The Heat Is On! 04 February 2022
The DLD confirmed that last year it had registered 84.2k property transactions, valued at US$ 81.7 billion – its highest ever annual value recorded. In 2021, there was a 66% hike in the volume of property transactions, and a 72% rise in the value. There is no doubt that the market benefitted from the rapid improvement in Dubai’s economy on the back of fiscal and monetary measures. Pent-up demand and improved investor sentiment have also helped to drive property sales higher, along with new initiatives, such as visas for expatriate retirees and the expansion of the 10-year golden visas. The regulator also noted that 60% of all 2021 transactions were for secondary/ready properties, (36.5k transactions, worth US$ 28.9 billion), and the balance for off plan, with its 24.8k properties, sold at a total of US$ 12.5 billion. In Q4, Dubai had its highest quarterly transactions for both volume and value – at 17.9k, valued at US$ 12.8 billion – since Q4 2013. The secondary/off plan mix was at 56:44, with volumes and value of 7.9k at US$ 4.6 billion and 10.0k, valued at US$ 8.2 billion; it also recorded a 64% hike in transaction volumes and a 115% uptick in value.
For the previous week, ending 28 January 2022, Dubai Land Department recorded a total of 1,724 real estate and properties transactions, with a gross value of US$ 1.34 billion. It confirmed that 1,172 villas/apartments were sold for US$ 744 million, and 139 plots for US$ 214 million over the week. The top three transfers for apartments and villas were all apartments – one was sold for US$ 104 million in Marsa Dubai, a second sold for US$ 74 million in Business Bay, and the third for US$ 69 million also in Business Bay. The top two land transactions were for a plot in Al Thanayah Fourth, worth US$ 14 million, and US$ 12 million for a plot in Hadaeq Sheikh Mohammed Bin Rashid. The most popular locations, in terms of volume and value, were Al Hebiah Fifth, with 62 transactions, totalling US$ 37 million, followed by Al Hebiah Fourth with 21 sales transactions, worth US$ 42 million, and Al Yufrah 2, with 15 sales transactions, worth US$ 4 million. Mortgaged properties for the week totalled US$ 341 million, with the highest being US$ 25 million for land in Mankhool; sixty properties were granted between first-degree relatives, worth US$ 39 million.
The UAE property technology start-up ‘Huspy’ estimated that the Dubai home mortgage market grew by 68% over the first nine months of 2021. According to Mortgage Finder, the number of completed mortgages recorded in Dubai doubled between H2 2020 and H1 2021, and that 40% of sales transactions H1 2021 were completed with a mortgage. The main area of concern facing new homebuyers is the possibility of interest rate hikes, and the impact it would have on future mortgage repayments. It would appear that over 90% of mortgage applicants are first time buyers and they have the choice of taking out a variable or fixed rate increase; the former group usually have shorter-term goals or are more flexible to opt for variable rates, which currently stand at between 1.8% to 2.0% plus the Eibor rate.
By the end of 2021, it was reported that the number of companies operating out of Dubai South had increased 17.9% over the year to 4.6k, employing over 20.8k. It also handed over all the units in its mixed-use development, ‘The Pulse’, comprising 1.4k apartments and 240 townhouses, following which it launched the ‘Pulse Villas’, with the first two phases of ‘The Pulse Beachfront’ already sold out. Master developer Dubai South Properties also sold out all the residential District Villa Plots (Baiti). The Residential District is home to 25k residents, whilst ‘Sakany’, its first leasehold staff accommodation, has a 99% occupancy rate. The largest single-urban master development focusing on aviation, logistics and real estate, also launched ‘The Avenue’, a limited number of commercial freehold plots that can be purchased on a payment plan and developed by investors for commercial use.
Last year, Dubai posted a 31% increase in international overnight visitor numbers to 7.28 million, including 3.4 million in Q4, equating to 74% of the total reached in pre-pandemic Q4 2019. The positive trend is expected to continue throughout 2022 and beyond. During the year, India, Saudi Arabia, Russia and the UK were the leading four visiting nations – with 910k, 491k, 444k and 420k respectively, with year on year increases of 5.3%, 22.8%, 50.3% and 7.1%. Region-wise, MENA/GCC contributed 26% of the total, followed by western Europe’s 22%, South Asia’s 18% and Russia, CIS and Eastern Europe together making a 15% contribution. Probably more important was the performance of the emirate’s hotel sector, with occupancy figures of 81.4%, above the Q4 2019 pre-pandemic level of 80.7% for the first time. Average occupancy, overall, reached 67% in 2021, compared to 54% in the previous year, which is among the highest occupancy rates internationally. Over the year, the number of hotel establishments and rooms rose by 6.2% to 755 and by 8.7% to 127k. Furthermore, the average length of stay rose on the year by 0.4 nights to 4.6, with the total of 31.47 million occupied room nights – 53.7% higher than a year earlier and up 98% of the occupied room nights total for 2019.
