Goodbye Yellow Brick Wall

Posted on March 10, 2013 by howesdubai

Tiananmen-SquareThere is no doubt that tourism is a major driver for the Dubai economy, epitomised by January’s  hotel occupancy, which rose to a giddy 89.6% –  helped along by the success of the month-long Dubai Shopping Festival which this year attracted 4.7 million visitors. All figures headed north with Average Room Rate up 5% to US$ 359.39 and Total Revenue per Available Room at its highest level ever of US$ 522.92. RevPAR and F&B were both up 10.2% (US$ 321.85) and 6.5%. This year will see an 8.3% increase in the room inventory to 58,800 with a massive 16.7% jump to around 69,000 hotel rooms by the end of 2014.

The second ‘T’ in Dubai’s growth is travel with the aviation sector generating almost US$ 40 billion equivalent to 14.7% of UAE’s GDP.  January IATA figures indicate how well this sector is performing when compared to European carriers and other global airlines. As is the norm these days, the region had the fastest worldwide growth in terms of passenger numbers with 14.3% compared to Europe that grew at a paltry 2.1% and globally at 2.7%. At the same time, available capacity grew at 14.4%, 0.4% and 2.2% respectively. More of the same is expected for the rest of the year.

With the retail sector accounting for an estimated 12% of GDP, Dubai has launched the first virtual mall,Tejuri.com, in the region. The fact that on-line shopping is still in its infancy here can be gauged from the income of only US$ 280 million generated in the UAE compared to say the UK where the industry is 170 times bigger at US$ 47.8 billion. There is no doubt that internet retail trading will be a growth sector for the local economy.

The end of March will see the phase 1 completion of the US$ 40.8 million new Dubai Zoo located in Al Warqa 5. The 400 hectares site will include a safari park, golf course and recreational facilities. In line with Dubai’s philosophy, the aim is to make the safari park the best centre for wildlife in the world. Dubai Municipality is also planning a crocodile park which will be set up in the near future.

An interesting development this week came with appointment of Douglas Kirkman as CEO of ICD-Brookfield Management Limited running a US$ 1 billion fund, targeting Dubai real estate assets. The Investment Corporation of Dubai, the government’s investment arm, has joined with the Canadian conglomerate to finance future major developments in the emirate.

Another government entity, Dubai Industrial City, is now home to 471 companies having seen a massive 82% increase (212) in the past year. DIC is a specialised industrial and logistics hub for light to medium manufacturing and is one of the main drivers that help to make the industrial sector the second largest contributor to the country’s GDP.

With an improved lending environment and historically low rates, Emirates becomes the third government-owned entity this year to opt for a sukuk financing option. This will be the airline’s second bond issue in 2013 following a rather complex structured US$ 750 million one in January; DEWA and the Dubai government have already raised finance of US$ 750 million and US$ 1.25 billion.

Emaar again hit the jackpot as it saw its third major project in three months sell out in less than one hour last Saturday. Investor interest in the Address Residence Sky View was worldwide with interested buyers from seventy-five countries which just shows the increasing pull of Dubai as a place to live. According to a recent survey, it has just become the seventh most desirable global living place for high wealth individuals.

Another massive development was announced this week – Damac Towers by Paramount. Located in Down Town, the US$ 1 billion project – with a movie based theme – will comprise four towers (all over 250 metres) and include a 540-room hotel and 1,400 serviced apartments. Construction has already started with completion expected by the end of 2015.

Meanwhile Nakheel is planning to construct two-storey villas in Jumeirah Village Circle and has issued a tender for potential bidders to develop the site. As the name implies, the development will see all ninety units built in a circle.

As one of the bedrocks of the local economy, it was not unexpected to see Dubal’s 2012 Net Profit increase by 6.5% to US$ 430 million on a 11.2% jump in Revenue to US$ 2.66 billion. Dubai Aluminium started operations in 1979 and has seen a sevenfold increase in annual production to over I million tonnes. Apart from being a shareholder in the Abu Dhabi-based Emal (Emirates Aluminium), the company has projects in Brazil, Cameroon and Guinea.

The Dubai Gold and Commodities Exchange has had a good start to the year  with record trades of over US$ 44 billion (1.16 million contracts) recorded in February. Despite its title, DGCX’s strongest sector remained currencies which accounted for US$ 40 billion of trades – a year on year increase of 126%. Gold and silver futures registered gains of 77% and 38%.

With its tier one ratio standing at a relatively high 13.9% at the end of 2012, Dubai Islamic Bank is taking measures to reduce this to below the 12% regulatory limit. The largest sharia-compliant financial institution in the country is holding investor meetings prior to a proposed US$ 500 million issue of a hybrid Tier 1 perpetual sukuk. If this goes ahead, it will help strengthen the bank’s tier one capital and bring it more in line with the Basel III global standards.

In regard to these standards, Moody’s has put the subordinated debt (amounting to some US$ 4 billion) of four UAE banks – ADCB, Emirates NBD, First Gulf Bank and Mashreq – with eight other Gulf banks on review for a possible future downgrade. The warning does not apply to any other aspects of the banks’ operations.

