Nero Played His Fiddle While Rome Burned! 12 August 2022
The 2,433 real estate and properties transactions totalled US$ 2.64 billion during the week ending 12 August 2022. The sum of transactions was 326 plots, sold for US$ 447million, and 1,567 apartments and villas, selling for US$ 850 million. The top three transactions were for land in HadNadd Hessa, sold for US$ 96 million, one for US$ 25 million in Island 2 and the third in Al Hebiah Fourth for US$ 11 million. Al Hebiah Fifth recorded the most transactions, with 214 sales transactions worth US$ 162 million, followed by Jabal Ali First, with 39 sales transactions worth US$ 35 million, and Al Yufrah 2, with 26 sales transactions, worth US$ 9 million. Sixty-six properties were granted between first-degree relatives worth US$ 89 million.
According to Betterhomes, Dubai average rental prices for apartments and townhouses rose by 29% and 33% in H2 and for villas by 64%, as the property market continued its strong post-pandemic recovery.
There is no doubt that the local property market is booming and recovering strongly from the Covid slowdown, with recent data showing that it posted the highest number of sales in the month of July in the past twelve years, with 7.1k sales transactions, 63.5% higher on the year, valued at US$ 5.72 billion – up 88.4%. Property Finder also noted that sales volumes and values were also up 41.2% and 58.3%, respectively, in comparison with July 2013, when they had peaked. 59% of all July sales transactions were in the secondary/ready property, with the balance for off-plan units, (totalling 2.9k transactions 67% higher on the year). In the rental sector, 42.7k July contracts were 4.3% higher on the month. The report also saw tenants increasingly preferring to stay in their current location amid rising rents rather than to incur moving costs, but also many were considering buying as, in many cases, montage repayments are still less than rents.
In a recent Savills’ report, Dubai was ranked fourth in their bi-annual review of prime residential capital values across thirty major global cities. Three US cities – Miami, Los Angeles and San Francisco – were ahead of the emirate. In H1, Dubai prime property prices came in 4.7% to the good, and now the emirate is set to become the best-performing in the world. Savills noted that “Dubai is set to perform the strongest for the remainder of 2022 and factors that work in its favour include the continuously positive changes to policies, the most recent being additional benefits for long-term visa holders, with the opportunity for residents to have a superior quality of life at their fingertips”. Dubai was seventh, with a 5.3% rise in prime rents in H1, with the three leading cities being New York, Singapore and London, with rises of 8.5%, 8.5% and 7.7%.
It is reported that Emaar has agreed a US$ 2.04 billion deal to fully acquire Dubai Creek Harbour from Dubai Holding, to be paid equally in cash and Emaar Properties’ shares; the cash portion includes a US$ 335 million payable in three equal instalments. The development, located along the emirate’s waterfront, features 78.5 million sq ft of residential space and is expected to house 200k people when complete; it currently has about 100 million sq ft of future development. Emaar noted that “the transaction will be beneficial to Emaar shareholders, as it will allow Emaar full control over the strategically located land assets of Dubai Creek Harbour, including entitlement to 100% of its generated profit.”
Savills’ H2 Dubai Office report indicates that the emirate’s office sector has remained resilient over the period, mainly attributable to ongoing demand for Grade A office space, with robust occupier demand because of the improvement in the local economy and the fact that it is estimated that an average of 80% of workers have returned to office work. The consultancy indicated that Dubai’s Q2 office utilisation levels were the highest among surveyed EMEA cities. Driven by new entrants into the local market – and some companies aiming to cut costs – there is a growing demand for serviced offices and co-working spaces; it is reported that the more prominent flexible space operators are recording high occupancy levels, and even some with 100% occupancy. Because of the increased demand, grade A developments have witnessed H2 average increases of around 10%, compared to a year earlier, and a 13% hike year-on-year. The highest twelve-month rental gains were reported in Dubai Investment Park (35%), Barsha Heights (29%), Dubai Production City (27%) and Deira (25%). Most of the leasing activity in H1 took place in sub-markets such as DIFC, DWTC, DMCC, Dubai Media City and Dubai Internet City.
