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Jump

Posted on December 3, 2012 by howesdubai

What a week for mega projects! First came the news of a multi-billion dollar development, dubbed Mohammed bin Rashid City, comprising the Mall of the World, which would overtake Dubai Mall as the largest on the planet, 100 hotels and a Universal Studios theme park, expected to attract 35 million visitors annually. It will also have a park 30% bigger than London’s Hyde Park. As yet there have been no cost details or timeframe but some analysts have indicated that the shopping mall itself could cost in excess of US$ 2.7 billion. The two developers named are Emaar and the government-owned Dubai Properties Group.

Then approval has been given for a US$ 2.7 billion development to establish five new theme parks, linked by shops and restaurants, in Jebel Ali. The Dubai Adventure Studios fun park will be the first phase, slated for completion in 2014, to be followed by Bollywood, water and marine life, children’s and night safari themed parks.

Also this week, HH Sheikh Mohammed bin Rashid Al Maktoum has ordered the implementation of phase 2 of JW Marriott Marquis costing US$ 680 million. Phase 1 of the tallest hotel in the world (at 355 metres) has been completed and the Dubai ruler expressed his satisfaction at the finished product and indicated that it would further enhance his emirate’s position as the leading hub in the region. Brookfield Multiplex, the company behind many of Dubai’s iconic buildings, including Emirates Towers, Grosvenor House and the Standard Chartered bank building, is responsible for building both towers.

As these types of projects are usually reliant on banks and capital markets, there may be some difficulty in raising the huge amounts of cash required. The global economic malaise, the lack of liquidity and the reluctance of many investors to buy off-plan will probably result in phased construction at a slower rate and in a more orderly fashion than what Dubai has seen in the recent past. However Hani Al Hamli, secretary general to the Dubai Economic Council, has indicated that the emirate will be able to internally fund some of the projects. (It must not be forgotten that Dubai government entities will have to repay US$ 9.4 billion in 2013 and US$ 31.0 billion in 2014 on maturing bonds and loans).

Emaar’s Saturday launch of its 253 CASA villas in Arabian ranches went without a hitch and was completely sold out within one hour of the strictly online registration process.

The hospitality sector continues to confound the Dubai doomsayers with October ADR increasing 13.2% to US$ 273 and RevPAR figures jumping 20.4% to US$ 225.

Already operating over twenty luxury properties, half of which are overseas, the Jumeirah Group has signed its first Indian contract to manage a 470-room hotel in Mumbai. In addition, it currently has a further fifteen properties under development.

The French group, Accor, indicated that it will be operating two new 350 room + hotels next year – one on the eastern crescent of Palm Jumeirah and the other in the Downtown area.

Even Dubai Duty Free is getting in on the act by posting record sales of US$ 1.3 billion for the first ten months of the year. This 11% jump in Revenue is attributable to many factors including the number of passengers using the airport with Indians accounting for 24% of sales and the Chinese 19%. At the same time, latest figures show that the world’s fourth largest airport saw traffic increase in October by 14.3% handling 4.92 million passengers with YTD numbers at 47.5 million – up 13.5% on the same period in 2011.

As part of the massive expansion plan at the airport, Bombardier Transportation signed a US$ 107 million contract to design and construct an automated people mover connecting Terminal 1 with the new Concourse 4. The 1.5 km elevated system will be ready within two years and is part of the expansion plan to increase passenger capacity 50% to 90 million.

The jury is still out on whether the emirate is returning to its 2003 or 2008 roots. It is hoped that lessons have been learnt from the whirlwind days of the latter and that this new boom is more reminiscent of the earlier belle époque of pre-boom Dubai. There is no doubt that investor confidence has bounced back and that liquidity has returned to the market following the third anniversary of Dubai World’s bombshell announcement to renegotiate US$ 25 billion of debt.

However the economy is now growing at its fastest rate since 2007 and although there a few niggles along the way – such as somewhat reduced liquidity with banks still showing almost US$ 18 billion in provisions at the end of Q3 – the prognosis remains strong. Property prices have firmed, 10 year government bond yields are falling steadily and tourism is booming.

In the first half of the year, Dubai’s exports and re-exports reached US$ 39 billion with over US$ 21 billion traded in Q2. Sheikha Lubna Al Qasimi, the Foreign Trade Minister, has forecast UAE trade to grow by up to 15% this year following a 23% hike in 2011.

In a recent survey only four other cities – Jakarta, London, Miami and Nairobi joined Dubai (at 19.5%) in double digit growth in luxury real estate for the year ending 30 September 2012.

There is no doubt that Emirates must be the largest single sponsor of sports events in the world. They have just signed a US$ 240 million deal with Arsenal FC which gives them shirt naming rights through to 2019 and extends the naming of Emirates stadium to 2028. There are not too many major sporting events where the name of Emirates is not visible. On the local front, they have just been a major participant in the much acclaimed DP World golf tournament, won by Rory Mcllroy, and later this week they will be hosting the second leg of the World Sevens Rugby here in Dubai.

Another sporting event that will see more visitors heading to these shores is the World Sky Diving Championship that started on Wednesday and will conclude with a spectacular concert – starring Katy Perry and Usher – on 09 December. This comes on the back of J Lo’s sell out concert last week. (As if she were not paid enough for that appearance, it was reported that she picked up a further US$ 250k for opening a Dubai car showroom).

Just when the UAE has attained the top spot in a World Bank study that measures the ease of paying taxes, there is news from the same entity that a VAT system could be reality here within the next four years. It is expected that all six GCC countries will adopt a common approach and implementation could start as soon as 2014! If the global economy does not pick up and oil revenues start stagnating, then some governments will have to use tax as a means of raising government finance.

However there was some relief to note that Dubai’s Deputy Ruler, Sheikh Hamdan bin Rashid Al Maktoum, was quoted that there were no plans to impose corporate taxes. He did say that VAT was under discussion within the GCC and, if introduced, would be in the 3% – 5% range.

With its tagline – “Connecting Minds and Creating the Future – Dubai’s bid to host the Expo 2020, on a huge 438 hectare site in Jebel Ali, is gaining momentum. The local delegation joined its four other competitors – Sao Paulo, Ayatthaya, Izmir and Ekaterinburg – in giving a twenty minute presentation pitch to the OECD in Paris. Next week, it has to present its completed dossier on the bid at which time more information would be made available. It will be another ten months before a winner is announced.

On the corporate front, Drake & Scull International, which deals in mechanical, electrical and plumbing works, announced three more overseas contracts – two in Qatar for US$ 26 million and a US$ 15 million order for a residential tower project in India.

Two of the major Dubai players, Emaar and the Al Habtoor Group, have agreed to collaborate on investment opportunities in Belarus. A joint team will soon travel to Minsk to study potential projects, particularly in the hospitality sector.

The local bourse only just arrested its recent losing streak with the Dubai Financial Market Index increasing 10 points over the week to close on Thursday at 1607. YTD, the index shows a healthy 18.81% upturn. The market will reopen on Tuesday following the National Day holiday.

No wonder then that Dubai is flavour of the month with many including the US bank, Citi, which has upgraded UAE’s growth for this year from its original estimate of 1.9% to an impressive 5.1%. The bank made their reassessment based on growth prospects in the construction and real estate sectors and follows the IMF’s October readjustment to 4%. Firm oil prices, along with major improvements in the hospitality, travel and real estate sectors, are major drivers in this surging consumer confidence.

Compare this to the OECD’s latest global forecasts which see the eurozone economy contracting by 0.1% (from a 0.9% growth estimate in June) and the US growing by 2.0% (down from 2.6%). However if the US jumps down its fiscal cliff – which will see automatic tax rises and public spending cuts in the region of US$ 600 – then the world’s number one economy will sink into recession.

Talks on a new seven year EU budget fell into disarray as the union displayed their national interests above those of the union. The foible of the EU is best demonstrated by the fact that the Brussels bureaucrats are looking to increase their US$ 1.3 trillion budget whilst all their individual members are having to cut spending and improve efficiency.

The Spanish banks have been handed a lifeline with a US$ 52 billion aid package from the European Stability Mechanism to overhaul its troubled banking sector. Four banks – Bankia, Catalunya, NGC and Banco de Valencia – will receive these funds whilst it will cost certain bondholders US$ 13 billion. There are other troubled banks awaiting more funds, probably within one month.

After the third meeting in Brussels in two weeks, a patched-up deal was cobbled together so that Greece could receive its latest tranche of US$ 44 billion of its bailout funds. Some of the attached conditions include:

slashing interest rates on the first bailout funds by 100 points to just 50 points above interbank loans – this will save US$ 2 billion for the lucky Greeks as creditors take another enforced haircut – talk about Grecian 2000!
interest payments on the second bailout funds will be deferred by ten years and their maturities delayed for fifteen years
eurozone to forego US$ 9 billion owed to them by the ECB for previous profits on Greek bonds
a debt payback program that lacks many precise details and indicative price levels

These measures will save Greece a shed load of money – but their windfall will have to be largely met by other member countries of the bloc having to take substantial write-down on their bailout loans. Once again it seems that the troika – EU, ECB and IMF – are taking the easy way out and yet again delaying the inevitable.

Greece should do everybody a favour and emulate the skydivers currently in Dubai – Jump!