To little surprise, the Ministry of Finance has announced that corporate federal tax, at a statutory 9% rate, will be introduced for financial years starting on or after 01 June 2023; there will beno tax levied on the first US$ 100k of profits.. It is expected that corporate tax will be payable on the profits of UAE businesses as reported in their financial statements prepared in accordance with internationally acceptable accounting standards, with minimal exceptions and adjustments. There will be no corporate tax on personal income from employment, real estate and other investments, or on any other income earned outside “normal” business interests. Younis Haji Al Khoori, Undersecretary of the Ministry of Finance, noted that “the certainty of a competitive and best in class corporate tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment”. Corporate tax will not apply to foreign investors who do not carry on business in the UAE and to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE. Furthermore, businesses will be exempt from paying tax on capital gains and dividends received from its qualifying shareholdings, and foreign taxes will be allowed to be credited against UAE corporate tax payable.
Except for the “extraction of natural resources”, which will remain subject to taxation at the emirate level, the tax will apply to all corporations, as well as all commercial, industrial and professional activities in the country. All entities (or individuals who are licenced, including freelancing by individuals) are subject to the tax. All entities are exempted from paying taxes on capital gains and dividends received from shareholdings.
The UAE has been seen for some time as a tax-free haven and it is to be noted the new regulations only apply to companies and that individuals are exempt from income tax, on employment income, real estate, investments, capital gains, dividends, bank interest and other earnings that are not derived from a business. Corporate tax incentives, currently being offered to free zone businesses that comply with all regulatory requirements, and that do not conduct business with mainland UAE, will remain in place. However, such companies will still have to register and file annual returns.
There is no doubt that the move to the 9% tax regime is in line with the government’s aim to diversify budget revenues to reduce reliance on its energy sector. Two other reasons for the introduction of corporate tax are to align with international efforts to combat tax avoidance, and to address challenges arising from the digitalisation of the global economy. The Ministry added that the move would pave way for the introduction of a global minimum tax rate that would apply a different corporate tax rate to large multinationals that meet specific criteria. Last October, the OECD and 136 countries, including the UAE, agreed to new tax rules to ensure big companies pay a minimum 15% tax rate.
From an accounting viewpoint, the following points may be of interest:
- the tax balance will be derived from the net profit, as per financial statements, prepared in line with IFRS (International Financial Reporting Standards), adjusted as per CT rules, yet to be specified
- there will be no advance tax and there will only be one tax return every year, with the tax payable equating to the net profit shown in the audited accounts
- although other details are yet unknown, losses can be carried forward and offsets allowed
- tax credits are allowed, so that tax paid on any part of income in a foreign jurisdiction is permissible
- tax grouping is allowed so that losses of an entity in a tax group will be allowed to be offset against profits of other group entities
- there will be no Withholding Tax on domestic or cross border transactions
- transfer pricing rules to be established in accordance with OECD guidelines
For the first nine months of 2021, and with the local economy quickly recovering from the pandemic impact, Dubai attracted US$ 4.3 billion in foreign direct investment, as the number of projects moved 16% higher to a total of 378. In the words of the Crown Prince, Sheikh Hamdan bin Mohammed, “Dubai has continued to introduce and implement initiatives that improve business confidence.” According to Dubai Investment Development Agency, one of the benefits from FDI includes a 36% hike in new jobs, totalling 16.4k, as well as FDI reinvestment projects accounting for 11% of the total FDI projects. A further breakdown sees 58% of the inbound FDI is in strategic sectors and 52% in greenfield projects, with high and medium technology investments comprising 64% of inbound FDI capital. The two main investing countries are the UK and the USA, accounting for 20% and 19% of the total, followed by France, Saudi Arabia and India adding a further 33% to the total.
A report by Standard Chartered expects that UAE export trade will have an annual expansion rate of over 6% for the next nine years, to 2030, bringing the total to US$ 299 billion. It also sees India and mainland China being the principal export markets, expected to account for 18.0% and 9.5% of total exports by then, whilst metals and minerals, gold, machinery and electricals will dominate UAE’s exports over the next decade. There is no doubt that the country is making great progress in its plans to diversify from hydrocarbons and enhance its position as a global hub. Over the past year, the government has introduced a myriad of initiatives, including a pandemic stimulus US$ 105.7 billion package, and a new industrial strategy to boost the contribution of the industrial sector by 226% to US$ 81.7 billion over the next nine years; it has also overhauled its commercial companies’ law.
