Sick Man of Europe                                                     29 September 2023

Because of today’s public holiday, Dubai’s weekly real estate data is unavailable.

The latest mega property-related project, at US$ 8.17 billion, has been launched by Azizi Development. Azizi Venice, to be located in Dubai South, will be a mixed-use desert oasis community project, and house 80k residents, in 30k residential units, with one hundred mid-rise apartment complexes and more than four hundred luxury villas and mansions; it will be set entirely within one of the world’s largest crystal-blue water lagoons. Encompassing fifteen million sq ft, it will also feature a temperature-controlled pedestrian-friendly boulevard and Dubai’s second opera house. The boulevard will be open-air in the winter and glass-covered in the summer to ensure a temperature-controlled space with year-round activity. It will also have two Azizi-owned and operated five-star hotels, at the entrances of the community, as well as one boutique hotel located on an island in the middle of the lagoon. The Azizi Venice community will have multiple beaches, plus an extensive leisure, retail, and commercial space. The turquoise, desalinated, and filtered waters will be framed by beach-like shores, an 8 km-long cycling and jogging track, yoga and sports facilities, and a promenade with a variety of artisan eateries and boutiques.

In the past two months alone, there have been several other eye-watering launches, including Palm Jebel Ali, with Nakheel Properties opening phase 2 of villas this week, after selling out phase 1 within days. Recently, Emaar Properties has rolled out Nima, The Valley, and also the US$ 20 billion The Oasis by Emaar. Moreover, private developers, such as Danube Properties and Damac, have also launched multiple residential projects this year to cash in on surging demand.

With Nakheel partnering yacht brokerage Edmiston at the Monaco Yacht Show for the first time, it will introduce its waterfront developments to new audiences and showcase Nakheel’s position as a global pioneer of elevated living experiences. It will be able to showcase the likes of the ultra-luxury Como Residences on Palm Jumeirah, a seventy-six-storey residential tower with wrap-around balconies, along with the newly released Beach and Coral villas on Palm Jebel Ali. The new masterplan for Palm Jebel Ali was recently revealed, which comprises seven islands and sixteen fronds, adding a total of 91 km to Dubai’s beachfront.

A new agreement between the UAE and the Philippines sees a boost in air connectivity between the two nations and the start of Airbus A380 operations, amid growing travel demand. It will also increase the national carriers’ flights and tripling air cargo volumes to six hundred tonnes per week for each national airline. According to Saif Al Suwaidi, director-general of the GCAA, the UAE’s policies have led to “adopting an open skies policy, which has boosted its competitiveness, openness, and economic flexibility, as well as its regional and global leadership”. Currently, Emirates operates eighteen flights, using Boeing 777-300ER aircraft, to the Filipino capital city of Manila, as well as daily flights to Clark, via Cebu. This agreement comes at a time when the Asian country is seeking to increase investment from the UAE, and other Gulf countries, to boost infrastructure development and its economy. Talks are on-going relating to a Comprehensive Economic Partnership Agreement between the two countries – with the UAE ranked as the seventeenth major trading partner for the Philippines.

There was a welcome US$ 7.9 billion reduction in Dubai’s public debt last year, eighteen months since the creation of the Public Debt Management Office of the Government of Dubai’s Department of Finance and its Public Debt Sustainability Strategy. Its objectives include reducing borrowing costs, mitigating refinancing risk, and ensuring the Government’s financial stability in the medium term. In the year, the government debt portfolio has witnessed a full redemption of Sukuk certificates, worth US$ 900 million, the repayment of bilateral and syndicated facilities – totalling US$ 14.1 billion – and a partial settlement of the US$ 5.45 billion financing extended by the Abu Dhabi government and the Central Bank of the United Arab Emirates. The strategy has seen a marked reduction in the public debt-to-GDP ratio, which now stands at a safe and conservative level of 25%, compared to the 40% – 60% typical range of internationally recognised thresholds.