Posted in Finance | Tagged Accor, Al Habtoor Group, Bombardier Transportation, Brookfield Multiplex, DFM, Drake & Scull International, Dubai, Dubai Duty Free, Dubai Financial Market, Dubai Mall, Emaar, Greece, JW Marriott Marquis, Mall of the World, The Dubai Adventure Studios, UAE | Leave a comment

What a Wonderful World

Posted on November 28, 2012 by howesdubai

The headline of the week was Sheikh Mohammed bin Rashid Al Maktoum’s approval of US$ 1.2 billion worth of projects, the largest of which was the US$ 680 million development of the Madinat Jumeirah resort in Umm Sequim to be ready by 2015. There will be a 450 room expansion to the hotel along with 45 residential villas, the ubiquitous retail area and restaurants. Other developments announced were a pedestrian crossing over Dubai Creek, dredging of the new Business Bay Canal (US$ 410 million) and a new police barracks (US$ 105 million).

As most of this is labour intensive, it is expected that there will be a surge in employment opportunities which will have a ripple effect on other sectors of the economy. Tourism will also get a shot in the arm with these added attractions.

Although still paying off mind-boggling loans, which could be in the region of US$ 15 billion, Nakheel is being very bullish in its outlook. The state owned developer has just completed land deals in Palm Jumeirah (US$ 114 million) and Jumeirah Village (US$ 31 million). It is thought that land prices on Jumeirah Palm have risen 30% in the past twelve months – a sure sign that Dubai is back in business.

The other major player, Emaar Properties, plans to build a further 250 villas in Arabian Ranches. The new Casa community will also have schools, eateries and a health club and will be completed by the end of 2014. Already Arabtec have been selected by Emaar to build 33 villas and 62 townhouses in the development.

On the corporate side, shares in the troubled Dubai-based fit-out company, Depa, jumped more than 46% – from US$ 0.30 to US$ 0.44 – on Wednesday with news that Arabtec was acquiring 25% of its capital for US$ 66 million. This comprised 150 million shares for US$ 0.44 each which are traded on Nasdaq Dubai. The other local bourse continued in negative territory with the Dubai Financial Market Index falling 20 points over the week to close on Thursday at 1597.

Drake & Scull, the local contractor, which announced dismal Q3 results, had better news this week on two fronts. First, its German owned subsidiary, Passavant-Roediger, won a US$ 46 million contract for a Vietnamese water treatment plant. More significantly was that Goldman Sachs bought US$ 40 million worth of warrants which can be converted into cash after five years.

This week the International Jewellery Week opened with 320 luxury brands from 25 countries on display. The show’s highlight is a unique 214 carat diamond with a mere US$ 1 million price tag.

The local jeweller, JoyAlukkas, is planning to invest US$ 1.8 billion in an expansion plan that will see 200 new outlets in the Gulf and India with an estimated expenditure of US$ 9 million per shop. Currently it has a portfolio of 85 stores, with manpower of over 6,000.

Dubai’s GFH Capital, a subsidiary of the Bahraini group, Gulf Finance House, finally signed a deal taking over the English football side, Leeds United. With the likes of Ken Bates and Neil Warnock associated with the club, it will be interesting to see how they get on with their new owners.

In 2011, the US exported over US$ 1 billion worth of agricultural goods into the country and are hoping to reach US$ 1.2 billion this year. Segment-wise the biggest increase was seen in consumer-ready goods where there was a 19.8% jump to US$ 635 million. No wonder then that there are 17 US exhibitors at this week’s Sial ME Food Exhibition.

Dubai will host the region’s first data hub catering to both local and international companies for storing their data. Du has tied up with the US company, Equinix, with both parties each investing US$ 40 million in the enterprise. The facility, initially hosting 650 cabinets, will open for business in January 2013.

Coutts, the London private bank, has just opened its regional office in the DIFC. The bank joins a long line of financial institutions and other international companies which have seen the benefit of using Dubai as a regional hub for business.

The number of UAE road fatalities fell by 17.4% to 450 and there was a smaller reduction (7.7%) in the number of injuries during the first nine months of the year. It may be interesting to note that 2011 (twelve months) road deaths in the UK and Australia came in at 1,901 and 1,292 respectively.

Overseas, former UBS bank trader Kweku Adobo, having lost the prestigious Swiss bank US$ 2.3 billion, was sentenced to 7 years in jail for fraud. The fact that he was only authorised to trade to a limit of US$ 100 million, and at one stage could have cost the bank US$ 12 billion, says much for the bank’s cavalier attitude to making money at all costs with apparently minimal internal control procedures in place.

One of the former stars of Silicon Valley, Hewlett-Packard Co, has fallen from grace with its share value dropping US$ 135 billion since its 2000 high of US$ 155 billion. Along the way there have been many a disaster but none moreso than the one revealed this week. The company announced a US$ 8.8 billion write down, including US$ 5 billion for its UK software division, Autonomy, after discovering serious accounting improprieties. Autonomy was bought for US$ 11 billion two years earlier so there are bound to be questions for the Board and their auditors, Deloittes and KPMG. (In future, HP should stick to making brown sauce).

In the US, Matthew Martoma has been charged with insider trading shares involving two pharmaceutical companies. The defendant worked as portfolio manager for CR Intrinsic, a SAC capital fund, with US$ 14 billion worth of hedge funds, founded by Steven Cohen in 1992. These bring back painful memories and hopefully are not a precursor of similar frauds such as WorldCom and Enron seen at the turn of the century.

The head of the Fed, Ben Bernanke, has warned that the economy is being dragged down by political inaction failing to get on top of the fiscal cliff problem. In the event of no solution, tax rises and spending cuts will automatically take place on 01 January 2013. If this were to happen, there is the inevitability of the world’s largest economy sliding into recession with the knock-on effect felt all over the world.

The splits in the EU came to the fore this week with political leaders failing to compromise over future EU budgets. It does seem paradoxical that the Brussels bureaucratic machine is looking to increase its spending as all its member countries are slashing theirs. After two days of deliberation, the only resolution was to discuss the matter further in the new year.

Further bad news for the UK with the government having to borrow US$ 13.7 billion more than it did in the previous month and 45% up on October 2011. With the economy in slowdown, there was a 10% reduction in corporation tax receipts which was the main reason behind these disappointing figures.

Recent blogs have highlighted the economic mess in both Spain and Greece and now Italy is moving into the spotlight. As Europe’s third largest economy, it has grown less than its partners over the past twenty years and the problem has been exacerbated by political ineptitude, sluggish growth and debt. The country has government debt at 120% of GDP – second worst to Greece in the EU. It has foreign debt of over US$ 1 trillion and sees 16% of its budget paying interest on its formidable debt. Like Spain, its regions have their local economic problems and it seems likely that fiscal problems in Sicily may be a tipping point in Italy’s demise.

Even the relatively stronger European economies are beginning to feel the strain with the like of France losing its AAA credit rating whilst the Dutch and Austrian economies contracted 1.1% and 0.1% in Q3. Overall the eurozone economy shrank again in Q3 indicating that the bloc is still in recession with a long way to go before any sustainable recovery is in sight.

Nearer home, the Morsi government has almost engineered a US$ 4.8 billion loan from the IMF which will restore confidence in its economy battered by two years of political turmoil. Egypt is trying to bring down its budget deficit from an unsustainable 11% to a more manageable 8%.

In contrast, the confidence in Dubai is palpable. With major sporting events – DP World Race to Dubai featuring the European Tour’s top 60 golfers, the Emirates Rugby Sevens and the World Sky Diving Championship – concerts (J Lo, Usher and Katy Perry) and the country’s 41^stNational Day fast approaching, there cannot be many better places than Dubai. What a Wonderful World!

Posted in Finance | Tagged Coutts, Drake & Scull, Du, Emaar, Gulf Finance House, HH Sheikh Mohammed bin Rashid Al Maktoum, JoyAlukkas, Madinat Jumeirah resort, Nakheel, UBS | Leave a comment

The Carnival Is Over

Posted on November 26, 2012 by howesdubai

This week, Dubai has been hosting the World Economic Forum’s 5th Summit on the Global Agenda, which is a precursor to their annual meeting in Davos. The three-day event was attended by more than 1,000 industry experts whose aim was to discuss the main global problems. No surprise then that they concluded the most pressing of difficulties was the eurozone crisis – and its contagion effect.

It is somewhat ironic that Dubai was chosen as the venue for this prestigious event since the emirate is bucking the global trend by going in the other direction with a market that is thriving despite all the international problems.

Dubai’s flagship, responsible to a large extent for the local boom in the 3 ‘Ts’ – tourism, travel and trade – is Emirates. This week, there was a doubling of its half-year profits as at 30 September, with revenue surging 17% to US$ 9.7 billion and with costs being trimmed, its net profit more than doubled to reach US$ 463 million. Passenger numbers continued to increase – to 18.7 million – whilst load factors were on the right side of 80%. Iata’s Q3 return saw global demand increase by 4.1% over the corresponding period in 2011 whilst ME traffic was more than three times higher at 13.3%.