With a US$ 223 million investment, Dnata Cargo City Amsterdam, at Schiphol South-East, will be a fully automated cargo centre and will have the capacity to handle more than 850k tonnes of cargo annually. The airline services arm of Emirates is confident that the 61k sq mt centre will “deliver significant commercial benefits for our partners, their customers and the local economy”; operations are set to start within two years. The development comes at a time when the air cargo market is booming post Covid – latest figures from IATA indicate that the 2020 global market expanded by 18.7%. Currently, Dnata handles over 580k tonnes of cargo annually. Its whole operation at Schiphol employs 1k – handling 29 airlines, assisting 1.5 million passengers, and overseeing operations of 8k flights.
Following two months of falling prices, February petrol costs jumped to seven-year highs as from last Tuesday, 01 February on the back of surging global oil rates, allied with tightening supply, with Brent at the start of Monday at US$ 80.00. Super 98, Special 95 and diesel rose by US$ 0.079 (10.94%) to US$ 0.801, (US$ 0.079) by US$ 0.079 (11.46%), to US$ 0.077, and by US$ 0.087 (12.50%) to US$ 0.784.
According to the Federal Competitiveness and Statistics Centre, December’s CPI reached 108.62 – only 2.65 higher than a year earlier; it was 0.09 higher on the month. The total inflation rate for the year is at 2.5%, with prices in the following “basket items” rising by:
- food and beverage – 3.71%
- housing and utilities – (2.58%)
- education – (0.20%)
- hotels/restaurants – 1.60%
- health services – 0.45%
- communications – 0.13%
- misc goods/services – (1.02%)
Preliminary data from the Dubai Statistics Centre posted that the Dubai economy could grow by 4.5% this year and that in the first nine months of 2021, it had expanded by 6.3%, with quarterly figures of minus 3.7%, 17.8% and 6.3% in Q3; the main drivers were a strong rebound in hospitality, trade and real estate sectors. The figures point to a possible 2021 growth figure of 5.5%; in 2020, Dubai’s GDP slumped by 10.9%. Much of this growth was attributable to progressive government policies and initiatives, along with supportive fiscal measures and growing consumer confidence. The trading sector continued to be a major contributor, with a nine-month growth of 7.6%, accounting for 25.4% of the emirate’s economy. There were also improvements seen in:
- the hospitality sector, as the number of Dubai hotel guest nights jumped 53%
- accommodation and food activities up 34%, contributing 4.3% to the Dubai’s economy
- real estate services, 23.3% higher
- transportation/storage activities, including passenger and freight transport, by land, water and air and associated activities, growing 3%, contributing 9.6% to the economy
- manufacturing activity grew 3.7% accounting for 5.9%
- financial and insurance activities, which accounted for 10.8% of Dubai’s total GDP, and expanded by 4.4%
On the flip side, some sectors contracted, including oil and gas by more than 8.0%,information / communication contracted 1.9%, the government services sector 2.4% and construction 0.7%. Furthermore, by the end of 2021, business conditions in the non-oil private sector economy were at their strongest level in thirty months, driven by a sharp increase in new orders, due to an Expo demand boost and a marked pick up in the tourism sector. The expected lower growth of 4.5% this year is down to factors such as slower global growth, a stronger greenback and rising interest rates.
DP World has announced the start of construction of the new Banana Port in the Democratic Republic of Congo. This follows the signing of a collaboration agreement between the world’s leading provider of smart logistics, and the DRC Government last December. The project, initially a 600 mt quay, with a container handling capacity of about 450k TEUs, is along the country’s 37 km coastline on the Atlantic Ocean, and on completion, will not only benefit the Kongo Central Province but also boost the country’s trade, by enhancing the country’s access to international markets and global supply chains. Further south in the African continent, DP World and the Angolan signed a Memorandum of Understanding, with the aim of cooperating to further develop the country’s trade and logistics sector. Last March, the Dubai ports operator commenced operations at the Port of Luanda’s Multipurpose Terminal, having invested an initial US$ 190 million to transform the terminal into a major maritime hub.
The country’s first fully driverless taxi service has been trialled in Abu Dhabi, completing its initial phase, with more than 2.7k passengers booking the service. TXAI was tested on a public road in the capital, with over 16k km of autonomous driving accomplished during this phase The G42 subsidiary Bayanat is planning the second phase of its TXAI programme, which utilises only electric and hybrid vehicles, that is planned to start mid-year; the project will include ten driverless taxis. WeRide, the first start-up in the world to hold driverless test permits in both China and the US, launched China’s first robo-taxi service in 2019 in Guangzhou.
Dubai will host the world premiere of THE JET – the first ever clean-energy, hydrogen-powered flying boat. The agreement was signed between Swiss start-up, THE JET ZeroEmission, Zenith Marine Services LLC and DWYN LLC to manufacture and operate ‘THE JET in Dubai’. With a cruising speed of 40 knots, it will be the world’s first boat to sail without noise, waves, or emissions and have the capability of flying 80 cm above the water; it will have a capacity for 8 – 12 passengers. This contract is another indicator of the emirate’s leading position as a global hub for future industries.