Starting from August, Emirates’ passengers can expect: to see “new” interiors and layouts in one hundred and twenty of the carrier’s planes, as it announced a US$ 2.0 billion spend to enhance its inflight customer experience. On top of that, passengers will also see improved inflight customer experience, upgraded menus, (that will be introduced next month), new vegan choices and a ‘cinema in the sky’ experience. The carrier has set up an award-winning team of chefs and a world-class catering team to deliver the best fine dining experience in the sky. The most significant investment is an extensive and record-breaking refurbishment of the aircraft fleet interiors, where cabins will be retrofitted with new or reupholstered seats, new panelling, flooring and other cabin features. Every cabin class will be refreshed, and new Premium Economy cabins installed.
Dubai hosted 282% more H1 visitors to 7.12 million, but still 14.2% lower than its equivalent pre-Covid figure of 8.36 million, as it pursues its target to become the world’s most visited destination. The main driver behind the improved figures was generated by Expo 2020 Dubai which ended 31 March but also by the fact that Dubai is seen on the global stage as a safe destination, and that events such as the Dubai Shopping Festival, the World Government Summit and the Arabian Travel Market also boosted visitor numbers. It is estimated that the emirate’s tourist sector contributes 11.6% to Dubai’s GDP. An analysis of the market sees both Western Europe and the GCC accounting for 22% of the overall tourist numbers followed by South Asia, MENA and Russia, the Commonwealth of Independent States and eastern Europe with 16%, 12% and 11% of the total. By country, India, Oman, Saudi Arabia, the UK and Russia were the top five source markets.
Understandably, the main beneficiary of the rise in incoming international tourists was the hotel sector which saw a 12% H1 rise to 74% in hotel occupancy – and this despite a 19% hike in capacity since the onset of Covid – and it was slightly lower than the 76% occupancy rate recorded during the same period in 2019. By the end of June 2022, Dubai was home to 773 establishments with 141k rooms, (June 2019 – 714 and 118k rooms). Revenue per available room came in 76% higher at US$ 114 on the year – and up 24% from the H1 2019 level of US$ 92. The average H1 daily rate of US$ 154 was 48.4% higher on the year and 27.7% compared to the same period in 2019. The GCC’s hospitality industry is set to grow by 74.8% to US$ 26.3 billion this year and will also return to pre-Covid levels by the end of the year.
July saw Dubai’s non-oil private sector economy continuing its recent improvement, rising 0.3 on the month to 56.4 – its fastest output growth since June 2019, (and rising for the twentieth consecutive month), driven by marked increases in new orders and promotional activity. Dubai has benefited from an fast improving travel and tourism sector and a booming property market, attributable to many factors including the ongoing Expo impact, residency visas for remote workers and retirees, and a marked expansion in the ten-year golden visa programme. The volume of new business dipped from its June three year high but sales were higher, backed by ongoing promotion and discounting.
According to the Central Bank, UAE inflation has been rising, in line with the global trend, with the Q1 CPI increasing by 3.4%, compared with 0.6% and 2.3 % in Q3 and Q4 2021; it estimates that inflation will reach 5.6% by year end. After June had registered the fastest rise in input prices since January 2018, July saw an easing of cost inflationary pressures for Dubai’s non-oil private sector but were still at their second highest over the past fifty-three months.
The federal government has introduced new reporting requirements aimed at certain real estate transactions conducted in the country. The UAE is one of the first countries in the world to implement a mechanism for real estate transactions involving virtual assets, which will greatly assist authorities in their global fight against money laundering and terrorist financing. In future, all real estate agents, brokers, and law firms will have to file reports to the UAE Financial Intelligence Unit in any of the following transactions:
- single or multiple cash payment(s) equal to or above US$ 15k, (AED 55k)
- payments that include the use of a virtual asset
- payments where the fund(s) used in the transaction were derived from a virtual asset
They will also have to obtain and record the identification documents of the parties, (both individuals and companies), to the applicable transaction, among other relevant documents related to the transaction. The new law encompasses a wide range of sectors that are mostly exposed to the risks of money laundering and misuse of commercial transactions and the funds traded by them for the purposes of money laundering or other illegal practices.
The Ministry of Finance has announced that the country’s Q1 public spending rose 19.6% to US$ 23.8 billion on the year; of that total, employee compensation payments amounted to US$ 7.8 billion, a 16.5% increase compared to H1 2021. Other payments included goods and services usage worth US$ 8.4 billion, social benefits – US$ 3.8 billion, financial aid – US$ 1.1 billion, interest – US$ 463 million, US$ 436 million – fixed capital expenditure, grants – US$ 83 million and US$ 1.0 billion – other expenses. Over the period, revenue jumped 39.1% to US$ 33.7 billion, including US$ 15.4 billion in taxes, US$ 1.3 billion – social contributions and US$ 16.9 billion – other.
