Tomorrow Never Knows!                                                                  10 June 2022

For the past week, ending 10 June 2022, Dubai Land Department recorded a total of 2,369 real estate and properties transactions, with a gross value of US$ 2.37 billion. A total of 262 plots were sold for US$ 343 million, with 1,572 apartments/villas selling for US$ 926 million. The top two transaction sales were for plots of land – one in Al Merkadh for US$ 30 million, and another sold for US$ 21 million in Wadi Al Safa 2. The three leading locations for sales transactions were Al Hebiah Fifth, with 159 sales worth US$ 117 million, followed by Jabal Ali First, with 30 sales transactions worth US$ 25 million, and Al Yufrah 2 with 11 sales transactions, worth US$ 4 million. The top three apartment sales were one sold for US$ 142 million in Burj Khalifa, another for US$ 89 million in Marsa Dubai, and third at US$ 60 million in Um Suqaim Third. The sum of mortgaged properties for the week was US$ 948 million, with the highest being for land in Jumeirah Second, mortgaged for US$ 545 million. Seventy-four properties were granted between first-degree relatives worth US$ 159 million.

It will surprise many to know that Dubai is the world’s top trading hub for rough diamonds, having taken the mantle from Antwerp last year. Dubai Diamond Exchange is the largest diamond-tending facility in the world and is home to more than 1.15k diamond companies. Located in the DMCC, it posted a 36% Q1 annual increase in the value of rough and polished diamonds, driven by an 80% surge in the value of the polished diamond trade in the UAE, topping US$ 4 billion. Last month, the UAE signed a bilateral trade agreement with Israel which included investments within the diamond industry. Furthermore, Emirates has enhanced routes to various countries to consolidate the diamond supply chain, including African and Australian mining countries, and manufacturing centres including Israel, India and Europe. It is also home to the two Kimberly Process offices – set up in 2003, the 85-nation bloc, which includes all major rough diamond producing, exporting and importing countries, was established to cut the flow of conflict diamonds in the global trade.

The latest S&P Global study reports that the emirate’s non-oil business conditions rose to a near three year high, with the Dubai PMI up 1.0 at 55.7 on the month – its highest reading since June 2019. The travel/tourism sector was the main driver in boosting this figure but ongoing volatility in the global economy – and especially energy – saw a quickening in cost pressures. The study focuses on three categories – travel/tourism, wholesale/retail and construction. The former has bounced back with a global easing of restrictions, seeing a lifting in bookings. In contrast, the second listed category witnessed a marked slowdown in new order growth, whilst construction posted its first decline, in nine months, in new works inflows.  60%+ increases in fuel prices, were cited as the biggest cost burden but rising prices of steel, aluminium, chemicals and timber did not help the cause. Companies expanded their workforce last month, after a slight reduction in April. With input costs steadily heading north, this has impacted on margins with many entities having to continue discounting to try to maintain their competitiveness; this in turn has resulted in a deterioration in business confidence going forward.

Following an agreement between Falcon Aviation Services and Eve Holding, Dubai will see the arrival of thirty-five flying taxis by 2026. The Brazilian subsidiary of plane maker Embraer will then be able to introduce eVTOL (electric vertical take-off and lift) tourist flights from the Atlantis, The Palm. The UAE-based charter flight operator is but one player helping Dubai develop its urban air mobility plans, with it noting that “the launch of this concept fully aligns with the Smart Dubai vision and will contribute to positioning Dubai as a global leader.”

Emirates Glass, a wholly owned subsidiary of Dubai Investments, has celebrated its silver jubilee. The company, which has two glass processing units and a warehouse spread over 1,360 sq mt across the country, employs 330; over the past twenty-five years, it has supplied about 27 million sq mt of glass. Emirates Glass plans to expand in the GCC and the wider ME region. Currently, it has a US$ 36 million order book, with projects across the region, Africa and the UK.

According to the Federal Competitiveness and Statistics Centre. last year, the UAE’s non-oil trade surplus, with the five other Gulf Cooperation Council countries, was valued at US$ 36.7 billion. The data indicated that there was a 25.7% jump in trade, valued at US$ 67.3 billion, weighing 68.7 million tonnes, compared to US$ 53.5 billion in 2020, with a weight of 59.9 million tonnes. Imports, exports and re-exports all came in higher by 28.5% to US$ 15.3 billion, by 47.3% to 19.6 billion and by 14.7% to US$ 32.4 billion respectively and weighing 27.9 million tonnes, 36.4 million tonnes and 4.3 million tonnes.