In an address to the 21st Arab Media Forum, DP Worlds CEO, Sultan Ahmed bin Sulayem, noted that the global port operator had spent over US$ 6.0 billion to become a leading comprehensive supply chain player. He spoke about its transformation from a traditional ports’ operator into a major player in the global supply chain, saying “in 2016, it became evident to us those factors beyond the confines of ports exerted a notable influence on the punctual delivery of cargo. Faced with this revelation, we made a resolute and forward-thinking decision. Our commitment was unwavering: to provide the most exceptional service to our cargo owners, guaranteeing both timeliness and cost-effectiveness in their operations”. The result is that, in the past seven years, it has become a global leader in smart end-to-end supply chain logistics, facilitating worldwide trade flows by acquiring several global companies in sectors such as supply chain, warehouse storage and transportation. For example, DP World is now the largest transportation company in India following the privatisation of the sector by the Indian government, even owning a major rail network to move goods across the country.

The Ministry of Energy and Infrastructure has set targets for the mining sector, including increasing its contribution to non-oil GDP to 5.0% by 2030. At the same time, the strategy includes other targets such as increasing the number of companies in mining and manufacturing industries, boosting the sector’s added value and increasing relevant exports by 2026, as well as substituting mining extraction industry imports valued at some US$ 558 million with local products by 2026.

This week, S&P forecast that the UAE economy would be 3.0% higher this year, rising to 4.0% in 2024, driven by the non-oil sector which would benefit from strong growth in tourism, government initiatives, and technological advancements. The ratings agency also expected further strong expansion within the tourism sector, helped by the country’s ability to host major international events, along with an increased room portfolio and a major push to attract even more international visitors. Furthermore, it sees both the real estate  and the banking sectors contributing to the increase; the former becoming more flexible, with stable housing prices supported by strong demand, and the latter, assisted by rising interest rates. Other contributing sectors include oil/gas, wholesale trade, industry, construction and financial services.

With a 01 October deadline fast approaching, the Ministry of Human Resources and Emiratisation noted that 5.73 million employees have subscribed to the UAE’s mandatory job loss insurance scheme; of the total 5.6 million were from the private sector and the balance employed in federal government departments. Those that have yet to join will be fined US$ 109. Excluded categories include investors (business owners who own and manage their businesses themselves), domestic workers, temporary employees, minors under the age of 18, and retirees who receive pensions and have joined a new employer. The unemployment insurance scheme is divided into two categories: The first covers those with a basic salary of US$ 4.36k and under, where the insurance premium is set at US$ 0.014 per month, with the maximum monthly compensation being US$ 2.725k. The second category includes those with a basic salary over US$ 4,360, with the insurance premium being US$ 0.027 per month and monthly compensation capped at US$ 5,450.

Dubai Islamic Bank, the country’s largest Sharia-compliant lender by assets, has acquired a 20% stake in Turkiye’s TOM Group of Companies, with an option to increase the figure to 25% within the next twelve months. One of the founding shareholders of the Istanbul company, which owns a digital bank, is Aydin Group, the operator of one of the country’s largest retail ecosystems. No financial details were made available.

There are reports that Spinneys Dubai LLC, the franchisee of the supermarket chain in the UAE and Oman, is planning an IPO in Q4 2024, and has hired Rothschild & Co as an adviser. It also seems that Albwardy Investment, the franchise’s 100% owner, has also invited banks this week to pitch for roles in the offering, expected to be up to 30% of the company.  Spinneys Dubai, with an annual US$ 1.0 billion turnover, also owns the franchise rights to UK supermarket chain Waitrose. In its portfolio, there is a hospitality portfolio that includes several Four Seasons hotels and food distribution investments that include Nestle UAE, along with industrial/engineering, commercial/insurance, agribusiness and properties. Over recent months, there has been plenty of activity in the regional food retail sector. Americana Restaurants, the Middle East and North Africa franchisee of fast food restaurants KFC and Pizza Hut, as well as a seller of frozen foods, debuted in a dual listing in Abu Dhabi and Riyadh in December. Lulu Group, a hypermarket and mall operator, expects its IPO in the first half of 2024, and has hired Moelis & Co to advise it.

On Monday, the DFM’s market cap over AED 700 billion – its highest ever figure since July 2015 – reaching US$ 191.2 billion (AED 701.6 billion).