Letswork has acquired Krow, a Portuguese competitor offering a growing network of remote work points in that country, for an undisclosed amount, as the three-year old Dubai-based co-working platform enters the European market for the first time. Krow’s founders, Paulo Palha and Joana Balaguer, will become country managers for Spain and Portugal respectively. The Dubai start-up enables users, via a single membership, to work from a global network of co-working spaces, hotels and cafes, and to date the platform has partnered with more than 150 spaces across the UAE and Bahrain, with more than 30k members; it hopes to add a further 1k spaces across its network by the end of this year.
As Dubai Investment’s 2021 revenue climbed 28% to US$ 929 million, total net profit, attributable to the owners of the company, rose 78% to US$ 169 million, driven by improved performances in its different business units, including a strong showing by its manufacturing, contracting and services segment, as well as gains on the fair valuation of financial investments and investment properties, and the acquisition of additional interest in an equity accounted investee. With the Investment Corporation of Dubai holding an 11.54% stake, some of its portfolio includes Dubai Investments Park, venture capital company Masharie, Al Mal Capital and district cooling company Emicool. Last year, it signed an agreement with Ras Al Khaimah master developer Marjan to acquire land to develop a US$ 272 million mixed-use waterfront destination on Al Marjan Island and is also building a US$ 136 million project in Fujairah, as well as developing a US$ 817 million mixed-use project on Mirdif.
With impairment allowances declining 39.0% to US$ 572 million, Mashreq posted a 2021 net profit of US$ 278 million, compared to a US$ 430 million loss a year earlier. Its operating incoming rose 12.8% to US$ 1.58 billion, driven by “increased net interest income and income from Islamic financing coupled with improvements in fees and commission”; operating profit was 45.0% higher at US$ 872 million, also helped by lower operating expenses. By the end of the year, customer deposits were 15.0% higher at US$ 27.66 billion, whilst its liquid assets ratio stood at 29.0%, with cash due from banks at US$ 12.62 billion. Mashreq’s loan-to-deposit ratio remained stable at 80.3%, with its total provision for loans and advances touching US$ 1.82 billion.
Dubai Financial Market Company posted a 24.7% decline in annual 2021 profits to US$ 28 million but noted favourable Q4 results with profit jumping 269% to US$ 18 million, as total revenue rose 68.4% to US$ 30 million. Over the year the DFM index rose 28.2% – its highest since 2013 – with an additional 7.3k new investors, bringing its total to 852k, of which foreign investors accounted for 63% of the total.
The DFM opened on Monday, 31 January, 18 points (0.6%) to the good over the previous fortnight, shed 49 points (1.5%) to close the week, on Friday 04 February, on 3,171. Emaar Properties, US$ 0.02 higher the previous week, lost US$ 0.05 to close on US$ 1.29. Emirates NBD, DIB and DFM started the previous week on US$ 3.77, US$ 1.50 and US$ 0.65 and closed on US$ 3.69, US$ 1.50 and US$ 0.60. On 04 February, very low trading saw 44 million shares change hands, with a value of US$ 23 million, compared to 126 million shares, with a value of US$ 72 million, on 28 January 2022.
For the month of January, the bourse had opened on 3,196 and, having closed the month on 3,208, was 12 points (0.4%) higher. Emaar traded US$ 0.01 lower from its 01 January 2022 opening figure of US$ 1.33, to close January at US$ 1.32 Three other bellwether stocks, Emirates NBD, DIB and DFM started the month on US$ 3.69, US$ 1.47 and US$ 0.72 and closed on 31 January 2022 on US$ 3.64, US$ 1.50 and US$ 0.65 respectively.
By Friday 04 February 2022, Brent, US$ 16.36 (22.0%) higher the previous six weeks, continued its mega run and gained a further US$ 1.26 (1.4%), to close on US$ 90.68. Gold, down US$ 46 (2.5%) the previous week, gained US$ 19 (1.1%), to close Friday 04 February on US$ 1,809. Brent started January on US$ 77.68 and gained US$ 11.79 (15.2%), to close 31 January on US$ 89.47. Meanwhile, the yellow metal opened January trading at US$ 1,831 and shed US$ 31 (1.7%). during the month, to close on US$ 1,800.
Opec+ will continue their recent strategy and go ahead with pumping a further 400k bpd from next month, as global economies slowly get to grips with the aftermath of Covid-19, and the demand for crude oil moves higher. In addition, there are growing supply concerns because of increased geopolitical tensions in and around the Ukraine. As of today, Brent was trading at US$ 90.68 – at seven-year highs with more potential upside. Both the US and Russia are putting more troops on standby. The main reason for the high price is the fact that inventories are low mainly because the global economy has recovered at a faster pace than expected by oil producers which, in turn, has pushed the need for more oil. Further escalation in any of the global war zones would inevitably push oil prices into the three-digit territory.