These figures are staggering when compared to other airlines. For example, Iberia is said to be losing US$ 1,600 per minute which has resulted in their owners, IAG, having to reduce capacity by 15% (25 planes) and cut payroll numbers by 23%. (Even more trouble for the Spanish economy). Philippine Airlines have asked their civil aviation authority to reject Emirates’ application to add extra flights to Manila next year using the reason that they face “a commanding undue advantage”. Some excuse to disguise their own inefficiencies! Then there is Air Canada that restricts Emirates to three flights a week to their country – fifty-three less than the number of EK flights to London, not to mention their other four UK destinations.

The importance of the aviation industry to the burgeoning local economy was reiterated by flydubai’s CEO, Ghaith al Ghaith, as he received the ME’s Low Cost Airline of the year award for the three-year old airline. There is no doubt that the company means business, with the Maldives becoming their 11th new destination in the past year.

Trade – and, in particular, on-line – will receive a boost with the proposed introduction of a PayPal office in Dubai. (Interestingly it is the fourth opening this year of a major internet player, with Facebook, LinkedIn and Twitter already here expanding business interests). It is estimated that the regional online-payments market is worth over US$ 9 billion and PayPal is hoping to double its share to 10% and expects major growth as this segment matures.

The pick-up in the real estate sector is highlighted by the fact that according to a recent report, the UAE has the fastest growing demand for office and retail space in the world as the market saw a 48% net rise in Q3 compared to the previous year. What should be a quiet time for the industry saw commercial property sales in excess of US$ 545 million. It is expected that 2012 will see a further 800k sq mt added to the existing inventory of 6.1 million sq mt. The recovery is a reflection of the stronger economic fundamentals being found in the emirate.

One such company that is benefitting directly from this upturn in the real estate market is Emirates Steel which has seen its production increase by 33% in the first nine months of the year. The recovery in Dubai’s property sector is the main reason that it has seen a 10% upturn in the production of its steel-reinforcing bars and iron rods, commonly used in construction.

Another Jebel Ali-based company, Conares Metal Supply, has launched a new range of rebars following a US$ 85 million capital investment program.

In the same sector, Dubai’s second largest contractor, DSI, announced that it had won three contracts for mechanical, electrical and plumbing work valued at US$ 87 million for two in Abu Dhabi and one for installing utilities in 58 office buildings in Taif, Saudi Arabia. The market is awaiting its upcoming Q3 results, with interest as this year has not been an easy one for the company.

The Dubai Financial Market Index had yet another lacklustre week with a Wednesday close of 1617 – exactly the same as its Sunday opening. The market was closed on Thursday for the Islamic New Year.

Although not in the same league as neighbouring Abu Dhabi, Dubai’s oil sector is showing promising signs with news that oil exploration is on the increase. Currently it pumps daily about 60k barrels (compared to the capital’s 2.6 million + barrels) and is hoping that this figure will rise with potential opportunities especially with on-shore shale fields. If only it can return to the glory days of the early 1990s, when 400k barrels were coming from the emirate’s oilfields.

Whilst Dubai continues to prosper with an air of confidence not seen since the halcyon days of 2006/2007, the same could not be said for other regions. The troublesome Japanese electronics industry epitomises the dire trouble in which that country has fallen. Three of the largest players reported deficits and may be heading for bankruptcy; Sharp and Panasonic have forecast losses this year of US$ 5.6 billion and US$ 9.6 billion respectively whilst Sony’s Q3 loss came in at a comparatively respectable US$ 194 million.

With these three giants on their knees, and its auto industry suffering because of the Chinese boycott and global slowdown, the Japanese economy shrank 0.9% in Q3 and it is widely expected to have already slipped into recession.

In South America, speculation is growing that Argentina will select default rather than settle with its so-called holdout creditors. It is only eleven years ago that the country last reneged on its loan commitments but it had quickly regained the confidence of the capital markets. Now history is about to repeat itself, with President Cristina Fernandez de Kirchner likely to trigger a default as yields on its 20-year euro-denominated bonds rise 4.15 % to a five-month high of 16.93%. This followed a US court ruling that the country must pay holders of debt from its record US$95 billion 2001 default.

Following the US presidential election, all eyes are on that nation’s still-unresolved financial crisis and the so-called fiscal cliff – a raft of tax increases and spending cuts of more than US$ 600 billion that will kick in on 01 January 2013 if the two political parties cannot compromise on how to settle the issue. If no settlement is reached within the next six weeks, the country will probably go into recession.

The eurozone debt crisis is gradually beginning to bite into global growth and unless there is some resolution to the debacle then it is hard to see any positive resolution to the economic malaise. The region‘s economy shrank for the a second quarter and is mired in a recession from which it will take a long time to recover. Increasing unemployment, reduced tax income and increased benefit spending will not help economic recovery or overcome debt repayments by the various governments.

Greece continues to tread water and is being kept afloat by its European partners. The Greek economy is in tatters and simmering civil unrest – as a result of the drastic austerity packages introduced at the behest of the troika – will bring further turmoil to the country.

In Spain, Prime Minister, Mario Rajoy, continues to believe that he will not have to request an international bailout. He will have done well if he can continue this façade until the end of the year.

Meanwhile, eurozone’s second and third largest economies, France and Italy, are rapidly heading in the same direction. France has just lost its AAA rating whilst Italy’s debt at 120% of GDP is second only to Greece. There is worse news on the horizon

The Carnival is Over for Greece and there is a good chance that three other members of Club Med – Spain, Italy and France – will follow.

Posted in Finance | Tagged Conares Metal Supply, Davos, Dubai, Emirates, emirates airline, Emirates Steel, flydubai, Ghaith al Ghaith, PayPal Dubai, UAE | Leave a comment

It Is Time To Say Goodbye

Posted on November 22, 2012 by howesdubai

Two recent events highlight the strength of Dubai’s economic recovery. Expanding export orders for the country has seen the HSBC Purchasing Managers’ Index at 53.8 in October – compared to say China where a similar index is at 53.5 and the eurozone at a disastrous 45.4. This indicates that local companies are growing at a faster pace than many other areas in the world.

The other factor is the phenomenal growth in the building and construction sector which has seen YTD projects announced totalling US$ 65 billion, a third of which has emanated from the UAE, with an expected US$ 30 billion in Q4. No wonder that this week’s Big 5 Show has brought in over 50,000 visitors to see what this sector has on offer.

Then there is the renaissance in the real estate sector which has seen villas post a 23% surge in value over the past twelve months compared to a miserly 4% in the price of apartments. YTD, Dubai Land Department has dealt with transactions amounting to US$ 22.6 billion.

Reports indicate that there are 1.32 million in the Dubai workforce, with the 6,700 companies in the Jebel Ali Free Zone employing almost 13% of that total. Of more interest is that JAFZ contributes about 20% (or about US$ 16.4 billion) to the local economy. It will also benefit in the future from the on-going development of the adjacent Dubai World Central, Dubai’s second airport, which reported strong Q3 figures. Cargo volumes of over 58,000 tonnes, 4,100 air traffic movements and 36 carriers signed on are all well up on corresponding 2011 figures.

One of these free zone companies, JRD International, announced a US$ 410 million investment in seven of its overseas manufacturing plants making polypropylene boards. Within four years, it expects global production at 500k metric tonnes with many of its products boasting a “Made in the UAE” logo.

A strange fact of economic life in the country is that 5% of all cheques issued bounce, for one reason or another. This equates to over 1.5 million instruments for payments in excess of US$ 15 billion. The biggest player in the market is Emirates NBD which deals with about 35% of all cheques issued. No wonder then that some lenders are now calling for a change to the legal system (which makes this a criminal offence) and for an alternative to the present system. The magnitude of the problem can be gleaned from the fact that 5.5% of the 28.4 million cheques issued here were returned compared to 0.5% of the 682 million cheques issued in the UK.

Furthermore, local banks received a slap on the wrist with Moody’s continuing with a negative outlook for the sector. The agency remains concerned with their poor asset quality and low provisioning levels covering any non-performing loans potentially from large stressed quasi-government entities and “old” real estate problem loans which remain outstanding. Whilst Abu Dhabi banks will see higher returns next year and beyond, the outlook for Dubai is less optimistic.

HSBC has bigger difficulties to worry about, reporting a 52% decrease in Q3 profits to US$ 2.4 billion mainly because of plunging Revenue figures and huge investment losses. Its Middle East division fared marginally better with a 32% drop to US$ 276 million. Globally, the World’s Local Bank had to provide a further US$ 800 million to bring the total to US$ 1.5 billion for possible fines for past anti-money laundering practices. In an effort to slash overheads, the bank is exiting its Islamic retail banking in the UAE and is no longer involved in domestic private banking. It was not the only international bank having to set aside funds to provide for future litigation with Standard Chartered increasing this provision to US$ 1.5 billion which went a long way to understand why their Q3 profits more than halved to US$ 2.5 billion.

For so long banks have been the bugbear of the general public but large multinational companies are muscling in on their turf. Some conglomerates, such as Apple, Starbucks, Amazon, Google and Facebook, are making a mockery of international tax laws much to the chagrin of other taxpayers by using tax havens (and very good tax experts).

For example, Apple paid 1.9% corporation tax on all its profits outside the US, i.e. US$ 713 million, on pre-tax profits of US$ 36.8 billion. Starbucks go even further and have reportedly only paid income tax of US$ 13.8 million on sales of US$ 4.96 billion over the past three years. Latest accounts from Amazon show that, despite UK sales of US$ 4.5 billion, no UK corporation tax has been paid by the company. Google has apparently only paid US$ 8 million on UK sales of US$ 3.36 billion.

