Lost In France!                                                                               22 July 2022

The real estate and properties transactions totalled US$ 1.50 billion during the week ending 22 July 2022. The sum of transactions was 186 plots, sold for US$ 162 million, and 1,004 apartments and villas selling for US$ 662 million. The top two transactions were for land in Ras Al Khor Industrial First, sold for US$ 9 million, and land sold for US$ 5 million in Al Merkadh. Al Hebiah Fifth recorded the most transactions, with 105 sales transactions worth US$ 72 million, followed by Jabal Ali First, with 35 sales transactions worth US$ 28 million, and Al Yufrah 2, with 12 sales transactions worth US$ 4 million. The top three transfers for apartments and villas were all apartments – one sold for US$ 86 million in Burj Khalifa, another for US$ 65 million in Al Wasl, and a third for US$ 52 million in Palm Jumeirah. The sum of the amount of mortgaged properties for the week was US$ 561 million, with the highest being a building in Burj Khalifa, mortgaged for US$ 150 million. Eighty properties were granted between first-degree relatives worth US$ 131 million.

In H1, Abu Dhabi’s real estate market recorded 7,474 property transactions amounting to over US$ 6.13 billion, with Sharjah posting Q1 21,615 real estate transactions worth $1.71 billion. By comparison, June was the highest month yet for Dubai sales, with a value of US$ 6.2 billion – 55% higher in overall value year on year, when compared with June 2021.

Growth was the word for Dubai Chamber’s members in H1, with exports and reexports 17.8% higher at US$ 35.26 billion and the number of certificates of origin issued up 8.9% year-on-year, to over 357k, all heading north. Hamad Buamim, President & CEO of Dubai Chambers noted the crucial role that the body plays in HH Sheikh Mohammed bin Rashid’s Dubai Foreign Trade Plan to boost the emirate’s foreign trade to US$ 560 billion, (AED2 trillion) by 2026. He added that this year is forecast to be a record for member companies’ trade performance, as the body continues to support Dubai’s business community and enhances its position as a leading global trade hub.

Over the next five years, DEWA is planning to invest US$ 11.20 billion, (AED 40 billion) in utility projects, including spend on boosting transmission and distribution networks, as well as expanding renewable and clean energy initiatives. Of the total capex budget, US$ 4.36 billion, (AED 16 billion) will be invested to strengthen and expand electricity and water transmission and distribution networks, and US$ 3.27 billion, (AED 12 billion), to complete the Independent Power Producer (IPP) projects in the Mohammed bin Rashid Al Maktoum Solar Park, the Hassyan Power Complex and the Independent Water Producer (IWP) projects at Hassyan. Empower, 70% owned by DEWA, will see an US$ 817 million investment on expanding district cooling capacity and network to meet growing demand.

Initial operations for the Dubai Waste Management Centre will start early next year, with two of the centre’s five treatment lines operating and generating 80 Mwh of renewable energy by processing 2k tons of solid waste in a day. The world’s largest waste-to-energy project, currently 75% complete, will be able to process 5.7k tons of solid waste per day via five lines, converting and producing 200 Mwh of clean energy into the local power grid.

There was a 25% hike in new business licenses in H1 to almost 45.7k – an indicator that the emirate’s strategy and policy changes, such as full company ownership to foreign investors, has paid off with a marked improvement in the rate of local and foreign investment, enabling economic growth and diversification. The split of new business licenses sees 55% being ‘professional’ and the balance ‘business’. In H1, there were 262k business registration and licensing transactions, up 33%, whilst renewal transactions, at 93k, were 22% higher. Interestingly, there were 14.7k Instant Licenses issued in H1; they can be issued within five minutes on invest.dubai.ae platform, with the option to issue an electronic MOA and a virtual site for the first year only.

HH Sheikh Mohammed bin Rashid Al Maktoum toured Dubai International Airport yesterday and instructed senior officials to “continue working as a team” and to provide an “exceptional experience” for international travellers; he also instructed them to further enhance the capabilities of both airports, (DXB and DWC), in all areas including services, security and logistics so as to improve service benchmarks and passenger experience. He tweeted that“we had started preparing early for the return of international passenger traffic after the Covid-19 pandemic. Today, DXB maintains the first place in the world in international passenger traffic. We will continue to monitor the level and quality of services offered,” and that the “remarkable growth”, achieved by Dubai’s travel and tourism sector, is an example of the emirate’s “relentless efforts to ensure outstanding quality levels in diverse sectors”. Last year,DXB maintained its position as the world’s busiest international airport with 29.1 million passengers and recorded a traffic of more than 13.6 million passengers in Q1; the current forecast is that passenger traffic will top 58 million passengers by the end of the year.