Whilst most global bourses were continuing their upward trend, the Dubai Financial Market Index edged 2.3% lower this week closing on 1882 from its Sunday opening of 1927. This drop into negative territory is largely the result of the 31.5% fall (from US$ 0.81 to US$ 0.56) in the price of Arabtec shares over the past week. This was precipitated by the company’s decision to raise a further US$ 1.8 billion that would obviously dilute the current value of shares. Despite the weekly fall, the Index has still risen by 16.0% so far in 2013.

Dubai’s CPI increased by 0.53% in January attributable to price rises in transport (1.61%), housing (1.44%) and health (0.83%) whilst certain sectors witnessed falls including clothing (1.47%), food (1.02%) and communications (0.86%). Abu Dhabi’s inflation increased only by 0.16%, even behind Sharjah (0.29%) and RAK (0.24%). Overall the UAE consumer price index rose by 0.43% to 117.41. Official figures indicate that 2012 inflation for the country was at a relatively low 0.6%. With the current property and tourist boom, it does not take a genius to see that 2013 inflation rates may well be a lot higher with 3.0%+ a top end estimate.

A sign of the times saw 366k less internet users as an increasing number of users turn to tablets and smart phones in 2012. The new boy on the bloke, du, is rapidly catching up with Etisalat as it takes 60% of the share of the two million new GSM subscribers last year. It now boasts 49% of the total market of 13.77 million. At 167.8%, the country now has one of the highest penetration rates in the world.

The World Bank has placed the UAE as the easiest place to do business in the Arab world and 22nd globally. Covering 185 countries, the Ease of Starting Business Index confirms that the country has moved up 24 places in the past year. Singapore. Hong Kong and New Zealand filled the top three places.

In the UK, HM Revenue and Customs have produced a list of their top tax criminals as part of their US$ 1.5 billion crackdown on tax evasion. Included on the list are seven Brits involved in smuggling 20 million cigarettes into the UK from Dubai and  a UK jeweller who bootlegged gold from the emirate to evade VAT of US$ 11.2 million.

The EU has fined Microsoft US$ 733 million for antitrust violations in not ensuring that up to 15 million consumers had a choice of browser – rather than defaulting to their own Internet Explorer. The US company had already been penalised US$ 2.08 billion for previous ‘skirmishes’ with this powerful authority. Other major IT companies may be next on the EU’s hit list.

It is sobering to see how the BRICs have fared recently after they were highlighted as the future economic powerhouses not so long ago. It is a sad refection of how  the world economy has been so badly hit in recent times.

Brazil was forecast to see 4.5% growth in 2012 following a 2.7% improvement a year earlier which took it past the UK to become the world’s sixth biggest economy. The economy struggled to make 0.6% growth last year (to US$ 2.2 trillion) and its was pushed back one place to be overtaken by the UK; that sums up how bad things are as the country’s debt burden begins to cause a cut back in consumer spending.

Russia’s economy grew by 3.4% last year – its lowest level since the GFC.   In 2013 a 3% expansion to the GDP would be good news because of low consumer confidence, a slowdown in investment, high inflation at 6% and a weakening global economy. At the expected level of growth in 2012, the country is actually going backwards.

India has again been rocked by another financial scandal – no surprise there. Adidas has had to take a US$ 200 million hit due to accounting irregularities at Reebok India Co. Evidently its former MD, Subhinder Singh Prem, and COO, Vishnu Bhgat, have been implicated in a fraud; both men deny the charges. On-going corruption is one of the main reasons why the Indian economy will never reach its full potential whilst red tape and flat manufacturing are lags on real expansion. When some analysts indicate that the country needs a minimum 8% growth rate just to keep up with its burgeoning population, it is of great concern that India saw only a 6.5% increase in GDP last year – down from 8.6% a year earlier. In the current year, anything over 5% would be a bonus.

The indicators from China are worrying with a marked slowdown in factory growth and the services sector. In 2012, the country grew at 7.8% – its lowest level this century – and is targeting a 7.5% expansion in GDP this year. Any official figures emanating from Beijing are best described as wobbly. Some think that its housing bubble may burst in 2013 – and that would have a detrimental effect not only in China but globally.

Posted in Finance | Tagged , , , , , , , , , , , , , , , | Leave a comment

Money For Nothing

Posted on March 2, 2013 by howesdubai

dubai-emaarLatest reports indicate that the tourism boom continues unabated with Dubai hotels registering an 83.6% occupancy rate last year – with more of the same on the plate in 2013. More impressive was the climb in both RevPAR (revenue per available room) and Average Room Rates both up by 10.4% and 7.3% respectively.

The buoyancy in the market is reflected by the likes of Hilton and Marriott planning to add a further 1,000 and 3,000 rooms to their Dubai inventory over the next two years. Furthermore, the Jumeirah Group have started work on Phase 4 of Madinat totalling US$ 680 million whilst Al Habtoor will be building three more hotels on its Metropolitan site.