The UAE’s FDI flows increased from US$ 19.9 billion in 2020 to over US$ 20.7 billion) in 2021, with the country’s inflows jumping 64% on the year to US$ 1.58 trillion – and also recovering to pre-pandemic levels.

ECA International’s latest survey of the most expensive global cities ranks Dubai 22^nd, moving up six places over the year, and just one place behind neighbour Abu Dhabi. There was no surprise to see Hong Kong continue to be the most expensive city in the world, ahead of New York, Geneva, London and Tokyo. The study weights a range of goods and services from nearly five hundred locations in over two hundred cities in 120 countries.

DP World and Canadian fund Caisse de Depot et Placement du Quebec have announced a US$ 5 billion investment in three of the Dubai port operator’s local assets – the Jebel Ali Port, the Jebel Ali Free Zone and the National Industries Park. The new JV will see the overseas investor hold a 22% stake, with the remainder of the transaction being financed by debt. It is expected that other investors could hold stakes of up to US$ 3 billion, with the value of the three assets, home to 8.7k companies, estimated to be worth US$ 23 billion, and generated pro-forma 2021 revenue of US$1.9 billion. The three assets will remain fully consolidated businesses, within the DP World Group, and day-to-day operations, customers, service providers and employees will not be affected. According to its CEO Sultan bin Sulayem, the transaction “achieves our objective of reducing DP World’s net leverage” to below four times net debt to EBITDA. The Canadian fund’s stake in the JV will be through a sub-concession of up to 35 years.

Figures from the country’s central bank reported that the UAE economy grew last year at 3.8%, (after a Covid-driven 4.8% contraction in 2020) and is expected to better this in 2022 with growth of 5.4%, (well up on their April estimate of 4.2%); next year, the growth will be lower at 4.2%. The three-year figures for the non-oil economy, for the period 2021-2023, see growth levels of 5.3%, 4.3% and 3.9%. Higher energy prices are the main driver behind the country’s oil economy’s growth spurt, with an expected 2022 8.0% hike and 5.0% next year. In 2021, the country’s current account surplus rose 127% to US$ 48.0 billion, with marked increases in both oil and non-oil exports.

According to a recent UN report, last year, the UAE was ranked as the best country in the Arab world in attracting foreign direct investment, being its largest recipient, with flows increasing 4.1% to US$ 20.7 billion on the year. The increase was not as high as the global return which posted a 64% hike to US$ 1.58 trillion. However, there has to be concerns about the state of the sector this year, with the global economic environment being adversely affected a gamut of drag factors including the Ukraine war, almost double-digit inflation, surging energy prices, rising food costs increasing interest rates, to mention just five.

Following the listing of DEWA in April, the second government-owned entity to proceed with an IPO on the DFM will be COM Group PJSC, (TECOM), that includes ten strategic, sector-focused business districts across the emirate, including Dubai Media City and Dubai Internet City. It will issue 625 million shares, (equating to 12.5% of TECOM Group’s issued share capital). As with DEWA, shares will be offered to three groups – Qualified Institutional Offering, the Exempt Offer, and the UAE Retail Offer – with all shares being sold by the Selling Shareholder, Dubai Holding Asset Management; DHAM LLC is TECOM Group’s majority shareholder, and Dubai Holding is its ultimate holding company. Trading on the local bourse is expected to start on 05 July, following a two-week subscription period starting late next week.

The DFM opened on Monday, 06 June, 90 points (2.7%) higher on the previous week, and shed 10 points (0.3%), to close on Friday 10 June, on 3,377. Emaar Properties, US$ 0.09 higher the previous week, lost US$ 0.01 to close on US$ 1.57. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.69, US$ 3.77, US$ 1.62 and US$ 0.58 and closed on US$ 0.71, US$ 3.69, US$ 1.60 and US$ 0.54. On 10 June, trading was at 53 million shares, with a value of US$ 37 million, compared to 93 million shares, with a value of US$ 67 million, on 03 June 2022.

By Friday 10 June 2022, Brent, US$ 10.10 (9.2%) higher the previous three weeks, was up US$ 1.51 (1.3%), to close on US$ 121.77. Gold, US$ 44 (2.4%) higher the previous three weeks, gained US$ 21 (1.1%), to close Friday 10 June, on US$ 1,875.  