Unfortunately it seems such companies are only the tip of the iceberg and something must be done to reduce the tax burden of the average person in the street by tightening up on such inequitable practices whilst ensuring morally repugnant companies pay a fairer tax share. Some hope!

There was mixed news from some of the local companies reporting Q3 results this week. The biggest winner was Dubai Investments which saw quarterly profits more than treble from US$ 6.8 million to US$ 22.1 million. The company, which has holdings in at least forty companies, has managed to restructure its debt, sell non-performing assets and is now focused on expanding the company.

Dubai Islamic Bank announced a quarterly profit of US$ 81 million with YTD standing at US$ 233 million. Its total assets came in at US$ 25.5 billion with deposits up 3.3% to US$ 18.2 billion. So far this year, the bank has put aside US$ 23.3 million for possible impairments.

Dubai’s largest listed construction company made a US$ 9.5 million Q3 profit. Although Arabtec saw a 27.3% hike in Revenue to US$ 381 million, its profit was down 10.3% on last year. Part of the reason for this was that the company took a US$ 5.2 million hit in the value of its Nakheel sukuk holding.

One company emerging from its recent problems is Depa which has won an Abu Dhabi contract, valued at US$ 25 million, for the interior fit out of the new Hilton Hotel. So far this year, the Dubai-based company has signed up US$ 105 million of contracts in the capital. Currently the company is in the throes of completing a US$ 68 million contract for the soon to be opened Conrad Hotel in Dubai.

The Dubai Financial Market had yet another tepid week of trading with an 18 point drop in the Index from Sunday’s opening at 1623 to a Wednesday close of 1605.

Wednesday also saw the re-election of the incumbent president but the US markets reacted negatively to the news with a slide in the value of the greenback and a US$ 40 upward movement in the price of an ounce of gold. Dealers expect the continuation of the Fed’s monthly US$ 40 billion bond-buying escapade and are increasingly worried whether Obama can stop the country falling off the fiscal cliff on 01 January 2013, which may force the government to axe spending and raise taxes.

Rising regional tensions have resulted in an increased order book for some US military companies. Having already spent US$ 1.96 billion last year on Lockheed Martin’s defence systems, the UAE has requested a further US$ 1.13 billion worth of kit. It is a pity that other sectors of the US economy cannot produce such orders as US managed to sell US$ 66.3 billion to Gulf countries in 2011!

Also in on the act – but not on such a grand scale – is the UK. PM David Cameron came to the UAE, with his begging bowl, hoping to sell 60 Typhoon fighter jets (valued at around US$ 3 billion) and to establish a defence and industrial partnership between the two countries. I guess he will have more luck, on the next leg of his journey, in Saudi Arabia.

Spain is still beset by huge problems and the inevitability of having to apply for a bailout, despite the protestations of its PM Mariano Rajoy. It is expected that there will be a 1.5% decline in the country’s GDP this year and no improvement on the cards in 2013.

The Greeks are becoming even more stuck between a rock and a hard place with nothing they can do to get them out of this economic mess. It seems counterproductive that the two major unions have called a two-day strike as a protest against the proposed US$ 23.7 billion austerity package, a rise in the retirement age to 67, salary cuts in the public sector and a 15% reduction in many state pensions.

These measures are needed to secure the next tranche of US$ 40.3 billion of the troika’s bailout payment which will be decided next week at a meeting of eurozone finance ministers. Whether they get this next instalment or not the writing is on the wall for the Greeks – It Is Time to Say Good Bye to the euro.

Posted in Finance | Tagged Amazon, Arabtec, Conrad Hotel in Dubai, Depa, Dubai, Dubai Financial Market, Dubai Islamic Bank, Emirates NBD, Facebook, HSBC, JAFZA, UAE | Leave a comment

The End of the Line

Posted on November 4, 2012 by howesdubai

Just how diverse the UAE economy has become can be gleaned from the fact that the country is now the leading global hub in the tea re-export market with a massive 60% share, valued last year at US$ 48 million. Furthermore, it is ranked second in the world for imports which have climbed 50% in the past four years to reach US$ 485 million – accounting for 9.4% of total worldwide sales. Year on year, exports were up 68% to US$ 5.7 million. (In relation to coffee re-exports, UAE came in fifth with a total of US$ 6.2 million).

This is small change when compared to the country’s largest traded item, gold – with five-month imports at US$ 12.9 billion and exports of US$ 8.6 billion. In 2011, Dubai accounted for 29% of global trade in the yellow metal with transactions of US$ 41 billion. However, this year, the City of Gold has taken two massive blows in the past quarter with India raising its import duty on the metal from 1% to 4% as well as strictly imposing duty on incoming passengers restricting females to a limit of US$ 460 and men US$ 190. It is estimated that 70% of 22 carat gold jewellery sold in Dubai is destined for India.

Turkey is one expanding gold market with official data showing their August exports of the precious metal to Dubai reaching US$ 2.2 billion, with 54% of the total passing through the main Ataturk airport and 35% from the smaller Sabiha Gocken facility.

As Q3 is always a quiet season, it comes as no surprise to see property transactions drop to US$ 5.4 billion with YTD figures at US$ 22.6 billion. Quarterly land transactions showed a similar trend with returns of US$ 5.4 billion and YTD reaching US$ 22.6 billion.

The airline sector never seems to have a downtime. Dubai International Airport’s September passenger numbers surged 12.8% to almost 4.8 million resulting in a 13.4% YTD increase to 42.6 million. Despite the global slowdown, cargo numbers were again up – this time by 9.1% to 177k tonnes.

There was also growth in sea trade with DP World, the global port operator, announcing a 4.6% YTD growth to 42.4 million TEUs (twenty foot equivalent units) with 14.2 million TEUs in Q3. Its local operation saw a 4.6% quarterly rise in traffic to 3.4 million TEUs. Container handling accounts for almost 80% of DP World’s revenue from its sixty worldwide terminals, with a further ten being developed. This week, it has won a US$ 200 million contract to build and operate another berth adjacent to its existing terminal in Mumbai.

On the aviation front, flydubai’s Chief Executive, Ghaith al Ghaith, is forecasting that the fledgling low cost carrier will turn in a profit by the end of the year – no mean feat as it has only been operating since June 2009. Flying to over 50 destinations – all within five hours of its home base – the company operates 27 aircraft with another 23 already ordered and looks set for another era of unprecedented growth.

Despite a slight 2.8% dip in occupancy in September, the hospitality industry continues to fare well. With Average Room Rates up 3.9% to US$ 218 and Total Revenue per Available Room rising 2.7% to US$ 312, the Gross Operating Profit per Average Room soared 11.3% to US$ 94. Overall this year, Revenue from the hotel and hospitality sector will be US$ 4.9 billion – a 9% increase on 2011.

The hotels will receive another boost this week with The Big 5 International Building and Construction Show opening on Monday. This promises to be the largest show of its kind in the ME and will attract over 50,000 attendees.

Dubai’s most prolific developer, Emaar Properties, has announced it is selling luxury apartments in upmarket Los Angeles. With a price range from US$ 1.5 million to US$ 22.4 million, the 22-storey tower block was purchased, whist still under construction, in 2007 for US$ 65 million. Since then the developer has spent a further US$ 325 million on getting the property ready for sale.

The company that was in the forefront of the local building boom in the 1990s has just completed the JW Marriott Marquis, the world’s tallest hotel (at 355 metres). This week, Brookfield Multiplex also announced that it was to design and construct Masdar’s new HQ in Abu Dhabi. Ready by the end of 2014, it will one of the most sustainable constructions in the world and will include the fitting of 1,000 sq mt of rooftop solar panels.

The much troubled Union Properties gave signs that things were improving with a Q3 Net Profit of US13.6 million – not much one would think but a massive transformation from a US$ 290 million loss in the corresponding 2011 period. Although YTD Revenue dropped from US$ 870 million to US$ 355 million, its bottom line went from a US$ 354 million loss to a profit of US$ 42 million.

Meanwhile DEWA has awarded First Solar, a US company, to construct the first phase of the US$ 3.3 billion Mohammed bin Rashid Al Maktoum Solar Park. When completed, the development will cover 48 sq km and produce 1,000 mw of clean energy. The initial phase will see a 13 mw power plant which will generate annually in excess of 22 million kw hrs of electricity.

A much smaller investment was announced by US-based Emerson with a US$ 33 million plant for expanding their Jebel Ali facility. The company will be in a position to expand its a/c, heating and refrigeration solutions unit.

Another shortened week on the Dubai Financial Market saw the Index open at 1631 and close marginally lower at 1623 on thin trading. The market has seen a YTD rise of 19.94%.

There is no doubt that the country is benefitting from strong oil prices as borne out by the latest OPEC figures which shows that the twelve nations in the 42-year old organisation will generate earnings in excess of US$ 1 trillion again in 2012. In Q1 this year, the UAE had income of US$ 35 billion.