The DFM opened on Monday, 25 September 2023, 126 points (3.1%) higher the previous weeks shed 5 points (0.1%) to close the shortened trading week on 4,164, by Thursday 28 September 2023. Emaar Properties, US$ 0.20 higher the previous fortnight, gained US$ 0.08 to close on US$ 2.19 by the end of the week. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.70, US$ 4.94, US$ 1.61, and US$ 0.45 and closed on US$ 0.70, US$ 4.85, US$ 1.59 and US$ 0.43. On 29 September, trading was at 150 million shares, with a value of US$ 151 million, compared to 169 million shares, with a value of US$ 137 million, on 22 September 2023.

The bourse had opened the year on 3,438 and, having closed on 29 September at 4,164, was 644 points (21.1%) higher. Emaar started the year with a 01 January 2023 opening figure of US$ 1.60, to close the first nine months at US$ 2.19. Four other bellwether stocks, DEWA, Emirates NBD, DIB and DFM started the year on US$ 0.59, US$ 3.54, US$ 1.55 and US$ 0.41 and closed YTD at US$ 0.70, US$ 4.85, US$ 1.59 and US$ 0.43.   On 29 September, trading was at 150 million shares, with a value of US$ 151 million, compared to 66 million shares, with a value of US$ 18 million, on 31 December 2022.

By Friday, 29 September 2023, Brent, US$ 0.65 lower (0.7%) the previous week, gained US$ 1.80 (1.8%) to close on US$ 95.43. Gold, US$ 43 (2.2%) lower the previous two weeks, dropped US$ 76 (4.0%) to US$ 1,869 by 29 September 2023.  

In a bid to introduce more fuel-efficient planes, Air France-KLM is planning to place a “major order” for fifty long-haul Airbus A350s – an order with a list price of more than US$ 16.0 billion; delivery is expected between 2026 – 2030.  The A350 consumes 25% less fuel than the previous generation of aircraft of a similar size, largely due to the use of lighter materials. The order aims to replace thirty-three older generation Boeing 777-200s and A330s from the two airlines. There is the possibility of a further forty planes could be added in the future. In H1, the aviation group posted a doubling of its net profit to US$ 662 million, with sales 13.7% higher, despite rising inflation and increasing costs, particularly fuel expenses.

Because of delays in the delivery of Boeing aircraft, Ryanair has had to cut its winter schedule but noted that its full-year traffic forecast was unaffected “as yet”. The budget airline had expected the delivery of twenty-seven planes between September and December, but production delays will see only fourteen delivered. The Irish airline said it was working to try to accelerate deliveries from January to May 2024 but that if the delays worsen, or extend into early next year, it may have to revise down its traffic forecast. Whether the Irish carrier receives its full order of fifty-seven jets by May 2024 Is highly unlikely. In May, and despite all the delivery delays and problems, Ryanair signed a  multibillion-dollar deal for as many as three hundred Boeing jets. Two months later, it trimmed its full-year passenger forecast, by 1.5 million, to 183.5 million. Flight cancellations will take effect from the end of October and will be communicated to all affected passengers by email over the coming days. It will cut three aircraft from those based at Charleroi airport in Belgium, two from Dublin and five from Italian airports, including Bergamo, Naples and Pisa. There will also be aircraft reductions at East Midlands airport, Porto and Cologne.

Nissan has announced that all its vehicles sold in Europe will be electric by 2030, and this despite the UK recently postponing its ban on the sale of new petrol and diesel cars by another five years to 2035. At the same time, the Japanese carmaker confirmed that new battery technology will help reduce both the charging time and cost of EVs. The company is to fast-track a different kind of battery technology, known as all-solid-state batteries (ASSB), which are lighter, cheaper, and quicker to charge. Concerns, raised by the industry body, SMMT, are that the postponement of the ban would see consumers delay the switch to electric vehicles. Nissan do carry a unique advantage going forward in that it is the only car company to have its own battery manufacturing capability in the UK, which is being built following a US$ 1.0 billion investment (plus a further UK government contribution of US$ 100 million). Post-Brexit trading rules, due to take effect in January, require vehicles made in the UK or EU to source 45% of their components by value from the UK or EU to avoid a 10% tariff when exported either way.