One event this week that saw the hotels bursting at the seams was Gulfood. With some 4,200 exhibitors and 60,000 visitors, the 4-day event is now the largest food exhibition in the world. For such a small city, it is a surprise to some that Dubai has over 2,000 companies involved in the food and beverage sector. Indeed it is estimated that almost 15% of Dubai’s manufacturing is food-related.

With its 2012 passenger numbers jumping 13.2% to 57.7 million, Dubai International Airport recorded a massive 14.6% hike in January numbers to 5.6 million compared to twelve months earlier. Despite the slowdown in world trade, the emirate once again bucked the trend with an 8.6% increase in freight traffic to 189k tonnes. (Near neighbour, Abu Dhabi dealt with 1.3 million passengers and 49k tonnes).

The driving force behind this phenomenal growth is Emirates which has carried 18.7 million passenger since last April – an increase of 15.4%. No wonder that pundits are expecting stellar profits when results are released in April. Their September 2012 half year figures indicated a doubling of its Net Income to US$ 463 million.

Troubled developer, Nakheel, is slowly battling back from its massive arrears problem and, with this week’s US$ 56 million repayment, has now settled US$ 252 million since its August 2011 US$ 16 billion debt restructuring scheme. Since then the company has delivered around 4,000 units and has a further US$ 380 million of developments in the pipeline. Last month, it reported that it had seen its 2012 Revenue surge 91% to US$ 2.13 billion.

Hardly a month goes by without Emaar Properties announcing a new project. This time it is a 189-room hotel and 532 serviced apartments located in Downtown. The Address Residence Sky View will be 230 metres high and have 50 floors. Sales will start on 02 March and it does not take a clairvoyant to see that it will be sold out the same day.

The largest listed contracting company in Dubai had a turbulent week. Arabtec announced that both its Chief Executive (and founder some forty years ago), Raid Kamal, and CFO, Ziad Makhzoumi, were no longer with the company. It did not take long for Abu Dhabi-based Aabar, who bought 22% of the company in August 2012,  becoming its major shareholder, to overhaul the boardroom. On the financial side, the 2012 Profit fell 37% to US$ 37.9 million and it announced that it plans to increase its capital by US$ 1.77 billion via a rights issue (US$ 1.31 billion) and convertible bonds (US$ 463 million). The market did not take too kindly to the news with the stock losing 9.8% on Thursday to close at US$ 0.728.

Empower, the district cooling services provider, registered a 17% rise in 2012 profits to US$ 51.8 million with assets of US$ 1.23 billion. It has also managed to reduce its loan book from US$ 354 million to US$ 131 million. Dubai’s population growth over the next five years is the main reason why industry analysts expect the UAE district cooling industry to  triple from US$ 4.09 billion to US$ 12.26 billion.

The Dubai government has bought back US$ 834 million of its own Medium Term Note of US$ 1.77 billion issued in April 2008. There is an apparent move afoot to better manage outstanding liabilities in the light of changed circumstances and lower borrowing costs.

Last month, HH Sheikh Mohammed bin Rashid Al Maktoum, spoke about his desire to make Dubai the hub for global Islamic economy. Although difficult to quantify, the global value of sukuk (Islamic bonds) is in the region of US$ 400 billion of which only 2.25% emanates from Dubai – well behind the likes of the big two (London US$ 27 billion and Malaysia  US$ 23 billion). Last year, there was a 42.3% surge in the issues of sukuk to US$ 121 billion. On Wednesday, the Dubai ruler reiterated his ambition that Dubai become the number one global centre for such financing.

The Dubai Financial Market Index ended the week at 1927 nudging marginally higher from its Sunday opening of 1923. In the first two months of the year, the Index has risen by 18.77%.

With the political impasse continuing on Capitol Hill, the US is once again teetering on the edge of its fiscal cliff. With no imminent deal in sight, it seems likely that US$ 85 billion worth of spending cuts are due to take place. Although this seems a high figure, it is not when compared to the federal expenditure of US$ 3.8 trillion.

It was a bad start to the week for several European economies none moreso than the UK and Italy. Moody’s became the first ratings agency to downgrade the Cameron-led economy from AAA to Aa1 because of worries about the lack of growth prospects and, to a lesser extent, its relatively high levels of debt. Apart from the economic impact, it will lead to a political bun fight that may see the demise of the Chancellor George Osborne.

Italy, the world’s eighth largest economy, is in a more perilous state, not helped by political uncertainty following the recent general election. It has had six straight quarters of recession with the economy contracting 0.7% in Q4 and 2.7% in 2012. The unemployment rate has risen from 8.9% to 11.2% over the past twelve months with the situation expected to worsen in 2013. No wonder its borrowing costs have started to climb again with the latest sale of 10 year bonds up from 4.17% to 4.83%.  Its debt position now is in excess of US$ 2.7 trillion whilst the unemployment rate continues to rise – up from 8.9% to 11.2% in 2012.