The federal government has just released details of its 2013 budget which sees increased emphasis on social welfare which accounts for 51% of the US$ 12.2 billion to be spent with education and energy expenditure at US$ 2.7 billion and US$ 1.5 billion respectively. It is to be noted that the federal budget accounts for only 11% of the country’s total expenditure with individual emirates responsible for their own spending plans.

A much bigger budget is beginning to rattle European politicians as the British threaten to scupper any deal on the EU budget which includes a US$ 1.3 trillion spending plan. In addition, the French – having always been the largest recipient of EU farm subsidies – have not taken too kindly to the fact that other members, including Germany, want to cut back on this spending as part of an overall US$ 260 reduction plan.

September saw a new record in the eurozone with 18.5 million people now unemployed or 11.6% of the workforce, compared to 16.3 million a year ago. Analysts expect this to worsen in the coming months.

Greece sinks further into the mire with latest forecasts indicating that its debt mountain will rise from 167% of economic output (as agreed with the troika in March) to 189% by year end. Obviously there will have to be some form of official fiddling to ensure that the Greeks can close the gap and receive their next tranche of bailout funds later in the month. It still seems that the country will have to leave the euro, one way or the other, and the longer it goes on, so increases the cost to other eurozone creditors.

In the US, super storm Sandy may result in a huge US$ 45 billion bill to the economy after bringing New York and other major cities along the eastern seaboard to a standstill. What it has done to Obama’s chances of re-election remains to be seen.

For the President and Greece, November may well be The End of The Line.

Posted in Finance | Tagged Brookfield Multiplex, DEWA, DFM, Dubai, Dubai Financial Market, Dubai International Airport, Emaar, flydubai, Ghaith al Ghaith, JW Marriott Marquis, Masdar, Obama, OPEC, UAE, Union Properties | Leave a comment

Even The Bad Times Are Good

Posted on October 31, 2012 by howesdubai

Whilst most of the world seems to be sinking into an economic abyss, Dubai continues to confound its critics with an economy which is heading north in the other direction.

With the Eid holidays upon us, Dubai will see shopping malls open 24 hours a day to cater for the expected one million visitors who will transform the city into a maelstrom that will trawl the malls, fill the hotels and bring bumper to bumper traffic on to the roads. Many will be from the neighbouring GCC countries whilst some lucky European tourists will be taking a mid-term school break in the sun.

The hospitality sector is still counting its takings following a hectic month of exhibitions and conferences, including Gitex and the World Energy Forum, that has seen the city bursting at its seams. Global Village opened on Sunday and will run until the end of March 2013. With almost forty pavilions and seventy countries represented, this cultural and entertainment attraction is looking at over 5 million visitors this time round.

The recent Gitex Shopper, which accounts for 10% of the total annual retail spend in IT and electronics sales, reported an impressive 23% growth in this year’s sales to US$ 65 million with a similar growth in attendees to 206k.

The increasing population of the UAE is reflected in the news that GEMS Education plans a further ten new schools, over the next two years, to cope with the influx of extra pupils. With educational establishments in ten countries, Dubai still remains the company’s mainstay with over twenty schools in operation. As a matter of interest, nearly 88% of all Dubai-based students attend the 150 private schools which collected US$ 960 million in tuition fees. The 207k students in attendance are taught by 13,200 teachers, giving a student-to–teacher ratio of 16:1.

Another beneficiary of this population growth is Dubai Healthcare City, established in 2002 as the world’s first healthcare free zone. There has been a 25% year on year increase in the number of patients which now numbers over 500k, of which 15% are from overseas. Medical tourism is a growing income stream for the emirate and indicates the quality of care and high standard of its international medical centres.

In on-going efforts to rid itself of its non-core assets, DP World has just sold a 25% investment in a Russian container terminal for US$ 230 million. Downsizing in 2012 has seen this subsidiary of Dubai World sell off a 60% stake in an Australian operation and a 34% stake in the UK Tilbury Container Services (US$ 75 million) as well as quit ventures in Belgium and Yemen. In a similar vein, Drydocks World has just sold a 67% stake in its SE Asian operations to the Malaysian shipping company, Pacific Carriers.

The end of October is the start of the Q3 reporting season with generally good results on show. Nakheel saw a 97% YTD jump in Net Profit to US$ 520 million because of a 126% increase in Revenue from US$ 545 million to US$ 1.25 billion. It does appear that it has recovered well from its near 2008 demise following the GFC.

Meanwhile, Emaar Properties came in with YTD Net Profit up 49% from US$ 295 million to US$ 440 million, ably assisted by a US$ 840 million contribution from the launch of its three recent residential projects. At the same time, its retail division – including Dubai Mall – saw nine-month Revenue up 18% to US$ 510 million and its hospitality business up 15% to US$ 265 million.

Dubai’s second largest developer, Deyaar, saw Q3 profits surge from a paltry US$ 0.2 million to US$ 1.4 million despite a fall in its Revenue from US$ 50.2 million to US$ 37.4 million. The company is still feeling the effects from the 2008 property collapse here.

Not to be outdone by the major developers, the banks have come in with strong earnings. Mashreq reported a 28.3% improvement in its YTD Net Profit to US$ 265 million on Operating Income of US$ 800 million. Helped by increasing stability in the market and positive economic data, the bank saw a 7.5% increase in Loans and Advances to US$ 11 billion whilst maintaining total assets of US$ 20.8 billion. A further sign of improvement in the local economy was a 37% decline in its provisions for Loans and Advances which has now fallen to US$ 145 million.

Dubai-based Emirates NBD, the country’s largest bank by assets, had a great Q3 with a massive increase in Net Revenue from US$ 48 million to US$ 174 million. This did come with a cost as the bank cut overheads by closing down eight branches (with 750 jobs) and 64 of its ATMS – mainly as a result of its earlier acquisition of the troubled Dubai Bank.

Very strong growth in the telecoms sector saw du record a 33.8% quarterly jump in Net Profit, before Royalty to US$ 178 million following a 12.9% hike in Revenue to US$ 687 million.

Its duoplistic competitor, Etisalat, had a 29% increase in Q3 Net Profit to US$ 600 million but this figure flattered to deceive somewhat because it included US$ 510 million in relation to its sale of a 9% stake in the Indonesian mobile operator, XL Axiata. With this stripped out, there would have been a 9% quarterly rise to US$ 80 million on Revenue of US$ 2.18 billion.

The good news did not permeate into the Dubai Financial Market Index which actually fell 13 points to 1631 over the shortened week. This could have been the result of some profit-taking ahead of the Eid holiday. Wednesday, the last day of trading this week, saw some 100 million shares traded, valued at US$ 39 million.

Worse news for some expatriates was that the Dubai Economic Council has been discussing a number of tax issues emanating from the federal government. Whilst emphasising the importance of any tax being considered a fundamental part of the UAE’s economy Juma Al Majid, the Council’s Chairman, said it would be unwise to rush such a move without proper deliberation from all stakeholders.

Massive tax increases and draconian spending cuts in the eurozone have failed to ease their debt problems. Q3 witnessed the highest level of total government debt which was estimated to be at 90% of the 17 countries’ economic output. Furthermore five countries – Greece, Italy Spain, Portugal and Cyprus – remain in recession with many analysts expecting other nations to follow in the near future. Greece’s debt burden is over 150.3% whilst Italy is struggling at 126.1%, as both economies shrink even further.

The three countries with the immediate problems continue to be Spain, Greece and Italy. Spain is reeling under a jobless rate among the 16 – 24 year age group of 52% whilst its overall unemployment rate has risen from 8% to over 25% since 2007. The country’s retail sales fell at their fastest pace in six years and the signs are ominous as consumer confidence hits rock bottom, social unrest becomes more violent and their economy shrinks.

Greece is hoping that it can agree with the troika so that it can receive further bailout funds of US$ 41 billion next month. If they fail, the country could become technically bankrupt and quickly exit the euro.

The traditional instability that is the hallmark of Italian politics has been brought into sharp focus again with the shenanigans of the former PM, Silvio Berlusconi who is threatening to bring down the Monti government. One can only see hardships on the Italian horizon with more austerity and increased civil unrest on the cards.

The situation is further exacerbated with the area’s PMI (Purchasing Managers’ Index) dropping to 45.8 in October – its lowest level since 2009. Any number under 50 signifies a contraction in activity.

Worryingly for Germany, a survey of manufacturing has seen the index drop again from 47.4 to 45.7. The returns from France were even more depressing showing that the contagion effect from the poorer south countries is having such a negative impact on the whole region. And with the number of unemployed in the eurozone now nearing 18 million, there is little hope of any economic recovery in the foreseeable future.

Then we look at Dubai again where, in comparison, Even The Bad Times Are Good.

Posted in Finance | Tagged Deyaar, Dubai, Dubai Healthcare City, Emirates NBD, Etisalat, GEMS Education, Gitex, Global Village, Nakheel, UAE, World Energy Forum | Leave a comment

All Right Now

Posted on October 25, 2012 by howesdubai

Now that property developer Limitless, a subsidiary of Dubai World, has restructured US$ 1.2 billion of debt, the company will soon come under the auspices of the Dubai government. In addition, it has fully cleared outstandings with 92% of its creditors, signed settlement agreements for the remaining balance and expects to settle all outstandings by 2016. Apart from its proposed development of 6.5 million sq mt in Downtown Jebel Ali, it is also carrying out projects in three overseas locations – a 1,400 hectare Al Wasl township in Riyadh, a 111 hectare mixed use area in Moscow and a resort in Vietnam.