Yesterday, there were reports that last weekend, IT systems of several oil transport and storage companies, including Oiltanking in Germany, SEA-Invest in Belgium and Evos in the Netherlands, were being hit by cyber-attacks; whether they were coordinated or not remains to be seen. It is reported that every port that DEA-SEA runs in Europe and Africa was targeted. Currently, nobody seems to know the cause, with some pointing to the possibility of ransomware, which also occurred to the Colonial Pipeline in the US, hacked in May 2021. This is when a malware program accesses emails and contact lists which are then utilised to automatically spam malicious attachments or links.
A report by the European Environment Agency estimated that extreme weather conditions in the forty years since 1980 have killed 142k people in Europe and have cost the European economy more than US$ 574 billion. So-called ‘climate events’, including heat waves, cold spells, droughts, and forest fires, account for 93% of the total number of deaths and for 22% of financial damage; only 25% of cases were covered by insurance. Disasters, like earthquakes and volcanic eruptions, are not included in the figures, as they are not meteorological. Floods and storms have been the main problems, accounting for 44% and 34%, when it comes to the total financial costs. The report noted that 3% of the disasters were responsible for round 60% of the financial cost and that a 2003 heatwave was responsible for 80k deaths. The EEA were keen to point out that, “all the disasters that we describe as weather- and climate-related are influenced by climatic conditions. But that does not mean that they are all influenced by climate change.” However, there were warnings that climate models in Europe predict more frequent and more severe events, including storms, floods, landslides, droughts and forest fires. Germany has suffered the most with 42k deaths and financial losses amounting to US$ 123 billion, followed by France’s 26.7k death and US$ 113 billion in damages. Interestingly, only 23% of properties that suffered material damage across Europe were insured, with a very wide range of coverage ranging from 1% in both Romania and Lithuania as against 55% in the Netherlands or 56% in Denmark.
In 2013, UK software engineer, Josh Wardle developed ‘Wordle’, a simple word game, which was not well received by his friends. It took him a further eight years before he decided to release the game in October 2021, and now it is played by millions around the world. This week, the New York Times has purchased the popular word game for a price “in the low seven figures”, and it has indicated that the game would initially remain free to play. The game challenges players to find a five-letter word in six guesses, with a different puzzle every day. The game can be played in just a few minutes. Players begin by guessing any five-letter word:
- If any of the letters are in that day’s word but in the wrong place, they turn gold
- If they are in the word in the right place, they turn green
- If they are not in the word, they turn grey
Meta revenues in the last three months of 2021 topped US$ 33.6 billion, up 20% year-on-year, whilst expenses rose almost twice as fast, to US$ 21 billion. However, Meta’s shares nosedived Wednesday, slumping by up to 26%, (equating to a massive US$ 200 billion) in after hours trade, following news that Q1 sales growth could be as low as only 3%, with previous customers moving to rivals such as TikTok, and the businesses that advertise on its platforms cutting marketing budgets. Mark Zuckerberg lost US$ 29 billion in net worth as Meta Platforms Inc’s stock marked a record one-day plunge, (while fellow billionaire Jeff Bezos was set to add $20 billion to his personal valuation after Amazon’s blockbuster earnings).It seems that Mark Zuckerberg maybe hoping that, just like his previous bets on mobile advertising and Instagram stories, his current investments in video and virtual reality may pay similar dividends. After Google-owner Alphabet posted 30%+ increases in both revenue and profit, many considered that Meta would report much better results. Even though over 2.8 billion people used one of its apps daily in December, growth has slowed, with Meta Q1 forecast revenue of between 3% to 11%. Apart from the increased competition from the likes of TikTok, Meta is also faced with cost inflation and supply chain disruptions impacting advertiser budgets and their marketing spend. Furthermore, his Reality Labs unit, which focuses on virtual reality, posted a deficit of over US$ 10 billion last year – not a good start for his first foray into the new technology.
In 2019, Facebook launched its Libra, its new cryptocurrency venture which quickly ran into all sorts of problems with US regulators. Since then, names have changed – Facebook becoming Meta and Libra eventually becoming known as Diem. Now in a US$ 182 million agreement it has been sold to Silvergate Capital Corporation, with the Diem Association, (a separate organisation from Facebook, although its funding came from the firm), noting that it became clear from “dialogue with federal regulators” that the project could not move ahead.
To add to the tech company’s woes, Australian billionaire Andrew Forrest is to launch criminal proceedings against Meta Platform Inc’s (FB.O) Facebook in an Australian court, alleging that it breached anti-money laundering laws and its platform is used to scam Australians. The iron ore magnate is concerned that Australians are losing money to clickbait advertising scams, such as ones using his image to promote cryptocurrency schemes and his lawsuit claims that Facebook “failed to create controls or a corporate culture to prevent its systems being used to commit crime,” and also that it was criminally reckless by not taking sufficient steps to stop criminals from using its social media platform to send scam advertisements to defraud Australian users. Under Australian law, a private prosecution of a foreign corporation for alleged offences under the Commonwealth Criminal Code requires the consent of the country’s attorney general.
