Where Can We Go From Here?                                              20 May 2022

HH Sheikh Mohamed bin Zayed, Ruler of Abu Dhabi, has been elected the country’s president, following a meeting in Abu Dhabi of the seven rulers of the Emirates. He becomes the third president in UAE’s history, following last Friday’s death of Sheikh Khalifa. The President, Sheikh Mohamed “expressed his appreciation for the dear trust that his brothers, their highnesses, members of the Federal Supreme Council, have entrusted him with, praying that Almighty God helps him succeed, helps him in taking on this great responsibility and meeting it in serving the UAE and its loyal people”. Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, offered his congratulations, tweeting, “Today, the Federal Supreme Council elected my brother, His Highness Sheikh Mohamed bin Zayed Al Nahyan, as President of the State. We congratulate him and we pledge allegiance to him, and our people pledge allegiance to him.”

For the past week, ending 20 May 2022, Dubai Land Department recorded a total of 2,043 real estate and properties transactions, with a gross value of US$ 1.96 billion. A total of 228 plots were sold for US$ 311 million, with 1,328 apartments and villas selling for US$ 975 million. The two top transaction sales were for plots of land – one in Hadaeq Sheikh Mohammed Bin Rashid for US$ 35 million, and another sold for US$ 23 million in Al Merkadh. The three leading locations for sales transactions were Al Hebiah Fifth, with 117 sales worth US$ 85 million, followed by Al Merkadh, with 22 sales transactions worth US$ 60 million, and Al Yufrah 2, with 19 sales transactions, worth US$ 7 million. The top three apartment sales were one sold for US$ 231 million in Burj Khalifa, another for US$ 214 million in Palm Jumeirah, and third at US$ 95 million in Marsa Dubai. The sum of mortgaged properties for the week was US$ 612 million, with the highest being for a plot of land in Al Muteena, mortgaged for US$ 126 million. 171 properties were granted between first-degree relatives worth US$ 78 million.

Last month, Dubai real estate posted a massive 45.5% hike in transactions and a 66.2% surge in value compared to a year earlier – and this despite a marked rise in property prices. Home sales recorded year-on-year growth of 55.9% in April, as the demand for villas and apartments continued in positive territory, but transactions registered a 17.4% decline on a month-on-month basis. According to Valustrat, month on month, cash and mortgage sales of ready properties declined 13.0% and off-plan Oqood (contract) registrations were down 23.3%. Property Finder indicated that Dubai posted almost 7.0k real estate sales transactions, worth US$ 4.96 billion, the highest ever for the month of April since 2009. Of that total, secondary market sales transactions accounted for 4.2k, (60% of transactions), valued at US$ 3.51 billion, while off-plan properties, comprising the remaining 40 %, (2.8k), was worth a total of US$ 1.45 billion. In April, both the number of transactions and the value were higher compared to a year earlier – up by 45.5% and 66.6% respectively. Off plan sales volume transactions and values were 44.0% and 73..7% higher, with secondary transactions up 46.2% and 63.9%.

By the end of April, the residential price index came in 1.0 higher to 79.8, compared to the January 2014 base period; the index, recorded nineteen transactions for residential units over US$ 8.2 million (AED 30 million), including one for US$ 26.2 million (AED 96 million) in Dubai Hills. It was noted that the latest ValuStrat Price Index showed a slowing in the capital value growth for Dubai villas, which represent 13% of the market, slowing to 95.7, with apartments flat at 69.7. On the month, capital value was up 1.8%, with average year-on-year villa prices surging 33.8% in April. The five locations, with the biggest annual increases, were  Arabian Ranches (40.6%), Jumeirah Islands (38.8%), The Lakes (36.6%), Jumeirah Village (34.9%), and Palm Jumeirah (34.6%).