Reality has finally hit home for the EU bureaucrats. Like King Canute, they now realise that the tide cannot be turned and have conceded that the eurozone will be in recession in 2013. It was only in December that growth was forecast for this year but a combination of high unemployment and banks diving for cover and not lending, means that the bloc will remain in the doldrums for at least another year.

It has now dawned on authorities that joblessness is probably its main long-term problem and the fact that over 19 million are not working will continue to drag the eurozone deeper into economic trouble. At the same time, interest rates are at historical lows but that means nothing to public and private consumers if the banks are not lending.

Banks are again in the news for all the wrong reasons. Four UK banks have already put aside US$ 19.3 billion as a provision for future compensation claims for mis-selling payment protection insurance (PPI) to its long suffering customers. Lloyds TSB, Barclays, RBS and HSBC have provided US$ 9.9 billion, US$ 3.9 billion, US$ 3.3 billion and US$ 1.6 billion.

One of those offenders, RBS, has managed to make a loss every year since the UK government paid US$ 104 billion in 2008 to save the bank and become an 81% shareholder. In 2012, it managed to more than quadruple its loss to US$ 7.8 billion and then still want to pay out bonuses totaling US$ 921 million!

Not to be outdone, the world champions, Spain, have gone one better. Having received US$ 24.3 billion EU bailout funds in May 2012, one nationalised bank, Bankia, has returned an annual loss of US$ 25.2 billion. Next week, two other government-owned banks, Catalunya Banc and NCG Banco will come in with losses topping US$ 26 billion whilst Banco Popular and Banco de Valencia have already recorded 2012 deficits of US$ 3.3 billion and US$ 4.7 billion.

Money for Nothing

Posted in Finance | Tagged , , , , , , , , , , | Leave a comment

Islands in the Sun

Posted on February 22, 2013 by howesdubai

bluewaters-island-dubaiSome believe that there are only about 920k Emirati citizens in a UAE population of an estimated 8.3 million. Of more surprise is the local unemployment rate of 14% and this is why HH Sheikh Mohammed bin Rashid Al Maktoum is prioritising finding them employment opportunities. In a move to make the private sector more attractive for the nationals, the Minister of Labour, HE Saqr Ghobash, has been instructed to look at adjusting working hours, holidays and salary levels to bring them in line with the public sector, which is often seen as a softer employment option.

Despite the on-going boom in the local economy, UAE gold and silver sales actually fell in 2012. Although Q4 saw a 6% jump in jewellery sales to US$ 409 million and a 3% hike in gold to US$ 556 million, total annual sales were down 6.3% to US$ 2.27 billion and 7.0% to US$ 2.78 billion respectively. (Global demand for the yellow metal rose in value to US$ 236.4 billion but 4% down in tonnage to 4.4k tonnes).

International confidence in Dubai (and the UAE) continues to improve as seen from the rapid increase of foreign direct investment. In 2010, the UN Conference on Trade and Development put the figure of FDI at US$ 5.5 billion which rose 39.6% to US$ 7.7 billion a year later. In 2012, the UAE attracted an estimated US$ 8.2 billion of FDI.

There was welcome news for Deira shoppers this week with Al Ghurair Centre commencing work on a US$ 545 million expansion plan. First opened in 1981, the mall is planning to double the size of its retail area and add a large entertainment zone.

In an effort to pay off short-term debt and finance new projects, Dubai’s largest investment company is arranging a US$ 273 million five-year Islamic bond (sukuk). Dubai Investments already has some thirty-two companies and is looking at a possible six more to add to their portfolio which would then see a large increase on this year’s profit compared to the 2012 return of US$ 87 million.

It comes as no surprise also to see that Nakheel is in discussions to restructure a US$ 2.2 billion loan, due for maturity in 2015. The debt-ridden developer was badly hit by the GFC and has struggled to recover but recent indicators could be seen as positive; these include a 2012 profit of US$ 545 million, delivery of 3,000 properties this year, a doubling in size of Dragon Mart and commencement of three major projects – two on Palm Jumeirah (Nakheel Mall and the Pointe) and a major expansion to Ibn Batuta Mall. It seems that there will be no further development on Palm Jebel Ali – at least in the short-term.

Meanwhile Cape Reed, a South African construction company, has announced that it has completed its work on Lebanon Island making it the first commercially developed island on Nakheel’s iconic The World. Located 4 km off-shore, the resort has a restaurant for 200, eight chalets, a swimming pool and, of course, its own beach. (Its original owner, Wakil Ahmed Azmi, sold the island last year for US$ 9.5 million incurring a loss of US$ 6.8 million).

There is yet another island project. This time, Dutch contracting company, Van Oord, has started work on a US$ 134 million dredging contract on Island 2 off Jumeirah. This should finish by the end of the year at which time work on the mixed-development of a boutique resort with low rise apartments and a marina can start in earnest. The island, which will be connected to Jumeirah Road by a 300 mt long bridge, will be developed by Meraas Holding – the same company that recently announced a US$ 1.63 billion plan for the ‘Bluewaters’ island project off JBR.