Despite the war in Ukraine and travel restrictions in China, demand for international air travel sky-rocketed in April – 332% higher than in the same month last year and up 290% on the month. The ME was one of five regions that demand now exceeds pre-pandemic levels, with local airlines recording a 265% year-on-year surge in demand, 12% higher than in March. However, domestic travel demand dipped 1.0% in April on the year but at a lot higher – 10.6% – on the month, attributable to ongoing strict travel restrictions in China. Overall travel demand, measured in revenue passenger kilometres, was 2.7% higher on the month at 78.7%. In the twelve months to April, carriers have increased capacity by 101%, with load factors more than doubling from 33.2% to 71.7%. Meanwhile, global air cargo demand in April fell and capacity contracted, as the effects of the Omicron coronavirus variant in Asia and the Ukraine war were the two main drivers for global air cargo declining 11.2% on the year – and 1.0% lower than in pre-pandemic April 2019. ME carriers posted an 11.9% decline.

A KPMG report indicates that the average Gulf bank posted a 35.8% surge in its net profit to US$ 34.5 billion, in 2021, driven a marked growth surge in their loan books and a reduction in the costs of funds. It estimated that Kuwait led the field with an unbelievable 91.4% growth expansion last year to US$ 2.9 billion. Impressive as the figures are, they are still behind the cumulative US$ 37 billion return on equity figure recorded in 2019. The report also noted that Saudi and UAE-listed banks reported healthy profit growth of 40.2% and 52.6% last year. The listed bank share prices also witnessed a 36.6% rise, while the total assets, return on equity, and return on assets grew by 6.4%, 2.8%, and 0.3% respectively.

Following his surprise US$ 44.0 billion takeover last April, Elon Musk has threatened to walk away, because Twitter has been actively resisting “thwarting” his information rights and requests to learn more about its user base, as he thinks he is entitled to do his own measurement of spam accounts. The Tesla chief is of the opinion that spam and fake accounts represent a far greater share, possibly as high as 20%, than the less than 5% of daily users that Twitter reports publicly. His advisers noted that “this is a clear material breach of Twitter’s obligations under the merger agreement and Mr Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement.” The tech giant retorted that “Twitter has and will continue to cooperatively share information with Musk to consummate the transaction in accordance with the terms of the merger agreement”. Some analysts think this is a Musk ruse to try to renegotiate the price lower, or even walk away. In early trading on Tuesday, Twitter shares were trading at US$ 38.07, compared to the US$ 54.20 a share when the deal was agreed., which at the time was at a 38% premium on the then closing price. To this observer, it seems that Elon Musk will walk away from the deal and pay the US$ 1 million break-up fee.

It is not a good time for any chief executive to receive what many would consider an obscene amount especially during an economic crisis. This is exactly what has happened to Simon Roberts, head of supermarket chain Sainsbury’s, who reportedly received a US$ 4.8 million pay-out last year, including a US$ 3.5 million bonus, comprising a US$ 2.1 million annual bonus and the balance from a long-term incentive scheme shares; customers and staff must be shaking their heads at why his remuneration is over 150 times that of some of his workers. To make matters worse for his customers, the current dividend of US$ 375 million is up 24% on the year, and the highest since 2015. There are calls, by the High Pay Centre, for the supermarket to “do the right thing by shareholders, customers and workers”; next month investors will vote calling for the chain to pay the “real living wage” to all its workers by July 2023. Since last month, Sainsbury’s has done just that for direct staff, but their largesse does not yet include third-party contractors, such as cleaners and security guards. To placate its customers, it is planning to invest more than US$ 625 million into cutting prices by March 2023. This comes at a time when April food inflation nudged higher to 6.8% and wider inflation topped 9.0%. Both should reach double digit figures by the end of Q3.

To date, the biggest payday for a Hollywood actor has been the US$ 114 million received by Bruce Willis for his 1999 film, ‘Sixth Sense’, which took US$ 673 million at the worldwide box office. Now, Tom Cruise is on his way to beat that record with his latest blockbuster, ‘Top Gun Maverick’, which had box office takings, of an estimated US$ 160 million; in its first four days of release, it has already topped the 2007 US$ 153 million, excluding inflation, release of ‘Pirates of the Caribbean: At World’s End’. Unlike many in the acting profession, Cruise not only earns a US$ 14 million base salary but has also negotiated a 20% share of final – or back-end – profits, known in the trade as “first-dollar gross”; he will also take potential revenue from streaming sales. In the US alone, it is estimated that the film could generate over US$ 300 million in revenue, not bad when the production budget was set at US$ 170 million.