As most major supermarkets see profits heading south, Aldi, with operating profit up to US$ 217 million, almost triple the amount it made the year before, reports that its UK revenue US$ 2.43 billion higher at US$ 18.83 billion. However, it estimates that its net margin has risen to 1.2%, compared to 0.4% a year earlier, which had been impacted by markedly high Covid-related costs. The German interloper, now the fourth biggest supermarket in the UK, having overtaken Morrisons, posted that shoppers are buying more own-label products than ever before, with its own-named products making up over 50% of sales and in volume terms growing at twice the rate of branded goods. It is thought that over 66% of UK households now shop with Aldi that estimates that it has added an additional one million customers over the past twelve months. Having opened its one thousandth store in Woking last month, Aldi has set a medium-term target to bring the total to 1.5k over the next two years.

Next week, London’s High Court will be the location for a possible thirteen-week legal battle between UBS and the Mozambiquan government. The case is about Credit Suisse’s role in a US$ 2.0 billion “tuna bonds” scandal which has resulted in the African country suing for US$ 1.5 billion in damages. For obvious reasons, the Swiss bank is keen to clear all legal claims that have arisen since Credit Suisse was taken over by UBS earlier in the year. To date, it has settled some major claims. In 2013, state companies issued debts under guarantee to” fund tuna fishing and other projects”, but the loans soon fell into default because of looting of millions of dollars.  Credit Suisse failed last June to get the lawsuit struck out. Three former employees of the disgraced bank have admitted to receiving kickbacks on the debt issue.

Since its 2012 launch, initially on its website and then on to Facebook and finally to mobile, Candy Crush Saga, the matching game played by millions, has seen its total revenue top US$ 20.0 billion. Eleven years ago, it introduced the “freemium” model, in which the game is free but players can spend money to boost their performance or can watch ads to gain moves.  Over the past six years, Candy Crush has been the top-grossing franchise in US app stores. King President Tjodolf Sommestad said Candy Crush Saga, and its other titles like Farm Heroes Saga, showed that mobile games could have enduring appeal, and that “we’ve proven to ourselves and to the industry that it is possible to reignite games that are years old and keep them relevant for a decade or longer, and break records even a decade in.” King has been owned since 2016 by Activision Blizzard, the U.S. company behind “Call of Duty”.

In an attempt to compete with growing cloud rivals on AI, Amazon.com said it will initially invest US$ 1.25 billion, (moving up to a possible US$ 4 billion), in cash in the high-profile start-up Anthropic. This will allow Amazon’s employees and cloud customers to gain early access to technology from Anthropic; it also committed to rely primarily on Amazon’s cloud services, including training its future AI models on large quantities of proprietary chips it would buy from the tech giant. There were no details on Amazon’s possible stake in the start-up or Anthropic’s current valuation, last estimated in the region of US$ 4.0 billion.

Commenting that he believes that Tesla, Google and Microsoft will invest up to US$ 5 billion into Thailand, Prime Minister Srettha Thavisin indicated that the fresh foreign investment would boost Thailand’s flagging economy, which is expected to grow by 2.8% in 2023, less than previously projected, due to weaker exports. He also noted that “Tesla would be looking into an EV manufacturing facility, Microsoft and Google are looking at data centres.” Thailand, Asia’s fourth-largest automobile assembly hub, has been offering incentives to EV and battery makers, and tax cuts to local EV buyers, to remain a regional auto centre.

Last year, Apple, India’s largest exporter of mobile phones, reached a production milestone, topping US$ 7.0 billion, and is targeting an increase in production to around US$ 40.0 billion over the next four to five years. Apart from ramping up iPhone production, the tech giant is also considering manufacturing AirPods , but it noted that its immediate target was to augment the existing production levels, with the production of iPads or laptops not an immediate priority. At the same time, India is actively seeking to expand its electronics industry, targeting a US$ 300 billion industry size within three years, by increasing smartphone production and by a global push to diversify supply chains away from China. In Q1, Apple had a 59% of the market in the ultra-premium segment.