Union Properties had another bumpy year with a fall in Revenue from US$ 1.34 billion to US$ 447 million but a major turnaround in Net Profit from a 2011 loss of US$ 425 million to a profit of US$ 48 million. More detailed figures are not currently available.

Dubai-based Arabtec has been awarded a US$ 272 million contract to construct the Abu Dhabi Fairmont hotel and serviced apartments. Covering an area of 155k sq mt, the 39-storey building will comprise a 563-room hotel and 249 apartments and is slated for completion within thirty months.

Next week sees another huge exhibition taking place. Last year, Gulfood generated US$ 155 million for the Dubai economy and this year, with 4,200 exhibitors and up to 60,000 visitors, will prove even more rewarding for the emirate’s coffers. Australia, which will have the largest number of overseas exhibitors, has seen its food exports to the UAE almost double since 2008 to US$ 662 million accounting for 8.6% of the country’s food bill of US$ 7.68 billion.

Having set up a successful business park model in Dubai, Tecom Investments has been trying for some time to set up a similar Internet City in Kerala. As a result of the usual setbacks associated with start-ups in India, construction is now expected in Q2 with Phase 1 estimated to cost US$ 735 million. Despite potential hurdles facing overseas investors, such as a weak rupee, high inflation, tax issues and the fact that Indian growth this year may be its lowest for a decade, Tecom is confident of commercial success.

Another Tecom enterprise, Dubai Biotechnology and Research Park (DuBiotech) saw the number of companies increase by 46.5% to 126 last year. In 2012, its first manufacturing facility was opened with Pharmax Pharmaceuticals’ US$ 10.9 million factory. Brookfield Multiplex is currently building Forearmed Hall – the prep school for Repton – due to open in Q3 and become the Park’s first educational establishment.

It has been a good week – and a good year – for the two telco companies. Etisalat saw a 15% increase in Net Profit (after royalty of US$ 1.76 billion) to US$ 1.83 billion with a 2% rise in revenue to US$ 8.96 billion. du announced a 14.7% jump in 2012 Revenue to US$ 2.77 billion with a resulting 80% surge in Net Profit (after royalty of  US$ 230 million) to US$ 540 million. With these impressive results and a declared US$ 0.082 dividend, no wonder du’s shares rose 11% on the day.

Dubai Financial Market Index finally managed to push through the  1900 barrier ending the week 1.5% higher at 1923 on its Sunday opening of 1894 – and up a creditable 18.53% so far this year. (Compare this to gold which started the year on US$ 1,680 and is trading today 6.8% down at US$ 1,573).

Eurozone’s smallest economy is currently causing the bloc its biggest headache. Cyprus applied for international financial aid in Q3 2012 requesting some US$ 22 billion (US$ 12.5 billion to shore up its banks and the balance for its budget) – a drop in the ocean when compared to Greece’s IMF and EU bailout funds of US$ 323 billion. However any aid would see their debt skyrocket to 140% of GDP which would be contrary to Fund’s lending rules. If no help is forthcoming then the country would become bankrupt and that would really spook the already jittery markets.

Latest data from the beleaguered eurozone confirm that the bloc has been in recession for the past five quarters. The optimistic mood of some of the politicians seems unfounded especially when perusing the performance of the PIGS. The four countries – Portugal, Italy, Greece and Spain – have latest unemployment levels at 16.4%, 11.1%, 26.0% and 26.6%, youth unemployment at 38.7%, 37.1%, 57.6% and 56.5%. If that were not enough, Q4 saw all four GDPs contract by 3.8%, 2.7%, 6.0% and 1.8% on the same quarter a year earlier.

There is increasing concern on the state of the French economy following President Francois Hollande’s acknowledgement that the country will miss its initial 2013 growth estimate of 0.8% for 2013. 2% would seem more likely with a possibility that eurozone’s second largest economy may even slip into recession. To make matters worse, the government has admitted that it will fail to cut this year’s public deficit to within 3% of GDP – the EU ceiling.

The Indian economy – Asia’s third largest – is going through a worrying phase and there is speculation that the country could see its debt downgraded to junk status. The market will be waiting on the outcome of the 28 February budget which will try and cut the fiscal deficit from 5.3% of GDP to 4.8% by encouraging FDI and reducing government spending.

A perusal of the currencies will see that a potential currency war is a distinct possibility with the latest skirmish being triggered by Japan. Their plan for monetary easing is to boost economic activity by reducing the yen’s value, causing much consternation among its trading partners. At the beginning of the week, the yen had fallen 15% against the greenback since November.  Following a G20 finance ministers’ weekend meeting a communiqué was issued stating their agreement that forex rates should be set by the market and not by any government intervention. Many believe that national interests will override as individual nations will boost their own economy even if it means upsetting others. John Donne’s poem, No Man is an Island, springs to mind.

Back in Dubai, island building is back in vogue and hopefully the emirate will not forget its desert heritage as it is quickly becoming better known for its Islands in the Sun.