It is reported that the emirate’s biggest bank has given most of its employees a pay rise of between 5.0% – 8.0% to help cushion against rising costs of living, driven by inflation. The increases varied according to seniority and were part of a mid-cycle salary adjustment for inflation, with top executives receiving smaller or no increases, and lower-paid staff receiving the biggest increase. Last month, Emirates NBD posted a 42% jump in Q2 profit to US$ 953 million. According to Forbes’ list of Top 30 Banks 2022 in the region, the bank – along with First Abu Dhabi Bank – was ranked among the top five lenders in the ME.
As of June 28, 2022, the thirty banks in the ME had a total market value of US$ 586.6 billion and assets worth US$ 2.5 trillion. Gulf banks dominate this year’s ranking, with twenty-five out of the thirty based in the GCC. Saudi Arabia and the UAE are the most represented countries on the list, with ten and seven banks, respectively. Qatar followed with four banks, while Morocco had three. Kuwait – two, and Egypt, Bahrain, Jordan, and Oman with one each.
By the end of May, the UAE Central Bank reported that the assets of the twenty-two national banks had risen by 4.0% to US$ 823.7 billion, accounting for 87.8% of gross banking sector’s assets of US$ 937.9 billion. The 12.2% balance of US$ 114.2 billion was held by the thirty-seven foreign banks – up 0.94% YTD and 2.22% over the twelve months.
Mastercard has announced that it has partnered with Michelin as an official sponsor of the 120-year old MICHELIN Guide Dubai 2022. The emirate is the 38th, and latest, addition to the MICHELIN Guide, which is currently found in destinations across North America, South America, Asia Pacific and Europe. The Michelin rating criteria for restaurants takes into account five considerations: quality of ingredients, mastery of flavour and cooking techniques, the personality of the chef represented in the dining experience, harmony of flavours and consistency between inspectors’ visits.
It is reported that in H1, the overall UAE automotive market in the UAE has increased by 9.3% on the year, with the total units sold in June up 8.1% on a year-on-year basis. The dominant player in the market, Al-Futtaim Automotive, estimated that SUVs made up 50.5% of sales in the first six months of 2022. According to Market Research UAE, the UAE automotive market, which had dipped in Covid-hit 2020 and H1 2021, has shown signs of recovery with passenger cars to top US$ 5.8 billion this year. New car sales are expected to increase by up to 30% this year, as more new brands on offer and the supply chain improving.
Emaar Properties saw H!1 revenue 10.0% higher at US$ 3.70 billion, with EBITDA jumping 66% to US$ 1.66 billion, driven by a strong performance of its core property development business, and complemented by growing recurring revenue operations. Record sales were reported in H1, with a 4.9% rise to US$ 4.81 billion, as the company successfully launched projects both in its domestic and international markets. In Q2, revenue was 7.8% higher at US$ 1.75 billion, as EBITDA rose 52.5% to US$ 798 million. By 30 June, sales backlog was at US$ 13.06 billion which augurs well for its future profits. Its international operations recorded property sales, in Egypt and India, of US$ 661 million, contributing US$ 563 million to Emaar’s total revenue.
Emaar Malls, Emaar Properties’ wholly owned shopping malls and retail arm, posted a 30% hike in H1 revenue at US$ 725 million, surpassing 2019 pre-Covid tenant sales, led by record tenant sales at The Dubai Mall. EBITDA was 66% higher at US$ 448 million, as leasing occupancy stood at 94%. Its hospitality, leisure, entertainment and commercial leasing businesses recorded revenue of US$426 million, was up 93%, whilst Emaar’s UAE hotels, including JV and managed hotels, posted occupancy rates of a credible 71%. The combined revenue of malls, hospitality, leisure, entertainment and commercial leasing, posted a 48% rise to US$ 1.15 billion and EBITDA by 78% to US$ 805 million, equating to 31% and 48% of Emaar’s total revenue and EBITDA.