Q4 was eventful for Snap, as it reported its first ever quarterly profit of US$ 22 million, compared to a US$ 113 million deficit a year earlier, and a marked increase in users. Revenue was 42% higher, at US$ 1.3 billion, on an annual basis, and 21.5% on a quarterly basis; EBITDA came in 97% higher at US$ 327 million, with free cash flow standing at US$ 161 million, up 300%. Its annual loss almost halved on the year to US$ 487 million, whilst its turnover was 64.2% higher at US$ 4.1 billion. It is reported that over 319 million people engage with AR on Snapchat every day, a 20% rise in numbers compared to a year earlier. Its share value soared 57.1% yesterday to US$ 24.5 in after-hours trading.
Almost 500 jobs could be lost following Nestle’s announcement that it planned to close its Newcastle confectionary factory next year and move production to Halifax. Since its 1958 opening, the facility has made popular brands such as Rolos, Munchies and Matchmakers, with unions indicating that Fruit Pastilles will now be made in the Czech Republic and Toffee Crisps in Poland, as well as. noting that closing “a profit-making factory” was “unacceptable”. Nestle employs more than 8k in the UK and Ireland across eighteen sites, including fourteen factories.
With VAT rates about to go back up to 20%, as well as staff costs and coffee prices rising, Pret a Manger is set to raise its coffee subscription by 25% to US$ 34 (£25). The Pret coffee subscription, introduced in 2020, which allowed subscribers five “barista-prepared” drinks per day took, in a bid to win back business lost during lockdowns. There was controversy on both sides of the fence, with some customers complaining that popular drinks were not always available whilst some Pret workers felt overwhelmed by their extra workload.
Sony has announced that it will invest US$ 3.6 billion in acquiring video game developer Bungie, noting that Bungie, best known for the Destiny and Halo games, will help it “reach billions of players”. Bungie will operate independently and continue to publish its own games, and is working on expanding its Destiny 2 universe, the first-person shooter video game which was released in 2017. In 2000, Microsoft bought Bungie and its game ‘Halo: Combat Evolved’ became a launch title for the Xbox, and sold millions of copies, helping to popularise the Xbox with gamers. Seven years later, Bungie split from Microsoft to become an independent business, although Microsoft kept the intellectual property of the Halo franchise. Last month, the Japanese tech conglomerate laid out US$ 68.7 billion to buy video games giant Activision Blizzard which was the industry’s largest ever deal, whilst Grand Theft Auto creator Take-Two Interactive is to acquire Zynga for US$ 12.7 billion. It is interesting to note that these three deals alone surpass the 2021 M&A deal value of US$ 85 billon, which had already been an annual record.
Despite posting record Q4 revenue and profit figures, with revenue 10% higher at US$ 137.4 billion Amazon is raising the price of its annual Prime service membership for US customers, by 17%, to US$ 139, after reporting record sales and profits. The price increase, its first since 2018, only applies in the US, with the tech giant citing increased wage and shipping costs, for the change. On a global stage, more than 200 million pay for the service which gives subscribers access to benefits like faster shipping. The revenue increase was attributable to the likes of its cloud computing division, its investments in electric vehicle company Rivian, Amazon Web Services and advertising, although its e-commerce sales dipped from 2020, which had seen extraordinary Covid-driven gains. Its share value jumped 15% in extended trading, whilst Jeff Bezos saw his net worth climb 57% to US$ 177 billion over the year.
In a major cock-up, a la Del Boy, a spelling mistake (“Platinum Jubbly” as opposed to “Platinum Jubilee”) on over 10k of pieces of merchandise, to celebrate the Queen’s seventy-year reign, has been discovered. The error will see the Chinese cups, mugs and commemorative plates being sold by souvenir sellers on the market, with a discount of up to 90%. Wholesale Clearance, which deals in bankrupt stock and discontinued lines, has stepped in to sell the commemorative items – with the products advertised as “Souvenir Stock with Slight Typo Mistake”, with its website posting “Become an Only Fools and Horses fan and wow your friends with your Lovely Jubbly set!”
In a bid to tackle the likes of Aldi and Lidl, Tesco launched Jack’s stores thirteen Jack’s stores in 2017 and this week announced that seven of them will be closed and the remaining six converted into Tesco superstores; 130 jobs will be affected, and Tesco will try and offer alternative staff roles. When opened, it sold 2.6k products, (including 1.8k branded “Jack’s”), compared to the 35k+ products in a normal Tesco supermarket; at the time, it claimed that its prices would be cheaper than the two German interlopers. The supermarket giant also announced that meat, fish and deli counters at 317 store sites would also be shut down because of changes in customer demand, with the impacted staff being offered different roles. Tesco has warned 1.6k jobs are at risk, as it ends overnight restocking at some stores and converts some petrol sites to pay-at-pump during the night. It plans to switch overnight restocking to daytime in 36 big stores and 49 convenience stores, and to convert petrol stations in 36 stores to pay-at-pump only during overnight hours. UK Christmas sales were 0.3% higher on the year, and 9.2% up on the 2019 Christmas pre-Covid, and it now expects annual income to be on the top side of US$ 3.5 billion.