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment

Number One

Posted on February 19, 2013 by howesdubai

Sheikh-MohammedYet another indicator of the strength of the local economic recovery is the news that Dubai Mall’s sales jumped 24% in 2012 and its footfall was 20% up at 65 million visitors / shoppers. If this is any guide for the rest of the sector, all bodes well since retail accounts for 30% of Dubai’s GDP.

Across the board, UAE 2012 car sales have been impressive. Latest figures from Al Futtaim Motors, the exclusive Toyota distributor, show that the Japanese car maker has had a 32% year on year sales growth here. Mercedes has reported a 74% surge in the sales of its G Wagon range whilst its SUVs have increased by 38%. Other dealers have previously reported similar growth patterns.

Rarely a week goes by without mention of further property developments in Dubai. This week, there have been two major announcements. First, HH Sheikh Mohammad bin Rashid Al Maktoum has approved a US$ 1.63 billion plan by Meraas Holding for a new project off JBR. ‘Bluewaters’ Island will include the requisite 5-star hotel, residential and retail units as well as a US$ 272 million 210 metre Ferris wheel (naturally it will be the world’s largest); the complex will be connected to SZR by a direct roadway / monorail and to JBR by a pedestrian bridge.

Damac has launched a US$ 327 million project in Dubai Marina with the main contractor being Arabtec. Slated for completion by 2016, Damac Residenze, a 335 metre tower, will have an interior fit-out by the celebrated Italian designer, Fendi. No wonder then that prices will be in the region of US$ 8,200 per sq mt.

Welcome news for parents with children attending local private schools. The Knowledge and Human Development Authority has indicated that there will be no private school fee hikes in the next academic year. This comes only weeks after government directives ordered 2,000 basic food items be fixed for 2013 and that prices of some 6,600 imported medicines be reduced by up to 40%.

One little known fact is that Dubai sees over 30% of all global physical gold traded. Its mounting status in the yellow metal transactions will be further enhanced by the Dubai Gold and Commodities Exchange plan to establish a domestic exchange open to UAE investors to trade physical gold. Currently, the DGCE is one of the cheapest places in the world to trade gold. Meanwhile the bullion itself, hovering around the US$ 1,605 – 1,690 mark, has dropped more than 3% this year in contrast to strong performances from both platinum and palladium – up so far by 12% and 10% respectively. (The almost daily roller-coaster ride that is gold may lead the conspirators among us to consider that some sort of market manipulation may be afoot).

The substantial trade gap between the USA and UAE was further highlighted by 2012 figures showing a massive increase in their balance of trade from US$ 13.4 billion to US$ 20.3 billion. US exports to this country stood at US$ 22.5 billion whilst UAE exported only US$ 2.2 billion. A welcome fillip for Uncle Sam!

The past two weeks have seen the 17 listed UAE banks post favourable 2012 results with total year on year net profits rising by 11.4% to US$ 6.27 billion. Of the 23 national banks, 6 are not listed whilst there are 28 foreign financial institutions operating in the country.

Dubai-based bank, Shuaa Capital is slowly showing belated signs of recovery with a reduction in year on year Net Loss from US$ 80.0 million to US$ 16.1 million. Last year, the bank saw its Revenue jump 38% to US$ 37.4 million and its expenses drop by 45%.

DEWA announced a 6.4% increase in 2012 Net Profit to US$ 1.27 billion as its Turnover rose by 7.0% and cash generation by 1.4% to US$ 2.04 billion. At the end of the year, the public utility authority had total debts of US$ 5.6 billion, of which US$ 1.15 billion is due for repayment this year.

Not many airlines can boast of becoming profitable within three years from start-up – but flydubai can! In 2012, it posted net profits of US$ 41.4 million whilst carrying over 5.1 million passengers on its 52 routes. The CEO, Ghaith al Ghaith, is weighing up whether to add a further fifty aircraft to the low cost carrier’s fleet.

The locally owned baby store, JustKidding, has agreed a US$ 6.3 million franchise deal with the AMZ Group. Founded in 2006, it already has two Dubai outlets and, under the new arrangement, hopes to open a further three in the UAE as well as in Oman and Kuwait. Consequently, the forecast is for a fifteen fold increase in revenue over the next three years.

Dubai Financial Market Index tested the 1900 mark on Wednesday but later profit-taking saw the bourse close the week on 1894 – still 1.8% up since its Sunday opening and 16.73% so far this year.

With 2012 UAE sales up 15% and serving 50 million customers, McDonalds continues to dominate the local fast food sector. The American chain already has 109 outlets and with a 2013 investment of US$ 8.2 million will add another fifteen outlets. It hopes to increase its current 13% of the informal eating out market to 25% this year.

Just when horsemeat is getting all the press in Europe, the Dubai branded Calmelicious milk brand won EC approval to export their products into the bloc. The Emirates Industry for Camel Milk & Products, established in 2003, is home to the world’s largest camel milk and factory in the world. Although milk, chocolate and cheese are currently at the top of their export targets, EICMP is also in talks with cosmetic and medical companies that may have use for certain camel by-products.