The South African government has announced that two brothers – Atul and Rajesh – from the now infamous and wealthy Gupta family have been arrested and now face extradition back to South Africa. The brothers had fled the country after a judicial commission began probing their involvement in corruption in 2018. They are accused of profiting from their close links with former president Jacob Zuma and exerting unfair influence, as well as paying financial bribes to gain lucrative state contracts and influence powerful government appointments. The Gupta family, which only arrived in the country in 1993, from Uttar Pradesh, is accused of using their close links with former president Jacob Zuma to wield enormous political power across all levels of South African government – winning business contracts, influencing high-profile government appointments and misappropriating state funds. It is alleged that the association between the two families, that became known as the Zuptas, saw one of the disgraced president’s wives, a son and a daughter holding senior positions in Gupta-controlled companies. Many of the companies benefitted from a myriad of public companies that were instructed to take decisions that would advance the brothers’ business interests. A four-year investigation by the country’s top judge concluded that the wealthy brothers had become deeply embedded in the highest levels of government and Mr Zuma’s ruling African National Congress party, whilst other investigations accuse the brothers of being linked to racketeering activity through the procurement of rail, ports and pipeline infrastructure.

With the assistance of academics from Oxford and Cambridge universities, as well experts from the US Boston College, think tank Autonomy is carrying out an experiment to study the benefits of a four-day working week in the UK. Initially, this will involve seventy companies, ranging from office-based software developers and recruitment firms to charities and a local fish and chip shop. The experiment, which will last six months, (during which employees will receive their normal pay for working 80% of usual hours), to see whether productivity improves or not. It is only a matter of time before a four-day week becomes the norm.

The economic damage that the Ukraine crisis has wreaked, has seen the World Bank slashing its 2022 global growth forecast by nearly a third to 2.9%, lowering to 1.5% next year. In its Global Economic Prospects, the report notes that the world economy is now entering what could become “a protracted period of feeble growth and elevated inflation”, with every chance that the outlook could worsen. It warned that the world economy could slip into a period of stagflation – a period of weak growth and high inflation – reminiscent of the 1970s, and that “for many countries, recession will be hard to avoid,” It estimates that over the three years to 2024, the pace of global growth is projected to slow by 2.8%, more than twice the deceleration seen between 1976 and 1979.

In May, the US consumer price index continued its upward trend, moving to 8.6% on the year, and rising 1.0% on the month, driven by higher-than-expected increases in the prices of shelter, food and petrol. Along with many global central banks, the Fed seemed reluctant to raise rates and only began in March; since then, the rate has increased by 75 basis points, with another 50bp (0.50%) increase expected next week. Not only has the Fed been slow to use fiscal policy, as a means to beat inflation, the Biden administration has also been far too generous with government aid packages and have been slow to rein in their generosity. What is certain is that the Fed will have to start using the brakes – hard and quickly – and only hope it is not too late, since there is every chance of stagflation. With so much liquidity in the market, the Fed will also have to run a firm quantitative tightening measure in tandem with lifting rates. With a 2% inflation target, the question is why it has waited so long to act?

If people think the Fed has been slow to act, then they should start questioning why it has taken the ECB so long to consider raising interest rates. Christine Lagarde has indicated a 0.25% rise in rates next month – the first increase in over eleven years – and also an end to its very generous bond-buying stimulus programme on 01 July. With the same 2.0% target, that many global central banks had as policy, it has finally decided to take action only when inflation has hit 8.1%! The Bank also noted that “high inflation is a major challenge for all of us. The governing council will make sure that inflation returns to its 2% target over the medium term”. It is hard to believe in their estimates for the bloc’s inflation for 2022 and the following two years to be 6.8%, 3.5% and 2.1%. If there is a chance of stagflation in the US, it is almost certain to hit the EC, impacted by a toxic mix of higher rates, soaring living costs, continuing high inflation, sharp policy tightening and lower real wages. Civil unrest could soon return to Europe and then what will happen? Tomorrow Never Knows!