Emaar Development achieved a record 10.0% hike in H1 property sales at US$ 4.14 billion, as the company, majority-owned by Emaar Properties, launched fifteen projects in various master plans, including Dubai Hills Estate, Dubai Creek Harbour, Downtown Dubai, Emaar Beachfront, Arabian Ranches and Emaar South Over the period, revenue was at US$ 1.98 billion, as EBITDA came in 15.0% higher at US$ 698 million. In H1, it delivered over 3.1k residential units and has now delivered more than 55.1k residential units, with over 26.1k residences currently under development in the UAE. As at 30 June, the build-to-sell property development business had a sales backlog of US$ 8.92 billion that will be recognised as future revenue for the business.
Dubai Investments has posted a 20.5% hike in H1 net profit to US$ 99 million, driven by a marked uptick in its manufacturing, contracting and services segment. Its total assets remained stable at US$ 6.00 billion, with total equity increasing by 1.0% to US$ 3.30 billion. Its recent sale of its 50% of Emirates District Cooling (Emicool) LLC, with a resultant gain of US$ 267 million, will be accounted for in Q3 results.
DEWA posted a 40% hike in Q2 net profit, to US$ 654 million, driven by improved revenue, up 14.0% to US$ 1.91 billion, because of increased power demand. In H1, both profit and revenue were higher – by 39.0% to US$ 856 million and 15% to US$ 3.29 billion.
Aramex posted a 31.9% annual decline in Q2 net income to US$ 12 million, as revenue declined 3.0% to US$ 409 million, driven by lower courier volumes, although the freight-forwarding and logistics business reported a sixfold growth. In H1, Aramex’s net profit dropped 18.0%, year-on-year, to US$ 25 million. ME’s biggest courier company has also suffered from a global downturn in e-commerce activity, as consumers returned to brick-and-mortar shopping, with Covid restrictions easing, and rising worldwide inflation rates impacting pressure on discretionary spending.
Shuaa Capital posted a Q2 net loss, attributable to the owners of the parent, of US$ 46 million, (compared to an US$ 8 million profit a year earlier), as expenses rose by 19.0% to US$ 26 million. The Dubai-based investment bank reported a Q2 net operating loss extending to US$ 9 million, compared to US$ 2 million in Q2 2021, as non-cash charges, including provisions and accelerated amortisation of intangible assets, impacted the company’s quarterly results.
The DFM opened on Monday, 08 August, 21 points (0.6%) lower on the previous three week and closed 78 points higher (2.3%) on Friday 12 August, at 3,395. Emaar Properties, US$ 0.03 lower the previous week, was up US$ 0.06 to close on US$ 1.53. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.69, US$ 3.69, US$ 1.58 and US$ 0.46 and closed on US$ 0.71, US$ 3.79, US$ 1.62 and US$ 0.48. On 12 August, trading was at 113 million shares, with a value of US$ 74 million, compared to 87 million shares, with a value of US$ 73 million, on 05 August 2022.
By Friday 12 August 2022, Brent, US$ 16.55 (14.1%) lower the previous week, gained US$ 3.51 (3.7%) to close on US$ 97.97. Gold, US$ 85 (5.0%) higher the previous three weeks gained US$ 27 (1.5%), to close Friday 12 August, on US$ 1,819.
Oil prices continued with their volatility this week, with supply concerns as, on 04 August, Russia suspended oil exports to Europe through a major pipeline amid Moscow’s military offensive in Ukraine, according to the Russian pipeline operator Transneft. The southern leg of the pipeline passes through Ukraine and supplies oil to Hungary, Slovakia and the Czech Republic Despite the distinct possibility of a global recession looming, which would normally see demand – and prices – fall, oil prices will not go much lower if the oil supply outlook remains tight. On Wednesday, the Russian pipeline operator resumed supply through the southern Druzhba pipeline, Last week, the 23-member Opec+ super-group of oil producers agreed to boost output by 100k bpd, whilst the International Energy Agency trimmed its global oil demand forecast by 1.7 million bpd to 99.2 million bpd this year and by 2.1 million bpd to 101.3 million bpd in 2023.