A further sign of the global economic malaise comes with the world’s top steel producer, Arcelor Mittal, announcing a 2012 loss of US$ 3.72 billion. An 8.8% fall in European steel demand was the main driver for the company going into the red as the Indian conglomerate was forced to write down its European assets by US$ 4.3 billion, with an extra US$ 1.3 billion in restructuring costs.

Another company declaring a huge write-off is the beleaguered French auto-maker, Peugeot Citroen. Because of the dismal state of the European market, the company has deemed it necessary to write off US$ 6.3 billion in 2012.

Italy has been hit with further corruption probes. Giuseppe Orsi, Chairman of Finmeccanica, the country’s biggest defence company, has been arrested in connection with a probe into a US$ 560 million helicopter sale to India. Then there are the ongoing fraud enquiries relating to Italy’s third largest bank, Monte dei Paschi di Siena and the state-controlled energy group Eni.

Despite protestations from its technocrats that the worst was over, the eurozone has plunged even deeper into recession with no end in sight. The Q4 GDP fall of 0.6% is the worst quarterly return in four years with its three powerhouses, Germany, France and Italy all showing falls of 0.6%, 0.3% and 0.9% respectively. There is an Arabic saying that in order to kill a snake you should go for its head rather than its tale; maybe these problems could have been avoided if authorities had dealt more expeditiously with its eurozone “tale” countries – Spain, Greece, Portugal. The end result is a distinct danger of a contagion effect that could negatively impact on many economies including that of Dubai.

HH Sheikh Mohammed bin Rashid Al Maktoum held a Q & A session at this week’s two-day Government Summit attended by 2,500 officials in Dubai. Covering a wide range of topics, he again reiterated his desire that he wanted his nation to be number one. He continued that “becoming number one is not impossible – the word impossible doesn’t exist in our dictionary… My nation and I, we always try to be the first because no-one remembers the second”. That is the reason why the Dubai ruler insists on being Number One.

Posted in Finance | Tagged , , , , , , , , , , , , | Leave a comment

Let’s Hang On To What We’ve Got

Posted on February 9, 2013 by howesdubai

beckham-emiratesThe week started with HH Sheikh Mohammed bin Rashid Al Maktoum’s directive that work should commence on two major Nakheel developments on Palm Jumeirah. Nakheel Mall, located at the bottom of the trunk, will cost US$ 680 million whilst The Pointe – comprising a marina and retail outlets – will expend US$ 218 million. The debt-ridden developer will have a busy 2013 handing over 3,000 residential units plus other new projects totalling US$ 1.8 billion coming on line over the next three years.

Sunday saw the close of the Dubai Shopping Festival. Since its 1996 inception, visitor numbers have risen threefold from 1.6 million to this year’s estimated 4.8 million. It is projected that DSF 2013 Revenue will add US$ 4.8 billion to the emirate’s coffers.

Weeks after the Ministry of Economy announced it was fixing the 2013 prices of 2,000 basic food items, there was further good news for the consumer. This time, the Ministry of Health has been directed to ensure that prices of some 6,600 imported medicines be reduced by up to 40%.

Latest IATA figures show the influence the ME carriers have on the global airline sector.  According to their latest figures, 2012 saw a 15.4% growth in passenger numbers (8.9% in 2011) with a 12.5% capacity expansion and a much improved load factor of 77.4%. Cargo in the region grew by 14.7% (8.2% in 2011). The sorry state of the global economy can be gleaned from the fact that worldwide figures showed passenger growth at 5.3% and cargo actually falling by 1.5% – a variance of 10.1% and 16.2% on ME returns. Based on these figures, it will be very interesting to see what Emirates report for their 31 March year end results – surely higher than last year’s profit of US$ 620 million.

By the time David Beckham had signed  for Paris St Germain, Emirates has already finalised a further five year shirt sponsorship deal with the French club. No figures are readily available but it could be less than the recent Arsenal shirt extension (to 2018-19) which was valued at just under US$ 240 million. Among other European clubs bearing the Emirates logo are Real Madrid, AC Milan and Olympiakos.

To expand their sponsorship reach even further, the airline has signed a 5-year deal with Formula 1 to sponsor fifteen races a season at a rumoured annual cost of US$ 55 million. That being the case, it will see their sponsorship expenditure rise to over US$ 270 million in 2013. It is difficult to think of one sport in which Emirates are not involved.

On the subject of cars, Dubai boasts the world’s biggest Bentley workshop. ME sales of the luxury vehicles were up 44% in 2012 – a sure sign of the bounce back of the local economy.

In Q2, DubaiSat-2 will be launched and will be able to take better quality photographs than its predecessor which is still operating in space. This year, Eiast, the Dubai-based government entity, will start work on a facility to manufacture satellites in the UAE with plans to launch DubaiSat-3 by 2016.