Apartment prices rose, over the past twelve months, at a much slower rate – recording an average 8.1% increase. Over the year, the four locations registering the highest price increases were Palm Jumeirah (20.8%), Burj Khalifa (16.4%), JBR (15.6%), and The Views (10.3%). At the other end of the spectrum were Jumeirah Village and Dubai Sports City, both only recording 1% growth, with Dubai Production City (0.5%) being one of the lowest annual growth in April. It is expected that the gap between the percentage growth of apartment and villa prices will continue to narrow in 2022. The top five developers – accounting for 53.0% of the total sales in April – were Emaar (24.2%), Damac (15.1%), Nakheel (6.3%), Select Group (3.7%), and Dubai Properties (3.7%). Location-wise, Business Bay (12.7%), Dubai Creek Harbour (8.8%), and Downtown Dubai (8.8%) were the leading off-plan locations, while Damac Lagoons (13.4%), Jumeirah Village (8.4%), Dubai Marina (7.0%) and Business Bay (4.7%) were the most transacted areas for ready homes. Meanwhile, Property Finder posted that the top areas of interest in terms of transactions for villas or townhouses in April 2022 were Dubai Hills Estate, Palm Jumeirah, Arabian Ranches, Damac Hills and The Springs. Marina, Downtown Dubai, Palm Jumeirah, Business Bay and Jumeirah Village Circle led the charge for apartments.

In Q1, UAE’s tourism sector welcomed over six million visitors, who spent 25 million hotel nights, with this figure up 10%, compared to the same pre-Covid period in 2019. Hotels’ revenue came in almost 20% higher than its 2019 comparative figure, at US$ 2.9 billion. The federal Ministry of Economy noted it was “one of the best years in terms of economic growth in general and tourism in particular”. The UAE economy and hospitality sector recovered quicker than most others because it executed one of the world’s fastest inoculation campaigns that boosted economic recovery and helped to attract tourists over the past year. Other government measures, including large-scale advertising campaigns and the introduction of long-term and multiple-entry tourist visas, have also aided growth. It was also noted that the average duration of hotel guest stays rose from three nights to four, while the occupancy rate of hotels touched global highs of 80%. The top four source markets continued to be India, Saudi Arabia, the UK and Russia.

A decree by HH Sheikh Mohammed bin Rashid Al Maktoum sees the dissolution of a special 2009 tribunal that was set up to resolve disputes pertaining to financial settlements related to Dubai World and its subsidiaries that hit the buffers during the GFC. The statement noted “all cases and claims related to the financial settlement of Dubai World and its subsidiaries, filed after this decree comes into effect, will be referred to specialised courts.” All cases and requests that have not been resolved by a final judgment before December 2022 will be referred to the special courts, in line with judicial legislation in Dubai, without any new fees being charged; until then, the tribunal will continue to review all pending cases and claims during a transition period.

Sheikh Hamdan bin Mohammed has issued directives in relation to the latest developments in the digital economy in a move to enhance Dubai’s position in the metaverse. The Crown Prince noted that “the move will help us fully understand reality and explore unique ideas that will shape a brighter future for Dubai and the UAE, maximising future business opportunities.” He has directed the formation of a higher committee to supervise technological developments in the emirate that will oversee developments in the digital economy. The committee will work on the objectives of the Dubai Metaverse Strategy, with the target of increasing the contribution of the metaverse sector to Dubai’s economy to US$ 4 billion by 2030 and increase its contribution to the emirate’s GDP to 1%.

With almost 2.5k commercial dhows in operation, and Dubai authorities keen to revitalise the sector, Q1 saw activity 8.0% higher, compared to the same period in 2021.The traditional wooden vessels, that have been a cornerstone of Dubai trade for centuries, will continue to further economic growth in the emirate. Dubai’s Ports, Customs and Free Zone Corporation set up the Marine Agency for Wooden Dhows in 2020 to streamline and regulate the activities of traditional vessels in the emirate’s waters, with the three key hubs being Dubai Creek, Deira Wharfage and Al Hamriya Port.