Having lost a multi-billion dollar fraud case in London, Mike Lynch, the founder of Autonomy, will be extradited to the US to face criminal fraud charges. In 2011, he managed to sell his firm to Hewlett Packard for US$ 11 billion – a year later HP announced a US$ 8.8 billion write-off in the value of its UK acquisition. The erstwhile chief of Autonomy was subsequently accused of manipulating his company’s accounts to inflate its value and was sued by the US tech giant for about US$ 5 billion, claiming that he, and his CFO, Sushovan Hussain, “artificially inflated Autonomy’s reported revenues, revenue growth and gross margins”. However, his legal team confirmed that “Dr Lynch firmly denies the charges brought against him in the US and will continue to fight to establish his innocence”.
Chan Weng Lin, the chief executive and controlling shareholder of Macau Legend Development, with three casinos in the autonomous region of China, has been arrested over alleged money laundering and illegal gambling. This comes two months after another high-profile Macau gambling executive, Alvin Chau, was arrested amid a crackdown in the world’s biggest gambling hub. Macau Legend Development noted that “the Board does not expect the above incident to have a material adverse impact on the daily operations of the Group,” and that “the above incident relates to the personal affairs of Mr Chan and not related to the Group.” Last month, Macau’s Gaming Inspection and Coordination Bureau met with police to strengthen their collaboration on gambling-related crimes, with the regulator noting it would pay close attention to what happens in and outside casinos, which are expected to see an increase in visitors during this week’s Lunar New Year festival.
It is reported that Argentina and the IMF have reached an initial agreement, worth US$ 44.5 billion, in a bid to stabilise its economy and to refinance an earlier loan, of which US$ 40 billion is still outstanding. The agreement hinged on the South American country pledging to slowly reduce its deficit, and the central bank’s financing of the treasury, as well as to agree to terms and conditions of the agreed economic programme; the country will be given a four and half year grace period before it starts repaying the loan. With inflation running at over 50%, Argentina badly needs all the economic help it can get but it has a bad track record with IMF loans in the past, and this one, (its 22nd with the world body), will also be fraught with implementation risk. The deal still has to ratified by both parties.
According to the Australian Bureau of Statistics, country-wide retail sales plunged 4.4% in December – its largest dip in sales since the first full month of Covid in April 2020. The latest fall follows three successive rises of 1.3% in September, 4.9% (October) and 7.3% (November). Despite the latest fall, it was still the second highest turnover on record, and 4.8% higher than December 2020, with strong consumer spending continuing post the Delta Outbreak, With the exception of Northern Territory, all states posted falls, ranging from Queensland (-0.7%) to Victoria (-8.4%). Of the six retail industries, only food retailing rose, up 2.2%, whilst the other five headed south, including department stores, clothing/footwear and household goods, down 21.3%, 17.3% and 9.2% respectively. Another reason for the December declines is the ongoing shifts in household spending patterns, including the increasing popularity of Black Friday sales pulling spending into November from December. Some analysts see retail sales improving into 2022, driven by the elevated saving rate and the strong labour market.
The Australian trade minister, Dan Tehan, has confirmed that his country has asked to be in included with the EU in consultations with the WTO over China’s alleged discriminatory trade practices against Lithuania; he noted that “Australia has a substantial interest in the issues raised in the dispute brought by the European Union against China”. The foreign ministry posted that Australia “welcomes” an invitation from France to take part in a February meeting of Indo-Pacific foreign ministers. The Xi Jinping administration has downgraded ties with Lithuania and “encouraged” firms to sever links with the Baltic state, after it allowed Taiwan to open a de facto embassy in Vilnius. Subsequently, it has refused to clear Lithuanian goods, through Chinese customs, rejected Lithuanian import applications and pressured EU firms to remove any of that country’s content from supply chains when exporting to China. It is no secret that bilateral relations, between China, (its top trade partner), and Australia, are at rock bottom.
Because of the much better-than-expected economic data and rising inflation, the Reserve Bank of Australia will end its US$ 250 billion bond-buying program on 10 February but will retain the official cash rate at an historic 0.1% low. The RBA governor, Philip Lowe noted that “ceasing purchases under the bond purchase program does not imply a near-term increase in interest rates,” and that “there are uncertainties about how persistent the pick-up in inflation will be as supply-side problems are resolved”. The Aussie dollar dipped US$ 0.04 to US$ 70.34, and it seems highly probable that rates will now move higher towards the end of this year which would be the first official cash rate since November 2010. However, there is concern that the country could face a cost-price spiral – higher prices leading to higher wages resulting in higher prices.