India’s Tata Motors has agreed a US$ 92 million deal, (including land, machinery and all “eligible employees”), to buy a Ford manufacturing plant in the western state of Gujarat in a bid to boost its domestic car production. The US car maker has finally given up on India after a twenty-year presence and struggle to make any RoI in the country; it has lost a reported US$ 2 billion over the past decade. The acquisition will see Tata’s new capacity rise by 300k units which could further rise 40% to 420k. Last September, Ford announced that it would close its Indian car factories, as part of a move that would cost it around US$ 2.0 billion, and joined the likes of General Motors, Volkswagen-owned MAN Trucks and motorbike maker Harley Davidson who had earlier left the Indian market. With its car market stagnating, it is interesting to note that over the past five years. India’s annual passenger vehicle market has stayed at around 3 million units a year, compared to China seeing twenty million cars bought annually. This may be about to change as Mahindra posted that demand for its vehicles was outstripping production, as consumers rushed to buy its popular sport-utility vehicles.
In the wake of the Covid pandemic, which severely disrupted international travel, demand has returned but it seems that the infrastructure was not ready, with staff shortages at airlines and airports leading to delays and cancellations; another problem was the soaring cost of fuel which obviously has hit margins. This week, Ryanair’s supremo, Michael O’Leary, commented that the era of the €10 ticket is over, noting that the carrier’s average fare would increase by 25% to US$ 52 over the coming years. Despite the rising expenses facing airlines, and surging costs of living costs for potential travellers, he expects customers to seek out lower-cost options rather than cut back on flights, commenting that “we think people will continue to fly frequently. But I think people are going to become much more price sensitive and therefore my view of life is that people will trade down in their many millions. Because of advance planning – for example, deciding to start recruiting and training cabin crew and pilots last November – Ryanair has had to cancel only 0.3% of flights, compared to BA and EasyJet with 3.5% and 2.8% cancellations. The CEO said he had “very little sympathy” for the airports, saying they knew schedules months in advance and that security staff, which are the responsibility of the airports, required less training than pilots, and accused LHR of mismanagement.
Having faced several well-publicised production problems, Boeing managed to deliver its first 787 Dreamliner since May 2021, with American Airlines receiving its first new Boeing plane in sixteen months; it expects to receive a further eight jets by the end of the year, with a further thirty-three on order. Both parties benefitted from the news, with share values up 4.5% for AA and 3.3% for the plane maker. Boeing confirmed it resumed deliveries following “thorough engineering analysis, verification and rework activities to ensure all airplanes conform to Boeing’s exacting specifications and regulatory requirements.” Following two fatal 737 MAX crashes, in 2018 and 2019, the Federal Aviation Administration pledged to more closely scrutinise Boeing and delegate fewer responsibilities for aircraft certification. In September 2020, the FAA said it was investigating manufacturing flaws in some 787 jetliners and consequently has indicated that it “will inspect each aircraft before an airworthiness certificate is issued and cleared for delivery.” The 787 has cost Boeing additional expenses and earlier in the year, it took a US$ 3.5 billion charge due to 787 delivery delays and customer concessions, and another US$ 1 billion in abnormal production costs stemming from production flaws and related repairs and inspections.
The Swedish, Danish and Norwegian pilot union members have voted in favour of adopting the July collective bargaining agreement, reached with airline SAS, and will thus not resume their strike. This comes after SAS grounded some 3.7k flights during a crippling fifteen-day strike that left 380k passengers stranded. On the second day of the strike, the struggling airline filed for U.S. bankruptcy protection, and estimated the industrial action cost it more than $145 million (during what should have been a profitable peak summer travel season). Part of the agreement included lower wages and longer hours, and the carrier rehiring pilots laid off during the pandemic.
The next sector to go out on strike for a better pay deal will be London bus drivers following in line behind Underground and railway workers; the two-day walk-out will be from 19-20 August. The union has rejected the company’s offer of a pay increase of 3.6% this year and 4.2% in 2023, claiming that it was a real terms pay cut due to the soaring rate of inflation.
In 2020, Johnson & Johnson ended sales of its talc-based baby powder in the US, after facing tens of thousands of lawsuits from women who alleged that it contained asbestos and caused them to develop ovarian cancer. This week, it was announced that it will stop making and selling its talc-based baby powder around the world, replacing it with an all corn-starch-based baby powder, despite claiming that the product is safe to use. The claims against J&J were based on the fact that talc is mined from the earth and is found in seams close to that of asbestos, which is a material known to cause cancer. Last October, J&J created a subsidiary, LTL Management, assigning its talc claims to it, and then placed it into bankruptcy, which paused the pending lawsuits. Prior to the bankruptcy filing, J&J was facing costs of US$ 3.5 billion in verdicts and settlements, including one in which 22 women were awarded a judgement of more than US$ 2.0 billion.