In a bid to diversify its global operations network, e& has acquired a 9.8% stake, (some 2.766 billion shares) in UK mobile carrier Vodafone Group, for US$ 4.4 billion, as it seeks to diversify operations globally. The UAE’s biggest telecoms operator, formerly known as Etisalat, commented that “we are looking forward to building a mutually beneficial strategic partnership with Vodafone with the goal of driving value creation for both our businesses, exploring opportunities in the rapidly developing global telecom market and supporting the adoption of next-generation technologies.”

The DFM opened on Tuesday, (following the death of President His Highness Sheikh Khalifa bin Zayed Al Nahyan), 17 May, 301 points (8.5%) down on the previous fortnight, and shed a further 301 points (8.9%), in another torrid week of trading, to close on Friday 20 May, on 3,394. Emaar Properties, US$ 0.20 lower the previous fortnight, gained US$ 0.07 to close on US$ 1.61. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.73, US$ 3.72, US$ 1.63 and US$ 0.63 and closed on US$ 0.71, US$ 3.61, US$ 1.63 and US$ 0.62. On 20 May, trading was at 76 million shares, with a value of US$ 62 million, compared to 96 million shares, with a value of US$ 126 million, on 13 May 2022.

By Friday 20 May 2022, Brent, US$ 2.99 (2.6%) lower the previous week, nudged up US$ 0.19 (0.1%), to close on US$ 110.35. Gold, US$ 165 (8.5%) lower the previous four weeks, gained US$ 25 (1.4%), to close Friday 20 May, on US$ 1,835.  

With downstream margins improving on the back of soaring energy prices, with Brent at US$ 110.35 at the tail end of last week, and increased volumes, Saudi Aramco posted Q1 net profit, (after zakat), 81.7% higher on the year, and 22.0% on the quarter, at US$ 39.47 billion. The world’s largest oil company is planning to reward investors by paying a Q1 dividend of US$ 18.8 billion and distributing one bonus share for every ten shares held in the company. Its chief executive, Amin Nasser, noted that “against the backdrop of increased volatility in global markets, we remain focused on helping meet the world’s demand for energy that is reliable, affordable and increasingly sustainable.”  Because of the ongoing Ukraine war, and other production disruptions, it is expected that Brent will trade at over US$ 100 for the remainder of the year – and could easily hit US$ 135 – and this despite the expected global slowdown. The Saudi energy minister, Prince Abdul-Aziz bin Salman, expects the Kingdom’s oil daily oil production to increase by over 8% within the next five years, to a daily output of thirteen million bpd.

To end its reliance on Russian fuel fossils, and to speed up its transition to green energy, the EC is planning to invest US$ 233 billion into extra energy investments by 2027; currently, Russia supplies 40% of the Europe’s gas and 27% of its imported oil, and this dependence see EU nations struggling to agree to certain sanctions on Russia. Apart from the increased monetary input, (with investments of US$ 91 billion, US$ 59 billion, US$ 31 billion and US$ 29 billion for renewable energy, energy savings/heat pumps, power grids and hydrogen infrastructure), measures will include a mix of EU laws, non-binding schemes, and recommendations to governments in the EU’s 27 member countries. Some money will still need to be spent on fossil fuel infrastructure – US$ 11 billion for a dozen gas and liquefied natural gas projects, and up to US$ 2 billion for oil, targeting land-locked Central and Eastern European countries. EC president, Ursula von der Leyen, noted that “RePowerEU will help us to save more energy, to accelerate the phasing out of fossil fuels and, most importantly, to kickstart investments on a new scale.” The EC has replaced its current 40% target by an additional 5% to 45% relating to using renewable energy by 2030, and to double that capacity to 1.236k gigawatts (GW) by then, via laws allowing simpler one-year permits for wind and solar projects. The EU also proposed phasing in obligations for countries to fit new buildings with solar panels. Another objective is to cut EU energy consumption by 13%, (up from the current 9% aim), over the next eight years.