This week, HH Sheikh Mohammed bin Rashid issued Decree No. (22) of 2022, introducing incentives for property investment funds. The new legislation will encompass all real estate investment funds licensed and regulated by government authorities, as well as private development zones and free zones; one of its main aims is to support real estate investment funds – both local and global. The DLD will be responsible for establishing a ‘Register of Property Investment Funds’, with any funds over US$ 49 million allowed, with the proviso that they are registered by the appropriate government authorities and have not been barred from trading in Dubai’s financial markets at the time of application. The value of properties that funds invest in should be US$ 14 million or above. A ‘Committee for Property Investment Funds’ will oversee applications to ensure that such funds are allowed to invest either through full ownership or lease for a period not exceeding ninety-nine years. The DLD will appoint a valuation expert to determine the value of properties owned by property investment funds. Funds are allowed to relinquish ownership of properties only after approval from the Committee.

With a US$ 40 million investment, Emirates has opened Bustanica, the world’s largest vertical farm, at 330k sq ft, and located near to Al Maktoum International Airport at Dubai World Central. Part of Emirates Crop One, a JV between Emirates Flight Catering (EKFC) and Crop One, Bustanica is capable of producing more than one million kg of high-quality leafy greens annually, while requiring 95% less water than conventional agriculture, and grown without pesticides, herbicides, or chemicals. Bustanica will have zero impact on the world’s threatened soil resources, an incredibly reduced reliance on water and year-round harvests, unhampered by weather conditions.

A new law, to come into effect in January 2023, will see the UAE fall in line with international standards in rules on sourcing gold into the country; it will apply to companies working in the field of gold refining and the recycling of gold products. Its main target is to prevent the misuse of gold for money laundering, terrorism financing and other financial crimes, while importing gold from conflict zones or high-risk areas; companies found to be violating the law will receive large fines. Its introduction will further enhance the country’s position as one of the leading global gold hubs. The guidelines will follow the directives of the Organisation for Economic Cooperation and Development and its annex related to gold.

UAE Central Bank has estimated that the UAE’s Q1 economy grew by 8.2% and that it expects real GDP to grow by 5.4% this year and 4.2% in 2023. There is every likelihood that these figures could be surpassed, driven by higher oil production and by the government’s commitment to double the size of the manufacturing sector by 2031. With global travel recovering well, as restrictions are being eased, this has helped the non-energy sector, expanding 6.1% year-on-year in Q1 2022; for the year, estimated growth is at 4.3%.

In Q2, EITC posted a 14.1% hike in overall service revenue to US$ 616 million – the third consecutive quarter of improvements and growth. DU’s mobile service revenue came in 8.6% to the good at US$ 381 million, with a bigger increase for fixed service revenue, up nearly 25% to US$ 233 million; handset sales generated US$ 53 million in revenue.  Operating free cash flow rose 48% to US$ 193 million, driven by improving Ebitda and lower capex which moderated to US$ 152 million.

The DFM opened on Monday, 18 July, 51 points (1.6%) higher on the previous week and closed up 148 points (4.8%) on Friday 22 July, on 3,257. Emaar Properties, up US$ 0.01 the previous week, was US$ 0.05 higher to close on US$ 1.46. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.69, US$ 3.38, US$ 1.52 and US$ 0.44 and closed on US$ 0.69, US$ 3.49, US$ 1.58 and US$ 0.47. On 22 July, trading was at 62 million shares, with a value of US$ 55 million, compared to 77 million shares, with a value of US$ 37 million, on 15 July 2022.   

By Friday 22 July 2022, Brent, US$ 10.51 (9.1%) lower the previous four weeks, gained US$ 2.69 (2.7%) to close on US$ 103.63. Gold, US$ 164 (8.8%) lower the previous four weeks, gained US$ 18 (1.1%), to close Friday 22 July, on US$ 1,725. 

There are reports that Starbucks, the world’s biggest coffee chain, is considering a potential sale of its UK business because of tough competition and changing customer habits emanating from the impact of the pandemic and the resultant lockdown measures. According to ‘The Times’, the firm will continue to “evaluate strategic options” for its company-owned international operations. Starbucks is feeling the pinch not only from the post-Covid impact but also from increased competition from rivals, such as Costa, Pret A Manger and Tim Hortons, surging product prices and customers’ changing habits. The first UK Starbucks opened in 1998 and there are now 1k outlets of which 30% are company-owned and the majority being franchises. Last year, it closed five company-operated stores, and opened fourteen new ones, targeted at drive-through locations.

In the last four months, Netflix has lost a further one million subscribers – a lot less than many analysts had forecast, with the firm expecting a growth recovery by the end of the year. Following its first subscriber decline since 2011, in April, the streaming company cut hundreds of jobs to compensate for the revenue downfall. It seems that when you are at the top of the ladder – in an era when competition is exploding – it is “inevitable” that Netflix would start to falter but if it continues to launch dramas, such as ‘Stranger Things’, it will make it more difficult for its rivals to take over the number one spot.