In the US, the Federal Trade Commission has sued Amazon, alleging that the internet giant is illegally maintaining monopoly power, by using “a set of interlocking anticompetitive and unfair strategies” to push up prices and stifle competition. The FTC chair, Lina Khan, has long been a critic of the tech giant and, in 2017, published a major academic article arguing the online retailer had escaped anti-competition scrutiny, and “with its missionary zeal for consumers, Amazon has marched toward monopoly,” Since she came a surprise choice for the position, she has had little success in her fight against big tech. Twice this year, she has lost major cases – In February, in an attempt to stop Meta from buying VR company Within, and in July it lost an attempt to block Microsoft from completing its deal to buy the maker of Call of Duty. It could be a case of third time lucky, with this case involving seventeen state attorneys claiming that Amazon is a “monopolist” that stops rivals and sellers from lowering prices, and that its actions “degrade quality for shoppers, overcharge sellers, stifle innovation, and prevent rivals from fairly competing against Amazon”.

Perhaps as part of the apparent Chinese administration’s ongoing purge on senior executives of conglomerates, there are reports that Evergrande’s chairman Hui Ka Yan has been put under police surveillance. Evergrande confirmed that he “has been subject to mandatory measures in accordance with the law due to suspicion of illegal crimes”, without giving any further details. In 2017, he became China’s richest man, with his fortune rising to US$ 42.5 billion which has markedly declined owing to their recent financial problems. The company he founded in 1996 became the world’s most valuable property developer, but defaulted on a 2021 loan repayment; its current debt is put at over US$ 300 billion, with much of it owed to people within China, many of whom are ordinary citizens, who have paid deposits,  whose homes have not been finished. Other creditors include companies that do business with Evergrande, including construction/design firms and materials suppliers, lining up to incur massive losses, and the most worrying, the knock-on impact on the financial system with banks and lenders picking up the pieces; the end result is a credit crunch, when companies struggle to borrow money at affordable rates.

In a blow to its efforts to cut carbon emissions, Denmark’s Lego has scrapped plans to make its bricks from recycled bottles. In 2021, the toymaker announced that it would produce bricks, without utilising crude oil and use acrylonitrile butadiene styrene, a virgin plastic made from crude oil, within two years. It started developing prototype bricks made from polyethylene terephthalate (PET) bottles, with some other chemicals added. However, last Monday, it announced that it had found that using the new material did not reduce carbon emissions but that it remains “fully committed” to making bricks from sustainable materials. Over the previous two years, it had been exploring alternative materials to plastic, as sustainability becomes more important to customers – and in Lego’s case, a material that would last for generations. Unfortunately, experiments found that using recycled PET did not reduce carbon emissions because extra steps were required in the production process, which meant it needed to use more energy. The company confirmed that “we are investing more than US$ 1.2 billion in sustainability initiatives in the four years as part of our efforts to transition”.

The public outcry against Qantas continues unabated, with the latest being pilots who are calling for its chairman Richard Goyler to stand down. Apart from allowing Alan Joyce to act in the way he did – and get away with it – the Australian and International Pilots Association stated in a letter to the new CEO Vanessa Hudson other reasons. It commented that “Richard Goyder has overseen one of the most damaging periods in Qantas history which has included the illegal sacking of 1,700 workers, allegations of illegally marketing cancelled flights, and a terribly managed return to operations after Covid-19.” It added that “the morale of Qantas pilots has never been lower. We have totally lost confidence in Goyder and his Board. Qantas desperately needs a culture reset but how can this happen with Richard Goyder as chairman? Despite overseeing the destruction of the Qantas brand, Goyder last week accepted a near US$ 67k, (AUD100k) pay rise — taking his pay to AUD 750,k — while staff are expected to accept a two-year wage freeze. This is a galling and tone-deaf decision.” There is no surprise that, last week, Mr Goyder maintained that he had the confidence of the Qantas board and major investors – and perhaps other board members may be well advised to keep their heads below the parapet until the storm dies down.

After ASIC took the National Australian Bank to court, it has been fined US$ 1.4 million for knowingly overcharging banking customers back in 2017-2018. It was accused that it had “continued to charge fees when it knew it lacked any entitlement to do so” and “omitted to tell its customers of that wrongful charging”. The bank continued to “charge these incorrect fees, which was clearly unacceptable,” and found that the central cause was NAB’s inability to manage its own computer systems.