A recent report shows that Dubai prime rents climbed 3.3% in H1 after no change in H2 2011. This figure was 1% more than the average of the sixteen countries surveyed and outperformed the likes of Singapore, London and Hong Kong – a sure sign that the global developing markets are pushing ahead of the struggling western economies.

One record that Dubai may not be too unhappy losing is that of the most expensive drink in the world. The Skyview Bar of the Burj Al Arab will lose this “honour” when its 27321 (the original cost in dirhams) drink priced at US$ 7,400 will be superseded by a London imbiber who drank a cocktail that set him back US$ 8,800!

The managers of the Burj, Jumeirah Group, announced a tie-up with China’s premier travel service provider, Ctrip, which will permit travellers from there to book directly any of the Jumeirah properties. Because of this one association, the chain expects to check in an additional 14% more Chinese guests next year at their twenty hotels around the world.

Jumeirah, along with every other hotel here, will be having yet another bumper week with the 32^nd edition of Gitex Technology Week which opened on Sunday. As one of the top three ICT events in the world, it expects over 130,000 industry professionals to attend and visit many of the 3,500 suppliers on show.

Also filling the hotels – as well as the roads – will be delegates attending the 12th International Telecommunications Union conference – the first time it has been held in the region. This 5-day event brings together high profile participants – including heads of state, government ministers, industry leaders, advisors, regulators and academics – to shape the future direction of this fast-moving industry.

Then towards the end of the month, there will be a major influx of visitors with the long break for Eid Al Adha and the European school holidays. Most hotels are completely booked out and are expecting a windfall with some room rates more than twice the normal tariff. It is widely thought that Dubai will be swamped with over 1 million visitors over the festive period. It will also ensure that Emirates and flydubai will be kept busy with extra flights and full passenger loads.

The Dubai-based carrier became a casualty of Australia’s Competition and Consumer Commission and fined just over US$ 10 million for “engaging in cartel conduct”. It is the 10^th airline to have its wrists slapped by the Commission which now has collected US$ 70 million from offending carriers to date with Singapore, Cathay, Thai and ANZ waiting to add to the balance, when their cases are heard later in the month.

Figures from IATA, covering the first eight months of the year, indicate how well the region is travelling. Whilst total global passenger growth has risen 6.6%, the ME airlines saw expansion of 16.9%. More revealing was cargo – a global decline of 2.6% whilst the region saw a spectacular 14.1% hike. IATA also reported that the aviation industry contributes US$ 40 billion to the UAE economy, equivalent to 14.7% of the GDP, and employs 14% of the total workforce.

Staggering statistics from Etisalat show that the corporation has spent US$ 4.0 billion on its fibre optic network which has included over 2.8 million km of cable being used. The impact of this massive infrastructure investment is immeasurable as most segments of the economy have benefitted by a faster communication network.

Following on the September news that it had been awarded a US$ 310 million healthcare contract in Saudi Arabia, Dubai based Habtoor Leighton has announced a second one for US$ 74 million. This new project, taking eighteen months to complete, will provide the best available cancer treatment technology.

Local company, Arabtec has just won a US$ 115 million contract to build over 400 villas for Emiratis located in Ban Yas Residential Development West. Having already built over 11,000 villas, the company has probably built more villas than any other in this sector.

These two construction companies – along with others in the industry – will expect to grab future business in neighbouring Qatar as it starts preparations for the 2022 FIFA World Cup. Expenditure is expected to be in the region of US$ 130 billion and will include US$ 35 billion for a rail / metro link, US$ 7 billion for a new port along with other infrastructure projects.

In the Jebel Ali Free Zone, JRD International invested US$ 82 million in its new RMD Board plant and have started production. Having created 700 new jobs, the company hopes to reach 110k metric tonnes processing capacity of polypropylene which would then make it the largest single site manufacturing plant of its type in the world.

Another indigenous business is set to open five stores in Iraq following a franchise agreement with Al Handal International. Paris Gallery, the leading luxury retailer in the ME, expects that the first one will be up and running in Baghdad next year. Since 1994, it has now over forty shops not only in the UAE but also Saudi Arabia, Qatar and Bahrain.

Still another retail centre is being planned for Dubai – this time Tejuri will be the first e-shopping mall in the region and a major boost for the fledging e-commerce sector. It will be based on the success of the decade-old Tejari (Arabic for ‘trade’), the B2B online service for companies wishing to acquire commodities. Backed by the Department of Economic Development, it will empower retailers, SMBs and consumers.

A quarterly survey has again concluded that shopping is cheaper here than in many other countries with a basket of branded goods being 40% cheaper than in a UK supermarket and half the price than in Australia. Unfortunately, Dubai is not immune from the global hike in food prices, arising mainly because of disastrous harvests in many locations (refer “Go Your Own Way” – 29 July 2012).

According to the UAE Central Bank, MO money supply (currency in circulation plus currency at banks) rose 1.1% to US$ 15.2 billion at the end of August. There was a marginal decline in total bank loans and advances to US$ 297 billion whilst total bank assets rose 0.5% to US$ 472.4 billion.

It was another quiet week on the Dubai Financial Market ahead of the Q3 reporting season. The Index closed Thursday at 1654 after a Sunday opening of 1636. As the global economic malaise continues, the situations in Iran and Syria become more volatile and relatively high oil prices continue, local investors are exercising caution in their business affairs.

If only Dubai’s roads were as quiet! Despite much congestion at peak periods, there have been over 112k speeding fines issued in September alone (compared to 67k in August) with SZR accounting for nearly 40% of the total. It is worrying – but not surprising – to see that 30% were committed by taxis and public transport vehicles!

On the international front, nothing much has changed. As Greece enters its fifth year of recession, and the country forecast to contract by another 3.8% next year, it is being asked to tighten its belt even further so it can meet the terms set by the troika and collect the next tranche (US$ 41.0 billion) of its bailout funds (US$ 450 billion). There is very little positive news from the cradle of civilisation when its public debt is expected to rise from 171% of GDP to 182% next year and private creditors – having already taken a US$ 130 billion haircut – along with individual European countries reluctant to offer any further assistance.The local populace is venting its anger by an increasing number of protest marches against the severe austerity package that has been set by the troika.

Despite the recent downgrading of its credit rating and its economy falling into an abyss, PM Mariano Rajoy is still with his head in the sand and refusing to believe the inevitable – Spain will have to apply for a bailout if only to reduce the country’s escalating borrowing costs. After Spain, the dominos start falling with Italy next on the precipice.

Way down the pecking order is the UK but the portents there are gloomy with revised forecasts that the economy will actually contract (again) by 0.4% this year and grow at a slower rate (1.1%) than first expected in 2013. The recession has brought reduced tax receipts for the troubled Chancellor, George Osborne, and he has not been helped by the eurozone crisis and the problems in markets such as the US, China and India. To cap off his woes, it is likely that he will miss his 2012 borrowing target with the deficit decreasing at a slower rate – this may result in extra austerity measures having to be introduced.

Even the German economy is slowing down with the latest 2013 forecast seeing growth drop to 1% from 1.6%. In 2010 and 2011, German GDP had grown by 4.2% and 3.0% respectively but now is taking the full force from the eurozone debacle and weakening economies particularly in Asia and Latin America.

Hopes continue to be dashed that the Asian economies may start showing signs of traction. The expected growth in China and India has failed to materialise whilst the IMF has lowered its forecasts (again) for many of the other emerging nations from their July estimate of 7.1% to 6.7%. European contagion is beginning to hurt these economies. Japan, the world’s third largest economy, is still feeling the effects of last year’s tsunami / earthquake and will have to borrow more money to avoid liquidity problems.

With the US election almost upon us, bad news for the incumbent with a budget deficit topping US$ 1,000,000,000,000 (one trillion) for the fourth straight year of his presidency. What is more frightening is the fact that the national debt is on the north side of US$ 16 trillion and that this year the US government has borrowed 31 cents of every US$ 1 it spent. No wonder that some commentators are forecasting that when tax increases and massive spending cuts take effect early next year, this will be the tipping point to push the already wobbly economy over the now infamous “financial cliff”.

And then you see the figures for the UAE which expects a 5% expansion in this year’s notional GDP to US$ 375.9 billion and an 18.5% jump in current prices over 2010. This increase has been helped by the country pumping an annual one billion barrels of crude oil at a price edging above US$ 100. Furthermore, the economy posted a US$ 10 billion budget surplus last year, equivalent to 2.9% of the GDP, based on Revenue of US$ 103.5 billion and Expenditure of US$ 93.5 billion. Next year the plan is for the surplus to equal 6.4% of the GDP.

As noted in last week’s blog, UAE non-oil foreign trade for the first five months of 2012 showed a 10% year on year growth to US$ 112.4 billion with imports up 13% to US$ 73.5 billion, exports 38% to US$ 16.5 billion and re-exports came in at US$ 22.4 billion. No wonder we can sing that it is All Right Now here in Dubai!