Ryanair posted an almost tripling of revenue to US$ 4.1 billion, but a US$ 369 million loss for its fiscal year ending 31 March – an improvement on the US$ 1.0 billion deficit recorded a year earlier. Europe’s biggest discount airline, which carried 165 million passengers over the year, commented that it was hoping for a return to “reasonable profitability” this year, and that it was “cautiously optimistic” that peak-season fares will be somewhat ahead of 2019 levels. Chief executive, Michael O’Leary, also noted that getting through airports will be “challenging” this summer, and that there are “pinch-points” at airports, such as Heathrow and Manchester, where he said “too many people” have been sacked. On the day, Ryanair shares traded at US$ 14.16, 30% lower than three months ago.

Not helped by factors such assupply chain problems, rising raw material costs, surging energy prices and the war in Ukraine, food shopping has become more expensive. Iceland has come up with an innovative way to assist shoppers over the age of sixty – they have  launched a 10% discount for this consumer sector  every Tuesday as surging prices have hit dwindling household budgets. With prices rising at their fastest pace in forty years – and up 5.9% on the year – some supermarket chains, including Morrisons and Asda, which have been losing shoppers to discounters, Aldi and Lidl, have already introduced discounting on a big scale. Last Christmas, the retailer also ran a regional trial offering US$ 37 vouchers to those receiving a state pension and could also roll our something similar this summer. Matters can only get worse for most of the population, including pensioners and the poor, who will be more badly impacted, as inflation, which rose from 7% to 9% on the month in April, heads inexorably towards double digit territory, as energy prices rose a further US$ 870 last month.

With the UK ending all forms of restrictions, and demand for overseas holidays soaring, airlines are struggling to return to pre-Covid staffing levels. Budget airline EasyJet is even offering new and existing cabin crew a US$ 1.23k, (GBP 1k) bonus at the end of the summer holiday season. With an ongoing airline battle to retain and recruit staff, and a limited supply of staff, even BA is offering the same amount to new joiners, as a “golden hello”. With a current shortage of staff, airlines have had to cancel hundreds of flights, exacerbated by the recent hiatus in the Omicron variant pushing staff absences higher. To add to holidaymakers’ woes, some have missed flights because of the lack of staff at airports, including Manchester and Luton, resulting in long queues and many disappointed passengers not making their flight. Another problem facing airlines is that it can take months to train and get security clearance for new staff. One innovative measure sees EasyJet considering taking out the back row seats on some aircraft that would allow the carrier to fly with three cabin crew – and not four.

Another sector with staff shortage problems is found in Wall Street, where many of the financial institutions there face problems to retain talent in a heated job market. The latest is Goldman Sachs that has decided to allow senior staff an unlimited number of annual leave days – they can take time off when needed “without a fixed vacation day entitlement”. More junior employees still have limits on holiday but will be given at least two extra days off each year. All Goldman employees will be required to take three weeks off each year, starting in 2023, and that includes at least one week of consecutive time off.

Probably not before time, McDonald’s has decided to exit Russia, after having closed its 847 restaurants in the country. It plans to sell all its Russian restaurants, of which 84% are owned by the world’s largest burger chain, and that it will take a related non-cash charge of up to US$ 1.4 billion. There is no doubt of the popularity of McDonald’s among Russians, even though when it opened its first branch on 31 January 1990 the cost of one burger was several times higher than many city dwellers’ daily budgets. Last year, revenue from Russia and Ukraine generated US$ 2.0 billion, equating to about 9% of its total sales. McDonald’s confirmed it would ensure its 62k employees in Russia continue to be paid until the close of any transaction and that they have future jobs with any potential buyer. This week, French car maker Renault posted that it would sell its majority stake in Avtovaz to a Russian science institute.