After self-reporting to FairWork in 2020 that it had short-changed its Australian store workers, Starbucks has now handed back US$ 3.0 million in wages to them. The pay shortage impacted on some 2.5k staff, including baristas, supervisors and assistant managers who were not paid the correct award rate; the highest ‘casualties’ were underpaid by up to nearly US$ 12k, with an average underpayment of US$ 1.2k. Fifty-two outlets – in Sydney, Melbourne, Brisbane and Gold Coast – were impacted. Under law, Starbucks also has to make a US$ 100K contrition payment, and prove that it is implementing change.

Mining giant Rio Tinto has confirmed it is working with traditional owners in Western Australia’s Pilbara after a blast at one of its operations caused damage to an ancient rock shelter – this comes just three years after the mining giant attracted international condemnation when it destroyed two ancient rock shelters at another of its mines at Juukan Gorge, sixty km from Tom Price in WA; it is believed that the shelter dates back at least 50k years. It seems a large rock and a scrub tree fell from above the entrance to the cave, with Rio claiming no structural damage at the Nammuldi site, or any apparent impact on cultural materials. The blasts came despite traditional owners warning the company of the site’s significance – and only three months after the State introduced new legislation to update decades-old cultural heritage laws, under which the mining giant was able to secure approval to blast the gorge, only for Roger Cook’s government to scrap it following protests from pastoral groups and the resources industry. When will Rio ever learn?

Although August saw Australia’s inflation rate nudge 0.3% higher to 5.2%, the underlying measure of inflation still declined, when volatile prices are stripped from the data. Housing, transport, food and insurance prices were some of the biggest drivers. In monthly terms, automotive fuel prices jumped 9.1% in August, and the annual rate of growth for fuel prices jumped to 13.%. There were significant hikes in meals out/takeaway foods, (6.9%), bread/ cereal products (10.4%), and dairy/related products (10.1%), although prices for fruit/vegetables fell again last month by 8.3%, with improved weather conditions leading to increased supply. Insurance and rents both rose by 0.5% to 14.7% and by 0.2% to 7.8%. Economists forecast that this could have been a blip and seem to be confident that rates will head south, albeit at a slow rate, for the rest of 2023. There is a slight chance that this August figure may tempt the RBA to raise rate next month. However, a higher rate of inflation spells bad news for both corporate and household confidence which will lead to less spending in the economy.

Citing wider economic problems led to a drop in the valuation of businesses it had invested in, the state-owned British Business Bank posted an annual US$ 179 pre-tax loss as at 31 March 2023. It is reported that BBB, set up in 2014 to lend money to and buy stakes in smaller UK businesses to help them start up and expand, made funding agreements, totalling US$ 1.95 billion, last year. Its total funding now stands at US$ 15.1 billion to more than 90k businesses, which excludes Coronavirus loans which it administered – it is responsible for administering the government’s three Covid-19 loan schemes and its Future Fund, together responsible for delivering more than US$ 97.6 billion in finance to almost 1.7 million businesses.

Gatwick has cancelled over eighty flights this week because of short-term sickness and Covid in the air traffic control tower, as its supremo, Stewart Wingate, said he was “very frustrated” by a series of problems at Gatwick’s air traffic control, and that around 30% of air traffic control staff are not available.

Research by the Chartered Institute for Professional Development indicates that UK workers are taking more sick days, (at 7.8 days, compared to a 5.8-day pre-pandemic level), than at any point in the last decade. The body noted that the rise was a “worry” and blamed stress, Covid and the cost-of-living crisis, with these conditions having  “profound impacts on many people’s wellbeing”. The study found the most common reasons for short-term absence were:

• Minor illnesses (94%)
• Musculoskeletal injuries (45%)
• Mental ill health (39%)

Staff on long-term sick leave tended to blame mental health issues, musculoskeletal injuries or conditions such as cancer and stroke. It would be interesting to see the figures in the UAE. Switzerland and Sweden take an average of 2.2 sick days a year with Norway, Czech Republic and Germany at the top end of the scale, with 16.0, 16.3 and 18.3 days but with 22.0 days, Bulgaria is officially the Sick Man of Europe.