With the tech giant warning that it was facing “incredibly challenging” conditions, noting that advertising revenue had been slashed because of supply chain disruptions, labour shortages and rising costs, Snapchat’s share value slumped more than 25% in after-hours trading in New York; its Q2 revenue of US$ 1.11 billion was below market expectations. The current economic conditions, also impacting other tech giants, have also seen the market value of Alphabet, (Google’s parent company), Meta (owner of Facebook), Twitter and Pinterest fall.

The Cyberspace Administration of China has fined Didi US$ 1.7 billion for breaking cyber security laws, having found “conclusive evidence” against the ride-hailing giant. The regulator announced that it had started an investigation into Didi just days after the firm’s US IPO last year;  Didi’s shares stopped trading in New York last month. CAC also imposed fines of US$ 148k (one million yuan) each on Didi Global’s chairman and chief executive Cheng Wei and president Liu Qing. Apart from pressing ahead with the IPO, and not awaiting a cybersecurity review of its data practices, the regulator also fined the firm for violating three major laws concerning cybersecurity, data security and personal information protection. Chinese authorities have been pursuing a wide-ranging crackdown on similar companies, such as Alibaba with a record US$ 2.8 billion fine and ordering technology giant Tencent to suspend the roll out of new apps.

The Canadian plane manufacturer, Embraer, estimates that, over the next two decades, the demand for new aircraft of up to 150 seats will be almost 11k, with a value of US$ 650 billion. Of that total, 57% will be replacing retiring aircraft, with the balance increasing global airline fleets; 3.8%, or 330 units, will be delivered to the ME. The world’s third biggest plane maker noted that “the trend to smaller aircraft reflects overall lower demand growth, traffic patterns favouring short-haul versus long-haul, an increasing need for flexibility, connectivity, efficiency, and fleet and network transition to a decarbonised industry through new technology.” It expects annual growth figures of 4.3% for Asia Pacific, (including China), Latin America (4.0%), Africa (3.8%), ME (3.2%), Europe (2.3%) and North America (2.0%).

With many of the UK leading airports currently operating under chaotic conditions, the blame game continues unabated, with Heathrow’s chairman Lord Paul Deighton laying the responsibility for the travel disruptions on airlines failing to recruit enough baggage handlers. He seems immune from criticism from major players such as IATA and Emirates, with the former’s head, Willie Walsh, saying the management of Heathrow was “a bunch of idiots” for failing to foresee the recovery post-pandemic and the opening up of global business and tourism. “All you had to do was count up the tickets.” Meanwhile the Dubai airline’s Tim Clark said it had enough ground crew in place and should not have to cancel flights due to Heathrow’s inability to cope, and that anyone who behaved in that unacceptable fashion “would feel its wrath”. On Tuesday, Lord Deighton maintained the fault lay with airlines’ failure to recruit and defended the airport’s chief executive John Holland-Kaye, who has come under fire for his handling of the situation. Like the proverbial ostrich, the good lord seems to have his head buried in the sand as he denied the problem was down to a lack of planning or investment by the airport.

Earlier in the week, it seemed likely that a total of fifty workers from Aviation Fuel Services (AFS) would stage a three-day walkout from 05:00 BST on Thursday which would have had a negative impact on international airlines such as Emirates, Virgin, United, KLM and Air France. (AFS is a joint venture operation, which includes firms BP, Total Energies, Q8 Aviation and Valero Energy). This would have been another major blow to Heathrow’s sinking reputation in the aviation sector, with the Unite union noting that this industrial action would “cause delays to hundreds of flights”, claiming AFS workers were responsible for refuelling half of the non-British Airways traffic at the airport. Unite said its members had not received a pay rise for three years, adding AFS had made an offer of a 10% increase which was “rejected by members as it did not meet their expectations”.

Latest figures for the quarter ending May saw regular pay declining at the fastest rate since 2001, when taking into account rising prices, with pay excluding bonuses down 2.8% from a year earlier when adjusted for inflation. There was a marked difference between the private sector, with total pay growth of 7.2%, and the public sector’s 1.5%, both taking account of inflation. Pay, including bonuses, was down 0.9% when adjusted for inflation. With household budgets being bludgeoned by soaring inflation, at a record forty year high of 9.1% in May, and consumer spending dropping, the government is soon to unveil this year’s pay deal for 2.5 million public sector workers. There is no surprise to see unions calling for wages to reflect the cost of living, but if that did occur it would only mean inflation moving even higher, so that would inevitably see any pay rises not aligning with price increases.