Posted in Finance | Tagged Arabtec, Burj Al Arab, Dubai, Emirates, Etisalat, flydubai, Gitex, JAFZA, Jumeirah Group, Limitless, UAE | Leave a comment

Just One Cornetto

Posted on October 15, 2012 by howesdubai

The big news of the week was HH Sheikh Mohammed bin Rashid Al Maktoum’s endorsement of the US$ 400 million plan to build a 2.8 km waterway that will connect Business Bay with the sea at Jumeirah 2. Within two years, the canal will cross the Sheikh Zayed Road, Safa Park and Al Wasl Road to the waters of the Arabian Gulf. On completion, the area will be transformed into a major tourist hub with floating hotels, recreational facilities and restaurants along the water line – with maybe the odd gondola!

The Dubai ruler has also recently announced that 13,000 undergraduates at UAE universities will receive their own iPads as a step to improving their performance. Interestingly, the Higher Colleges of Technology, the country’s largest tertiary education provider, has plans to become the first in the region to have iPad only lessons.

Whilst on that subject, a London-based company is producing a unique 24 carat rose gold iPad which will be auctioned in association with the Burj Al Arab. All proceeds will be for Breast Cancer Awareness and, as usual, during this month, the sails on the iconic hotel will be lit pink.

There are many other indicators – such as increased car sales, rising property prices, 14% growth in the hospitality sector etc – that point to the fact that Dubai is fast returning to the golden days of pre-2008 and the GFC.

In 2008, UAE vehicle sales reached 340,000 units – its highest ever figure. With YTD August sales already at 240,000, dealers expect sales to top 300,000 which would equate to the second best year on record. And this despite tight credit conditions, including a 20% deposit, compared to the 2008 environment when banks were tripping over themselves to give money to almost anyone, without too much checking on individuals’ financial soundness. With the world economy going backwards, this region is one of the few real growth areas for the car industry as September figures show Toyota wholesale global deliveries 49% down at 44k units and Honda dropping 41% to 33k vehicles. (On the local front, the Dubai Toyota dealer has had to recall some 65,000 units to check on a power window defect).

As residential property prices in certain locations show up to 15% hikes, with rents following suit, it comes as no surprise to see that Nakheel took deposits of over US$ 270 million (for 225 units) at the 01 October public launch on its first phase of 360 Jumeirah Park Legacy villas.

The performance of Tasweek Real Estate illustrates the strength of the upturn in the market. Established in 2009, the US$ 250 million fund targeted distressed assets in both Dubai and Abu Dhabi at a time when some property prices were decreasing by over 50%. The fund is expected to see a 20% return to its investors when it completes later this year.

A recent study estimates that Revenue from Dubai’s hospitality sector will reach almost US$ 5 billion this year with the same impressive 10% annual growth going out to 2016 when the Turnover will be US$ 7.5 billion. This figure is even more remarkable when the IMF has estimated that the overall UAE economy will grow between 2.8% and 3.6% over the same period.

Many of the tourists spend much of their time shopping in Dubai’s numerous malls with yet another one to be added by 2013. Meraas Holding, which is also developing The Beach at JBR, has begun construction on a new outlet village, with 160 stores selling designer brands at much reduced prices. This new venture comes five years after the opening of Dubai Outlet Mall which has seen a 20% sales increase so far in 2012.

Also tracking well is Dubai Duty Free with September YTD sales up 10% to US$ 1.14 billion and it has targeted a further US$ 500 million over the traditionally busy Q4. It now has a payroll in excess of 5,000 – a 25% increase in manpower this year.

In relation to e-commerce, UAE accounts for about 60% of the total spend in the Gulf States with Saudi Arabia a distant second at 15%. One well known site, Namshi, which sells clothes and shoes on-line has recently secured US$ 20 million financing from JP Morgan Chase and Blakeney Management. This is a sure sign of business confidence for a company that is only a year old as well as for the overall regional market.

It is also seems likely that PayPal, the US-based transaction company, will soon open a UAE office – and not before time for the ever growing number of local e-commerce enterprises. The company currently has 100 million accounts and expects tremendous future growth in the undeveloped ME market.

One of the major exhibitions of the year starts this Monday with the opening of Gitex Technology Week which will see the town bursting at the seams as thousands of attendees arrive from around the region. Coincidentally, Dubai Customs have just released Q1 trade figures for Electronics and Accessories which has seen an 8% growth to US$ 13.9 billion with imports 4% up to US$ 7.6 billion and exports / re-exports at US$ 6.3 billion. China was the biggest supplier at 45% of the total (US$ 3.5 billion). The 2011 annual trade figures reached US$ 52.3 billion which, in turn, showed a massive 24% increase on the preceding year.

A leading British secondary educational establishment will have to revise its internal controls and procedures after it was reported that an accountant had managed to steal more than US$ 4.7 million over an 18-month period. The 27 year old Indian has been absent from school since last December.

UAE non-oil foreign trade for the first five months of 2012 showed a 10% year on year growth to US$ 112.4 billion with imports up 13% to US$ 73.5 billion, exports 38% to US$ 16.5 billion and re-exports came in at US$ 22.4 billion. Gold was the biggest imported and exported item accounting for 19.8% of all imports (US$ 12.9 billion) and 52.1% of exports (US$ 8.6 billion).

The most dangerous practice known to man or beast is set for a return to the local bourses. The Securities and Commodities Authority have introduced regulated marginal trading – a practice that allows investors to leverage their cash and trade much larger values. In the short-term, the exchanges will see increased business but the eventual losers will be the many investors who get caught up in over-trading and have the potential to lose more money than they had initially invested – especially when the markets move south.

The Dubai Financial Market Index had a relatively quiet week with a 9 point increase from its Sunday opening of 1627 points to closing on Thursday at 1636. With the Q3 reporting season approaching, increased activity will perk up the shareholders’ interest. However the Dubai Gold and Commodities Exchange saw its highest ever monthly volumes in September with over 970,000 contracts, or double that of the same month in 2011, and 143% up on YTD with 6.7 million transactions.

With Europe sliding back into deeper recession, the vacillating eurozone bureaucrats have introduced their much vaunted US$ 650 billion rescue fund. A certain case of too little too late compared to the US QE3, a new $40 billion a month, open-ended, bond purchasing program of mortgaged backed securities. This package, with very low rates, is effectively a stimulus program which allows the Fed to take up US$ 40 billion monthly of commercial housing market debt risk until this crisis is resolved.

Greece is still awaiting the green light from the mid-October Brussels summit of the 27 EU leaders, many of whom are more concerned about their national political ambitions than they are for the survival of the common market. The Greek Prime Minister, Antonis Samaras is still hoping against hope that his country will receive their next US$ 40 billion part payment of the bailout package. One thing is certain – Germany’s Angel Merkel will not be going to Greece for her next holiday after her Tuesday Athens reception from a belligerent crowd of over 300,000.

The other problem nation, Spain, continues to believe that the country is in no need of a bailout with their Economy Minister, Luis de Guindos, reiterating that their austerity package is beginning to put the country back on track. Obviously many pundits believe otherwise including Standard & Poor who cut their credit rating two notches to BBB- which is only one level above junk status.

Meanwhile the ECB president, Mario Draghi, seems to think that the central bank can do little more to try and arrest the demise of the euro and has passed the responsibility on to the individual governments. The same plea came from the IMF head, Christine Lagarde, who called on US and European leaders to act quickly to solve their debt problems. All that means is that this economic mess will continue ad infinitum.

In the wake of the eurozone crisis, and slowing economic growth in other major economies, the IMF has yet again revised down its global growth forecast from its July estimate of 3.5% to 3.3%. For the UAE, their revised forecast rose to 4.0% – a good enough reason to enjoy Just One Cornetto, sailing a gondola on the Dubai Business Bay Canal.

Posted in Finance | Tagged Burj Al Arab, DFM, Dubai, Dubai Duty Free, Dubai Financial Market, Dubai Outlet Mall, Gitex, HH Sheikh Mohammed bin Rashid Al Maktoum, Jumeirah, Namshi, Paypal, Tasweek Real Estate, UAE | Leave a comment

Happy Days Are Here Again

Posted on October 11, 2012 by howesdubai

Dubai’s exhibition season has started with both the 11th Cityscape Global 2012 and GITEX Shopper (with the main GITEX Technology Week being still two weeks away). HH Sheikh Mohammed bin Rashid Al Maktoum opened the popular consumer and IT electronics event and was so impressed with its positive impact on the local economy, he ordered that it become a bi-annual event.

Meanwhile Cityscape began with announcements of several major projects – the largest of which was the on-going Falconcity, with a capital cost in excess of US$ 10 billion. Its Chairman, Salem Al Moosa, has estimated that, within ten years, the development will be home to 35,000 residents who will be housed in areas adjacent to global landmarks such as the Taj Mahal, the Giza Pyramids and the Eiffel Tower.

Not to be outdone, Meydan – having already spent over US$ 2.7 billion on the iconic racecourse – detailed three new projects. Two of these will be within the original location including the US$ 3.0 billion Sobha City, in conjunction with the Indian company of the same name. This development will cover 8 million sq ft and will encompass 280 villas, 13 high rise apartment blocks, retail space and schools with a ten year completion schedule. The other will be the Meydan Tower, on Sheikh Zayed Road, a mixed used area including a 100-room boutique hotel, 250 serviced apartments, 300 units and 20,000 sq ft for retail use.