Having earlier posted impressive Q1 results, driven by a recovery in its ride-hailing and delivery businesses, Uber unveiled new products and services to enhance its product range and boost its bottom line. They include hotel/flight reservations, charter bus bookings, electric vehicle options for customers, and electric vehicle hub and charging map for drivers. Its travel service, initially limited to North America, will allow users to reserve rides for each leg of their itinerary, with Uber assisting with the organisation of hotel, flight and restaurant reservations; users will receive 10% for each reserve ride. Users will also be able to access the new Uber charter service app and be able to book a party bus, passenger van or a coach bus. Initially the new comfort electric service will only be available in four locations, including Dubai, along with three Californian cities – Los Angeles, San Francisco and San Diego. Uber is still looking at 2040 as the deadline to become a zero-emissions mobility platform, and in 2021, it made an agreement with Hertz to take up to 50k Tesla vehicles available for drivers to rent by 2023.

According to the IIF, global debt grew US$ 3.3 trillion in Q1 to a record high of US$ 305 trillion, driven by increased borrowing by the world’s two largest economies, US, (US$ 1.8 trillion higher) and China, (up US$ 2.5 trillion), and an economic slowdown attributable to the war in Ukraine. This figure equates to more than 348% of global GDP, with the debt about 15% below its Q1 peak. It is expected that soaring inflation will also play a role in global debt and will continue to help reduce debt ratios in general, as the global debt-to-GDP ratio declined for the fourth consecutive quarter. The IIF did warn that “as central banks move ahead with policy tightening to curb inflationary pressures, higher borrowing costs will exacerbate debt vulnerabilities,” This will have a more damaging impact on poorer economies around the world, as high interest payments push them into more debt, at the same time when food and energy prices are also surging. There is no doubt that interest expense is becoming an increasingly heavy burden for global central banks and this debt has to be repaid – another expense to be repaid probably via increased taxation. It is estimated that rising finance costs, coupled with heightened geopolitical risks, erased more than US$ 16 trillion from global stock markets this year, and that 33% of all SMEs are now facing difficulty covering interest expenses. The outlook is a bit like Dubai’s strange overcast weather this week.

With its lockdowns rising by the day, and its economy slowing in tandem, China’s jobless rate rose to 6.1% last month, its highest level since the 6.2% pre-Covid peak of February 2020. The two sectors hardest hit were retail, (11.1% down on the year in April), and manufacturing 2.9% lower on the back of the two-month long full or partial lockdowns imposed in dozens of cities, including the country’s commercial centre Shanghai. March had seen retail decline by 3.5%, whilst industrial production had been 5.0% higher. The government’s jobless rate target remains at 5.5% for the year, as next week Shanghai sets out to return to some form of normalcy after six weeks of complete lockdowns.

Wheat importers received another setback this week following Russia’s invasion of the Ukraine which saw that country’s wheat exports plunge.  (Russia and Ukraine were the third and eighth leading producers in the world at 85.9 million tonnes and 24.9 million tonnes). At the time, India, the world’s second largest producer after China, with 107.6 million tons, was looking at exporting ten million tonnes to partially fill the void but has banned any exports because a heatwave has slashed output, leading to domestic prices surging to a record high, reaching US$ 323 per tonne, 24.1% higher than the government’s minimum support price of US$ 260. Even though India is not one of the top exporters, this ban will no doubt push global prices even higher and will hit the poorer countries in Asia and Africa hard.

After Wall Street suffered its worst daily sell off in two years, the Australian market tanked on Thursday, with the ASX 200 and the All Ordinaries both dipping to 1.7% to 7,065, and 7,303 respectively. On Wall Street, the Dow Jones index shed 1,165 points, or 3.6 per cent, to 31,490, its heaviest single-day loss since June 2020. It was the lowest close for the Dow since March 2021. The S&P 500 shed 4.0% to 3,924, its worst drop since June 2020, and down 17.0% YTD, whilst the Nasdaq lost 4.7% to 11,418, which has plunged about 27% already in 2022. Nearly all sectors were affected, led by consumer stocks with the likes of Wesfarmers (-7.8%), JB Hi-Fi (-6.6%), Super Retail Group (-6.0%), Woolworths (-5.6%) and Harvey Norman (-5.5%). The big players also saw smaller losses including Westpac (-4.1%), Graincorp (-4.0%), REA Group (-3.7%) and Rio Tinto (-2.1%). After announcing that it was fighting an apparent losing battle with inflation and had seen quarterly profit halved, US retailer Target lost 25% in value on the day. Retailers are realising that they are being hit with a double whammy of rising fuel, supply and freight costs and that there will be an ever-increasing problem, as inflation results in eroding consumer purchasing power.