This week, the IMF warned that if Putin were to completely close off Russian gas supplies, European countries would face a power crunch which could result in a slump of 6% in the some members’ GDP – including Hungary, Slovakia and the Czech Republic – as  their normal consumption would be slashed by 40%. Such a move would have a ‘significant’ impact on Austria, Germany and Italy but its extent would be dependent on policy responses, the remaining bottlenecks at the time of the shutdown and the market’s ability to adjust. Other countries would not suffer as much, with a GDP contraction of up to 1.5 %, in case of a severe winter, and no preventive measures to save energy have been taken, and under 1% in a normal winter. Earlier in the week, Russian state-owned energy company Gazprom declared force majeure on energy supplies to at least one major customer in Europe, and there is the ongoing possibility of Russia closing its main 1.224k km Nord Stream 1 pipeline permanently following its annual ten-day maintenance closure ending yesterday.

The ECB finally woke up and raised interest rates by more than expected yesterday – 50bp cf the forecast 25bp, justified by an “updated assessment of inflation risks”- with the prospect of further rises on the cards; this was the first rate hike for eleven years. It seems likely that a similar rise will occur in early September. With inflation now running at 8.6% – driven by soaring energy prices – and the central bank’s target having been 2% for some time, it does seem incongruous that Christine Lagarde, the ECB chief, has left this move far too late. Economics 101 teaches that raising rates is seen as the standard panacea for excessive inflation. This week saw the ECB end an eight-year experiment in negative interest rates, noting that “the front-loading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions.” This blog has espoused for some time that the ECB has been perpetuating the problem for too long, with the economic outlook worsening by the day, and that this week’s rate hike is too low, too slow and too late. The fact that energy is priced in US dollars only adds to ECB’s inflation fighting problems so that the current higher oil price has exacerbated the value of the euro which has hovered around parity for some weeks, as well as touching parity.

At the beginning of H1, UK interest rates stood at 1.25%, having risen by only 0.1% in H1, but many analysts consider that rate rises have still some distance to go before they will have any control over inflation which currently stands at 9.1% – a forty-year high. This observer has espoused that the Bank of England has left it too late so if, and when, it takes more positive action, and pushes rates higher, it, like the ECB, will be a case of too little too late. Economics 101 teaches that when rates move higher, it becomes more expensive for consumers and businesses to borrow, so that businesses and consumers start spending less, which in turn slows demand for goods and services and then the pace of price rises slows. The problem this time is the cost of soaring energy prices – and any rise in rates will have little impact on prices, and must be gauged against the backdrop that the economy earlier this year was in excess demand. In fact, the real economy is slowing when inflation erodes real income and real spending,

June prices nudged 0.3% higher on the month to 9.4%, driven by higher petrol, up by US$0.22 to US$ 2.20 a litre, and food costs, with milk, cheese and eggs recording the biggest rises in the month; a year earlier, fuel prices were at US$ 1.55. Food prices increasing at the fastest rate since March 2009. Kantar has predicted supermarket bills will jump by an average of US$ 544 this year, with energy prices moving an average US$ 836 higher from last April and set to rise even further this October. Prices charged in restaurants and for accommodation also increased in June climbing by 8.6% on the year. The rest of the world is in the same boat as the UK, but their inflation figures are lower, such as France and Germany posting annual rises of 6.5% and 8.2%. All three countries have been impacted by surging energy prices but to a large extent the EU has been immune from worker shortages due to fewer workers coming to the UK from overseas and a greater share of people of working age deciding they no longer want to or needed to work. It seems that the labour force has shrunk, making it harder to recruit and pushing up wages, so that the inflationary pressures on the economy are no longer just global, they are domestic too.

This week, 115k members of the Communication Workers Union voted for strike action in a pay dispute, that saw 97.6% of voting members. The Royal Mail workers have yet to decide strike date details in what would be the biggest ever action taken by its members. The CWU is the latest of several unions, including railway and airport workers, to ballot for strikes in recent weeks as the cost of living soars, with threats that they “will not budge” until they receive a “dignified, proper pay rise”. Royal Mail said it had offered workers a “deal worth up to 5.5% for CWU grade colleagues, the biggest increase we have offered for many years, which the CWU rejected”. It is reported that following the breakdown in talks, the Royal Mail offered a non-conditional 2% pay increase, backdated to 01 April, and a further 3.5% is available if agreements are subsequently reached.

Today, Friday 22 July, the Port of Dover declared a “critical incident” due to six-hour queues leading to the ferry terminal, with the blame being laid at the door of the French border controls, who “didn’t turn up for work”.  This weekend, the start of the UK schools’ summer holidays, will see an estimated 18.8 million leisure trips over the next three days according to the RAC. It is reported only six of the twelve passport booths, run by the French authorities, at Dover are currently open. Dover Port officials have requested more cooperation from the French, but it does seem that their officials have been Lost In France.