Surpassing all expectations, Cityscape reflects further confirmation that the Dubai realty sector is well and truly on the way up. If further proof were required, then one just has to look at the way villa prices have climbed 14% in the past twelve months whilst rents have climbed 10%. As a result of these price escalations, Dubai is placed 12^th in the ranking of 27 global markets. This comes despite the fact that the inventory supply continues to climb to a level of an estimated 350,000 which shows that more people are making Dubai their home base. There is confidence that prices will continue to move in the right direction for at least the next two years moreso when the active population is set to expand at an annual rate of 6.1% compared to residential supply growth of 4.9% over the same period.

Even the badly bruised Nakheel has got in on the act and seeing brisk demand for its public launch of 360 Jumeirah Park Legacy villas selling in the region of US$ 1.3 million. To try and avoid flipping of properties – that was so prevalent in the industry five years ago – the developer requires a 15% down payment with instalments over the ensuing three years prior to completion.

However, one sector still suffering from the manic building boom of days gone by is commercial, where there is a worrying 45% vacancy rate. Q3 saw US$ 550 million in transactions and any movement southwards, towards say the 40% level, will be a major achievement – unfortunately this will have to be a longer term target.

Hotels are a different story with the first half of the year witnessing a 10.0% hike to 5 million guests for Dubai’s hospitality sector with an additional 18% more nights to 19.2 million. The important factor was that Revenue rose a welcome 22% to US$ 2.67 billion. The number of rooms has jumped 4% to just over 54,000 so that any further positive movements in visitor numbers will be easily accommodated.

Away from their home base, local companies are faring well overseas with the biggest recent development being the US$ 820 million Cairo Gate project – a JV between the two Dubai heavyweights, Emaar and the Al Futtaim Group. This will be a major retail and lifestyle development, covering 160 acres.

Arabtec continues to dabble abroad and has won a US$ 120 million contract to build Europe’s tallest residential tower in St Petersburg. No wonder their share value has doubled in a year – almost six times better than the Dubai Financial Market Index which has gone up 17.49% over the same period. This week, the market has risen over 3% from Sunday’s start of 1570 points to the closing Thursday bell at 1627.

Another positive indicator for the Dubai economy is the latest HSBC Purchasing Managers’ Index which has shown a monthly increase from August’s 53.3 to 53.8 at the end of Q3. This is noteworthy since any figure over 50 is positive news whilst most of the other global economies are on the south-side of this figure.

Although intimated in a recent blog that more banks will be cutting back, it still comes as a shock to see that HSBC will be closing down its Islamic banking operations in Dubai and moving them to Qatar and Malaysia. This is part of the bank’s strategy to improve its bottom line but its bottom may well be bitten because of this risky exercise.

Violent scenes reverberated around the streets of Athens as Greeks protested against proposed pension cuts, increasing consumer costs and higher taxes. Prime Minister, Antonis Samaras, has warned that the country will run out of money within weeks if the next tranche from the bailout loan of US$ 170 billion is not forthcoming. Currently delegates from the troika – the EU, ECB and IMF – are in the country assessing whether Greece has fulfilled the terms for receiving further funds totalling US$ 43 billion.

Luis de Guinda, Spain’s Economy Minister, has reiterated that his country does not require a bailout. Passionate protests met his latest budget that cut US$ 17 billion whilst an independent audit estimated that Spanish banks would need US$ 77 billion to survive a serious downturn. With its head in the clouds, Mariaono Rajoy and his government still consider that the country is in no need of a bailout despite an ever shrinking economy and 1 in 4 of the populace unemployed.

Compared to these two struggling countries – as well as most other countries – it can be seen that at least for Dubai, Happy Days Are Here Again!

Posted in Finance | Tagged Arabtec, Cityscape, Dubai, Emaar, Gitex, HH Sheikh Mohammed bin Rashid Al Maktoum, HSBC, Meydan, UAE | Leave a comment

Under Pressure

Posted on October 4, 2012 by howesdubai

Facing the presssure head on is Dubai’s leading property developer, Emaar. Their recently announced ‘The Address Boulevard’ sold out within hours despite the fact that prices for the 542 serviced apartments being on the north side of high at US$ 680 per sq ft. Studios started at US$ 300k whilst 4-bedroom units were in excess of US$ 1.6 million. To try and avoid too much speculation, seen so much in the halycon days, buyers will have to pay 30% of the balance before they can sell on.

In their continuing quest to diversify, the company has also announced a management agreement for The Address Hotel, Masai Mara in Kenya – their second foray into Africa after opening in Cairo in 2009. If the new hotel has the same success as its Dubai equivalents, then the outlook is promising for this particular Emaar unit.

Although the hospitality sector continues with high occupancy rates, which will be enhanced with the conference season fast approaching, it received a further boost that the Summit of the Global Agenda, in collaboration with the World Economic Forum, will take place between 12 – 14 November. Billed as the world’s largest brainstorming event, the city will host more than 1,000 experts and leaders to help develop innovative solutions for many of the world’s challenges.

The importance of such events has not escaped the eyes of HH Sheikh Mohammed bin Rashid Al Maktoum, who has ordered the establishment of a board, chaired by Emaar’s Mohammed Ali Al Abbar. The new entity will be responsible for organising and collating future Dubai events and festivals and will report directly to the Dubai Ruler.

Unsurprisingly, to cope with increased demand, DEWA plans to spend US$ 1.1 billion to upgrade and expand its infrastructure. It expects to raise the money through selling sukuks, the proceeds of which will be used to complete on-going projects and repay exisiting liabilties.

Although there are increasing number of cruises coming into the renovated Port Rashid Terminal, it is still a shock to see that Royal Caribbean will be scaling back their schedule at the end of the 2013 season. However with Costa, Aida, Tui and FTI maintaining the local presence, next year will see a 7% increase in volume to 420k passengers.

There are mixed results coming out of Dubai’s other port, Jebel Ali and its free zone companies. JAFZA, a unit of Dubai World, has H1 Revenue up to US$ 194 million but Profits down 20% to US$ 58 million, mainly because of a 40% hike in Financial Costs to US$ 66 million. The organistaion’s positive impact to the emirate’s success can be seen from its 25% contribution to Dubai’s trade, with 6,700 companies employing 170k. (In addition, DP World has sold off shares in their Belgian and Yemeni port facilties).

Dubai International Airport did not disappoint with a 20% August increase in passengers to 4.8 million whilst YTD figures are up 13.4% to 37.8 million. Despite the global economic slowdown, Dubai ploughs ahead with August cargo figures up 4.4% to 191k tons with a 3% YTD rise to 1,482 million tons.

Two organisations that seem to have money to spend are Tony Blair Associates and Emirates NBD. Readers may be surprised to read that Tony Blair, the erstwhile ex-PM, is negotiating a new and lucrative contract with the much maligned Kazakhstan government which could eventually be worth US 16 million. Earlier in the year, one of his many companies, Windrush Ventures, had a 2011 tax bill of US$ 510k on Revenue of US$ 19.5 million! Some reports indicate that he has earned over US$ 125 million since 2007, helped by annual retainers fronm the likes of JP Morgan (US$ 4 million) and Zurich (US$ 800k). It is pleasing to note that the good man is there “not to make money but to make a difference”!

Dubai’s largest bank reportedly spent US$ 1 million to bring over Pussycat Doll, Nicole Scherzinger, so that their staff and families could be entertained for forty five minutes. If that were the case, the money could have been better spent on an extra 15 staff to improve service to their customers – the people who actually pick up the tab.

However other Dubai banks are not faring as well. Early signs are that some of the banks may be scaling back operations in Dubai with the resultant loss of jobs. For instance, Credit Suisse is reloacting some of its investment bank work to Qatar whilst Deutsche Bank and Nomura Holdings are downsizing as deals continue to slow down. There are bound to be other bigger banks reducing their payroll in the near future.

Latest figures indicate that total bank lending from the country’s 51 financial institutions was slightly up as at the end of May. Although total lending rose to US$ 216.4 billion, credit extended to the private sector was down 1% to US$ 154.8 billion, lending to the other two segments – government and the public sector – was marginally up to US$ 30.3 billion and US$ 31.3 billion respectively.

The Dubai Financial Market came off its recent winning streak ending the week 2% down, or 35 points, at 1570 from a Sunday start of 1605. Despite this little setback, the market is up 16.0% YTD and year on year 8.4% in front.

Continuing problems in the eurozone and worsening US economic data will lead to the IMF downgrading its global growth forecasts – yet again! Its head, Christine Lagarde, is concerned and has voiced her dismay about the lack of progress on both sides of the Atlantic.

Social unrest has seen riots in the streets of Athens and Madrid as both governments appear clueless and directionless. Greece needs to show the troika that it will be able to come up with even more draconian cuts to be in a position to claim the next US$ 40 billion tranche of their US$ 175 billion bailout payment. Failure to do so will see the home of democracy returning to the drachma.

Spain has similar problems, with tax receipts down and benefit payments up, and it is only a matter of time before their stubborn PM, Mariano Rajoy, has to request the inevitable bailout.

Both countries are Under Pressure.

Posted in Finance | Tagged Credit Suisse, DFM, Dubai, Dubai Financial Market, Emaar, Emirates, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, Nakheel, Port Rashid Terminal, The address | Leave a comment