, and some critical minerals and non-ferrous metals to India and a full trade agreement is on the horizon. The Australia-India Economic Cooperation and Trade Agreement comes after a decade of negotiations and weeks before Prime Minister Scott Morrison faces the electorate in a general election. Scot Mo noted that the agreement, with the world’s second-most populous nation, represented “one of the biggest economic doors there is to open in the world today”. Deals like this will help dilute Australia’s long-standing reliance on its biggest trading partner, China, which has seen increased tensions in recent years.

This week, the Australian Federal Court of Australia approved the pay-out of US$ 73 million to hundreds of franchisees of 7-Eleven. It is expected the  six hundred claimants would wind up with about US$ 45 million after fees etc were cleared. It was alleged that the convenience store’s business model was unprofitable unless staff were underpaid and was being pursued by franchisees as part of several class action proceedings. In Australia, it largely operated via a franchise network model, where individual operators buy the rights to operate stores under its logo and guidelines. It was claimed that the “franchisee was being squeezed, and the front-end worker was the major loser,” and that the “they had been sold a lemon”. In some cases, a 2015 ABC investigation found that store staff – many of them migrant – were working twice as long for half the pay. 7-Eleven acknowledged the settlement without admitting to any of the claims made. A  2019 parliamentary inquiry, in part triggered by the 7-Eleven revelations, found that the entire franchise sector required drastic and immediate overhaul.

The European Commission President, Ursula von der Leyen, has proposed an EU-wide ban on imports of Russian coal worth US$ 4.4 billion per year, which equates to about 4% of the  US$ 108 billion that the bloc spent on Russian mineral fuels last year. The new package of sanctions sees a transaction ban on four “key” Russian banks, including its second largest financial institution VTB, that take up 23% of Russia’s banking market, but the country’s largest and third largest banks, Sberbank and Gazprombank, remain untouched; they handle most energy-related payments. The EC is also set to introduce new import bans totalling US$ 6.0 billion, covering wood, cement, seafood and liquor and a set of new export bans worth US$ 11 billion to hit sectors in which Russia is considered “vulnerable,” such as quantum computers, semiconductors and sensitive machinery. No surprise to see no mention of gas imports, with the bloc being accused of funding Russia by not introducing sanctions on purchases of Russian fossil fuels – both the US and the UK have already announced plans to completely phase out imports.

The Ukraine war, and the ongoing global supply chain problems, have led the World Trade Organisation to slash its 2021 global trade growth forecast from 4.7% to 2.5%. It is increasingly concerned with the possibility of a major food crisis, as many food items, including wheat and corn, have been affected following Russia’s invasion of Ukraine, although Russia and Ukraine only make up about 2.5% of global merchandise exports. For example, 46.9% of global exports come from Ukraine and 29.9% from Russia, according to S&P Global. As well as food prices surging, the cost of other commodities has hit record highs amid concerns the war and economic sanctions on Russia will lead to supply disruptions. For example, 40% of the global palladium, a metal essential for the motor industry, is produced in Russia. Although trade is being used as a “weapon” in the war in Ukraine, it does seem strange that the World Trade Organisation has yet to expel Russia from the global body claiming that it is “”not an easy thing to do”, although some leading international trade lawyers disagree.

Rishi Sunak’s wife, Akshata Murthy, has defended her non-domicile status after it was claimed she could have saved millions by not paying UK tax on foreign income. Non-dom usually implies that her permanent home is considered outside of the UK and, although she is still liable for UK tax on income made in this country, she does not have to pay UK tax on foreign income unless it is brought into the UK. This is completely legal and the UK Chancellor’s multi-millionaire wife, (her father is NR Narayana Murthy, the Indian billionaire who founded Infosys), has apparently always paid UK taxes on her UK income. Her stake in Infosys is believed to be worth more than US$ 650 million and she is reported to be a director of capital and private equity firm Catamaran Ventures, gym chain Digme Fitness, and gentlemen’s outfitters New and Lingwood. Earlier in the Ukraine crisis, Rishi Sunak’s advice that firms should pull out of Russia, although Infosys continued to operate in Moscow for more than a month after the war started. The week ended with further bad news for the Chancellor when it was confirmed that he had held a US Green Card for the past eight years.

The average UK company – along with others across the globe – are facing tough economic times. Wednesday saw Rishi Sunak’s US$ 7.8 billion rise in National Insurance come into effect. Add in inflation rates at their highest rate in forty years, pushing up prices relentlessly, along with surging energy prices that in some cases have skyrocketed 250%, then it is obvious that worse is to come. Many firms made it through the pandemic because of government support packages such as furlough, tax reliefs and a moratorium on landlords being able to evict businesses due to rent arrears.  At the onset of the pandemic, inflation was well below the 2.0% BoE target and energy prices had remained flat for some time. February saw a doubling of county court judgements against firms, as well as the number of insolvencies 23% higher than the same month in 2021. There is no doubt that we are in a period of some calm before the inevitable storm and this despite 500k businesses benefitting from a US$ 1.3k tax cut, now being able to claim US$ 6.5k, rather than the US$ 5.2k earlier, a 50% business rate relief, a record fuel duty reduction and the super-deduction, the largest two-year business tax cut in history. However, with inflation only going way – and that is higher – supply chain problems not going away, less consumer spending, more tax, higher mortgage rates and the Ukraine war set to continue, it is time to Batten Down the Hatches!

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