Another twist in the Twitter saga sees Elon Musk tweeting he would be prepared to go ahead with the US$ 44 billion acquisition so long as the tech giant could provide its method of sampling one hundred accounts and how it confirmed that the accounts are real. However, he added that if it turns out that their SEC filings are materially false, then he would not. Twitter responded that his claims that he was hoodwinked into signing the deal to buy the social media company, were “implausible and contrary to fact”. It seems that Elon Musk would use the US$ 6.9 billion he acquired after selling shares in Tesla to finance a potential Twitter deal if he loses this October’s legal case. The enigmatic entrepreneur noted that “in the (hopefully unlikely) event that Twitter forces this deal to close, and some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock.” In April, he agreed to buy Twitter for at a high premium price of US$ 44 billion but tore up the agreement last month, after claiming certain irregularities including a number of spam accounts. Over the past year, he has sold Tesla shares, valued at US$ 32 billion, but still owns 155 million shares in the electric carmaker, equating to some 15% of the company; its share value has risen some 15% since declaring better than expected profits late last month.
In its first-ever bond offering, and following in the footsteps of Apple and Intel who both recently finalised bond deals for US$ 5.5 billion and US$ 6.0 billion, Meta Platforms Inc (META.O) has raised US$ 10 billion as it looks to fund share buybacks and investments to revamp its business. The Facebook parent company, the only big tech company with a debt free balance sheet, wants to build a more traditional balance sheet and fund some projects including its metaverse virtual reality. Last month, it posted its first ever quarterly loss and forecast a turbulent period ahead of a possible recession and pressure on its digital ads sales.
With latest figures showing that Walt Disney Co has 221.1 million streaming customers, it has surpassed Netflix’s 220.7 million. Following the news, Disney shares jumped 6.9% in Wednesday trading and it announced it will introduce a 38% increase in prices for customers who want to watch Disney+ or Hulu without commercials. Five years ago, Disney was struggling, as the viewing trend was moving away from traditional cable and broadcast television, and so it staked its future on building a streaming service to rival Netflix. There is no doubt that Disney has the momentum, as Netflix is struggling, and it has still more room to grow in international markets where it is rolling out its service fast and adding new customers. Having lost out on IPL cricket rights in India, Disney has lowered its forecast, projecting figures of between 215 million – 245 million, from 230 million – 260 million. The latest quarterly results shows that the streaming TV unit lost US$ 1.1 billion, whilst operating income more than doubled at the parks, experiences and products division to US 3.6 billion. Overall revenue rose 26% to US$ 21.5 billion.
Having been royally battered by a massive sell-off in global tech stocks, Japan’s SoftBank posted a record Q3 US$ 23.4 billion net loss, with its Vision Fund sector shipping US$ 2.82 billion, surpassing its highest ever quarterly Q2 loss of US$ 2.66 billion; it also took a US$ 993 million forex loss because of the weakening yen. SoftBank, the world’s largest tech fund holder, has billions of dollars invested in unlisted technology start-ups, as well as the likes of giants Amazon and Uber – and with the Nasdaq 100 shedding 22% in value during the quarter, (its worst ever return since the 2008 GFC), it is bound to hurt the Japanese mega investor. There appears to be worse to come as global economic growth continues to slow. It posted losses in Coupang (US$ 355.4 billion), SenseTime (US$ 285.8 billion), and DoorDash (US$ 267.4 billion). Furthermore, it has seen Bytedance and Klarna Bank valuations losing 25% and 85%.
After being twice imprisoned for bribing former South Korean president Park Geun-Hye, to the tune of US$ 6.6 million, to secure support for a merger opposed by shareholders that would shore up his control of his family’s empire, Samsung heir Lee Jae-yong has been granted a special presidential pardon. His crimes were directly tied up in the corruption scandal that led to the twenty-five year imprisonment of the former president Park Geun-Hye, who had been in office from 2013-2017. However, her replacement, Moon Jae-in, was elected on the mandate of cleaning up the mess but patently failed to do so and in his last days as president, pardoned his predecessor. Eight months ago, he was replaced by Yoon Suk-yeol who in turn has offered clemency to the Samsung chief and In his last days as president, he granted a pardon to his predecessor. There is no doubt that South Korean ‘wasta’ is alive and kicking and it seems that certain business leaders are above the law.