The Bank of England Governor continues to act like an alien who has no understanding on the state of the economy and the negative impact it has on most of the nation. Andrew Bailey, who is paid a salary of US$ 708k last year, has advised people, particularly those on higher incomes, not to ask for a pay rise this year and told a meeting of MPs that he does not think the bank “could have done anything differently” to avoid sharp price rises. He reiterated that he felt “helpless”, as he defended the Bank’s monetary policy despite the country facing soaring inflation; the current 9% level – and certain to reach double digits by year end – is well above the 2% BoE target. Inflation targeting is based on the assumption that the BoE’s monetary policy is to use interest rates, with pushing rates higher will slow a heating economy to cool it down and rein in inflation, with reducing rates having the opposite impact – accelerating the economy and boosting inflation. In this way, economic growth is best supported by price stability, and that is best attained by controlling inflation. The argument is that the UK central bank has left it too late and should have begun to move rates higher when inflation began to surge away from its 2% target. A year ago, the CPI was at just over 2%; the bank expects it reach 8% this month and to top out at over 10% in Q4.

Another person completely out of touch with reality is Rachel Maclean MP and Parliamentary Under Secretary of State at the Department for Transport. This week, she told Sky News “over the long-term, we need to have a plan to grow the economy and make sure that people are able to protect themselves better – whether this is by taking on more hours or moving to a better-paid job”.  Prior to becoming an MP in 2017, the Oxford graduate had high-flying jobs, including HSBC, and in 2005, she founded a publishing company, specialising in IT, with her husband; last year, the firm made a US$ 2.2 million profit. It is reported that, as an MP last year, she claimed over US$ 266k in expenses on top of her combined salary of US$ 132k. The good lady has had annual rent of over US$ 29k paid on her London home paid by the taxpayer, a US$ 2k working from home allowance to pay for equipment during Covid and took out a US$ 3.4k loan from standards body IPSA to avoid having to pay the deposit on the London home herself. All claims are within parliamentary guidelines.

Debt ridden, and apparently corrupt-led Sri Lanka defaulted on its debt for the first time in its history as the country struggles with its worst financial crisis in more than 74 years; this week, it failed to repay US$ 78 million of unpaid debt interest and is in a “pre-emptive default”. In recent weeks, there have been large, sometimes violent, protests against President Gotabaya Rajapaksa and his family due to the growing crisis. The Indian Ocean Island is mired in turmoil and civil unrest, with inflation possibly topping 40% later in the year, its currency tanking, losing almost half in value in recent weeks, and an almost penniless exchequer, with no foreign reserves.

(The Rajapaksa family had become too powerful during Mahindra Rajapaksa’s presidency, which began in 2005, when many members of the family occupied senior positions in the Sri Lankan state but he was defeated in the 2015 election. In 2005, the president appointed his brother Gotabayar as Defence Secretary whilst another Basil became Senior Presidential Advisor. Things got even worse after the 2010 election, with three of his brothers, Basil, Namal and Chamal occupying five government ministries and reportedly directly controlled 70% of the national budget. After the defeat of Mahinda Rajapaksa, some of his brothers reportedly fled from the country to avoid being arrested).

At the time, there were reports of authoritarianism, corruption, nepotism and bad governance during the decade he was in charge. Surprisingly, his brother Gotabaya became president in 2019. Numerous other members of the extended family have also been appointed to senior positions state institutions, including former president Mahindra returning to the fold as Prime Minister for over three years until earlier this month when he was replaced by Ranil Wickremesinghe. No wonder that in recent weeks, there have been large, sometimes violent, protests against President Gotabaya Rajapaksa and his family due to the growing crisis. Sri Lankans must be asking Where Can We Go From Here?