One casualty of higher rates will be those with mortgages. It would be the first official cash rate rise since November 2010. If the rates were to jump from 0.1% to say 2.0%, it is estimated that the average recent new borrower on a variable rate home loan could see their monthly repayment rising by over US$ 700, as the average new owner-occupier mortgage will rise from US$ 259k in November 2010 to more than US$ 428k. The end result will see a major correction in Australia’s burgeoning property market
Despite disruptions caused by the Omicron variant of coronavirus, US employers added 467k jobs in December – a figure much better than analysts expected. Because of more people looking for work, the jobless rate nudged up 0.1% to 4.0. A knock-on impact of a strong labour market is that it increases the pressure on Fed to move rates higher. Indeed, its chair, Jerome Powell, has confirmed the possibility of a rate hike in March, the first since 2018, as the central bank faces intense pressure to get to grips with inflation which is rising at its fastest rate in forty years. A lifting of rates is supposed to help curb price increases, by cooling demand with higher borrowing costs, at a time when higher payroll and material costs put US businesses under increased pressure.
UK house prices have risen at the fastest annual pace for a January in 17 years, at 11.2% for year and 0.8% on the month, attributable to “robust” demand and low supply. Nationwide noted that a typical 10% deposit, equating to 56% of total gross annual earnings, is at its highest ever price, with affordability, (which will be further reduced once rates start heading north), being a key issue, as wages rise at a much slower pace than house prices. Interestingly, despite the current historic record low interest rates, mortgage payment as a share of take-home pay is now above the long-run average; the average house price stands at US$ 347k. The total number of 2021 property transactions were the highest since 2007 and up 25%, compared to pre-pandemic 2019. It is expected the latest rate hike will only lead to a further monthly US$ 34 increase for a typical monthly repayment for people on a tracker mortgage – and just over US$ 20 for a standard variable rate mortgage. The BoE has a delicate act if rates are pushed higher too quickly, it will kill off any economic recovery, if too slowly, inflation will continue to head north.
According to the BRC-NielsenIQ price index, January shop price inflation jumped 0.7% to 1.5% on the month as shoppers are hit by the highest price rises in almost a decade. Non-food inflation, (including furniture and flooring which were in in high demand), rose 0.9% on the month, having declined 0.2% in December, whilst food inflation was at 2.7% in January, up 0.3% on the month. Non-food inflation was driven by rising energy costs that saw shipping costs skyrocket, whilst food prices were driven higher by numerous factors including poor harvests, labour shortages, and rising global food prices. The index confirmed that shop price rises were the highest since December 2012, whilst the latest official figures showed inflation at its highest rate for thirty years. Indeed, there are some reports indicating that shipping container costs have jumped tenfold over the past year, with one UK company reporting that it used to pay US$ 1k for one but now was having to pay “north of US$ 10k”.
As the BoE tries to get a grip on rampant inflation, it pushes interest rate 0.5% higher to 0.75%, its second-rate hike in three months; even after this hike, the central bank warned that price rises could speed up, probably to around 7.25% by April, which could result in the biggest squeeze on household spending since the 1950s; this would be the fastest price growth since 1991 and is well above the Bank’s 2% target. The main driver pushing up prices is the fact that rising gas and electricity costs are out of control and have already jumped 54%. It is now evident that pay increases are not expected to keep pace with rising prices, and that real post-tax incomes are forecast to fall 2% this year – the biggest fall in take-home pay since records began in 1990. There are also increasing signs of broader price pressures including the likes of fridges, climbing almost 10% over the past twelve mirrors, as the BoE issues warnings of food prices and rents nudging higher in the short term.
When it comes to consumer spending, there are two sectors that are considered non-discretionary – food and energy – with many facing the harrowing choice of ‘heat or eat’. 2019 statistics from the Scottish government note that 613k households (almost 25% of the country’s total) experienced fuel poverty – that is a spend of more than 10% of their disposable income on energy. Even more alarming was that 311k homes were living in extreme fuel poverty, spending more than 20% of disposable income on energy. These statistics will mirror what is happening in the rest of the UK and it is accepted that poverty figures will show wide fluctuations on an annual basis, mainly dependent on the varying cost of fuel. With the wholesale cost of natural gas for delivery this winter soaring from below US$ 0.67 a therm last summer, to highs of US$ 4.06 in October and rising well above US$ 5.42 in December, fuel poverty is going through the roof.The price of gas depends on the global economics of supply and demand, with the possibility of the former being severely disrupted by a possible war between Ukraine and Russia. European storage of gas is at record lows, and Britain has little storage. With prices set to rise again in April, The Heat Is On!