Even worse economic news from Türkiye, with the country’s July inflation rate climbing to a record inflation rate of 79.6%, with the lira was trading flat at 17.956 against the US$; It had touched a record low of 18.4 at the end of 2021 and last year and YTD had risen 44% and 27%. On the month, consumer prices rose 2.37% in July, as global energy and commodity costs pushed prices higher, with transportation and food and non-alcoholic drinks climbing by 119.1% and 94.7%. President Tayyip Erdogan estimates that inflation will come down to “appropriate” levels by February-March next year, while the central bank raised its end-2022 forecast to 60.4% from its most recent forecast of 42.8%.
In a bid to catch up lost ground to the Chinese, and to reduce the country’s reliance on Chinese tech products, President Joe Biden has signed a law committing US$ 280 billion to high tech manufacturing and scientific research, including for investments such as tax breaks for companies that build computer chip manufacturing plants in the US. Thirty years ago, the US produced 40% of the global semiconductors – now that has sank to just 10%. Furthermore, the global shortage of microchips, which has had a negative impact on many sectors, including motor vehicles and white goods, has increased the need for this new investment. The Chinese Embassy in Washington had opposed the semiconductor bill, calling it reminiscent of a “Cold War mentality.” The EU is also investing in tech, with a US$ 41.3 billion investment plan to boost production of computer chips.
Its seems that the Johnson government may have made a big mistake, in January 2021, by no longer offering tax-free purchases to international tourists, Under the VAT Retail Export Scheme, non-EU visitors to the bloc could recover the VAT on High Street purchases, but the scheme was withdrawn in January 2021 after the UK left the EU. It seems that many high-spending international tourists have stopped coming to spend money in the UK and instead are going to the likes of Paris for their luxury shopping requirements. Even UK travellers to the continent can avail of duty-free shopping on the continent.
The calendar Q2 UK economy contracted by 0.1%, (compared to a 0.8% growth in the previous quarter) attributable to a decline in household spending; this was the first contraction since the pandemic, as predictions for a recession come in line with reality. Because of the Queen’s platinum jubilee celebrations, there was a 0.6% decline in June, following surprise growth in May due to the celebrations. The cost-of-living crisis and the global impact of the Ukraine war added to the economic problems in Q2, with health a leading factor for the contraction, because of the withdrawal of the NHS Test and Trace Covid-19 vaccination services, along with a dip in the retail sector. However, improvements were seen in hotels, bars, hairdressers and outdoor events. The forecast for the next quarter is quite positive, as the effect of the holiday unwinds, but thereafter it is downhill all the way until the end of 2023, with every possibility of five quarterly declines in GDP. Rates are expected to rise again, by a probable 0.5%, next month, (with cash rates currently at 1.75%, compared to just 0.1% last December) – and that alone would inevitably slow growth.
As the country struggles with all its economic woes, it seems incongruous that the Johnson lame duck administration appears to be doing nothing to rectify the economic mess, as its 160k+ Conservative members, mostly white and above the age of fifty, take six weeks to register their vote. At the same time, the two candidates for the leadership, Liz Truss and Rishi Sunak, are tearing each other – and their party – apart, as the country awaits 02 September to find out the name of the UK’s fifth Prime Minister this century. Interestingly, both were senior cabinet ministers under Boris Johnson so one would expect that they should be ‘singing from the same hymn sheet’, which they are patently not. However, come the election result, all will return to some sort of normalcy, with former Johnson allies falling in line behind the new leader. Is this democracy at work?
One of the main issues to be addressed by the new leadership is the soaring energy prices that has brought the nation to its knees. The former Chancellor seems to be promising everyone everything to become the new PM – but one has to ask why he could not have introduced these new policies when he was the captain of the ship – and was still there when inflation topped 8%. He is now advocating more energy payments whilst his rival, Liz Truss, has defended earnings at energy companies amid soaring price rises, saying profits should not be considered “dirty and evil”, and that windfall taxes on profits were about “bashing business”, and that cutting taxes was the best way to help with living costs over winter. Meanwhile the main man himself is on summer holidays and so is his recently appointed Chancellor of the Exchequer, Nadhim Zahawi, who turned on the Prime Minister a day after being appointed to this position. This is at a time when the UK inflation rate continues to head towards double-digit territory, energy prices are exploding and the BoE has raised rates again. Nero Played His Fiddle While Rome Burned!