One company taking advantage of the favourable conditions in Dubai is Transworld Group which is planning to expand its shipping fleet by three bulk carriers and three container ships at a cost of US$ 100 million. The 45-year old locally based shipping service provider already had a fleet of 27 vessels.

There was further news on Dubai Group’s US$ 10 billion debt – US$ 6 billion of which is owed to a consortium of 35 banks. Although some of these creditors – including RBS, Standard Chartered and Standard Bank – may have settled on an 18.5% arrangement, it seems that over half are looking for a total settlement over 12 years. The sooner an amenable restructuring scheme is in place, the better for the emirate.

The Emirates Bank Association has formally requested the UAE Central Bank to cap mortgages for expats at 75% and for Emiratis at 80%. Last month, the Central Bank had suggested LTVs at 50% and 60% so an obvious compromise will be reached by Q3 at the latest. The bankers have also suggested that the total loan value should not be more than 7 years’ salary for expats (8 years for UAE nationals).

Following the GFC, the Central Bank ploughed over US$ 19 billion into local banks. Now it appears that much of the money, that was converted into 7-year bonds in 2009, will be repaid this year as cheaper forms of financing become available to these financial institutions.

The Dubai bourse succumbed to a little profit taking and gave up some of its recent gains dropping 1.5% over the week to close on 1860 points. Its daily turnover is over US$ 100 million and so far this year it is still ahead by 14.61%!

The 2012 reporting season continues with a further flurry of pleasing results especially from two local banks. Mashreq, Dubai’s second largest bank, had a stunning Q4 which saw its profit jump six fold from US$ 17.4 million to US$ 109.0 million. Year on year, the bank saw its net profit up 67% from US$ 223.4 million to US$ 373.0 million. Not bad for a bank that saw its credit rating cut one notch to Baa2 in December. In line with the generous dividends paid previously by CBD and Emirates NBD, a cash pay-out of 38% has been proposed, subject to approval.

Meanwhile Dubai Islamic Bank saw its 2012 profit increase by13.3% (US$ 38.1 million) to US$ 324 million. During the year the bank saw total assets up by 5.3% to US$ 26 billion whilst its impairment provision fell from 12.1% to 9.8% – still relatively high.

Some international banks are in for a well-deserved torrid time and have been called to book for their dubious methods of generating revenue. For example, RBS, 81% owned by the British taxpayer, became the third bank penalised for its role in colluding with other financial institutions to rig Libor rates. Fined US$ 625 million, it joins Barclays (US$ 450 million) and UBS (US$ 1.47 billion) in the hall of shame with many banks set to suffer the same consequences for their fraudulent behaviour and cavalier attitude to their stakeholders.

Barclays is in the firing line once again – this time for misselling loan insurance designed to protect borrowers. All it seemed to do was to make money for the bank and left many of its customers worse off. To date, they have provided a reserve of over US$ 4.0 billion for potential claims but that seems to be on the light side. Another potentially bigger problem for the bank could become their Qatargate as authorities are investigating a US$ 5.3 billion investment by Qatar Holding in June and October 2008.

BP is still paying for the 2010 Deepwater Horizon incident in the Gulf of Mexico. So far it estimates that this disaster has already cost the company US$ 42.2 billion which included an additional US$ 4.1 billion Q4 provision for its settlement agreement with the US authorities. To add to their woes, they could be exposed to further massive costs as the civil cases are scheduled to start later in the month.

One of the smaller members of the Eurozone is embroiled in the bloc’s economic malaise with its banking system in tatters. Cyprus may require US$ 14 billion to keep its banks afloat with the money coming out of the EU bailout fund. Interestingly, the largest foreign investors in that country are the Russian Federation whilst the largest foreign investor in Russia is Cyprus.

Nearer home, Egypt’s woes continue with the political turmoil, civil unrest and economic uncertainty responsible for a further dwindling of the country’s currency reserves. In January, there was a 10% fall from US$ 15.0 billion to US$ 13.6 billion. Before the ouster of former President Hosni Mubarak, the foreign reserves stood at US$ 36.0 billion. (As an aside, a recent Transparent International report indicated that 99% of Egypt’s military spend was secret).

The problems in Spain just deteriorate by the day and probably the last thing needed was for the Prime Minister, Manoj Rajoy, becoming embroiled in a corruption scandal. Nearly a million Spaniards have now signed a petition calling for his resignation after allegations of secret cash payments to him and fellow members of his Popular Party. Not surprisingly he has rebuffed these claims as totally false.

Unfortunately there is always the possibility that the UAE may suffer as a consequence of the global crisis whether it be eurozone, US, China or regional political issues. For example, if the US were to go into recession, the global economy, including Dubai, will be affected. Not only will trade and tourism fall but the emirate’s ability to source international funds will inevitably dry up.

Posted in Finance | Tagged , , , , , , , , , , , , , , , , , , | Leave a comment

Wishin’ and Hopin’

Posted on February 2, 2013 by howesdubai

Emirates-a380-terminalAs the real estate sector is fast returning to its pre-GFC levels, it came as no surprise to hear that Emaar’s latest off-plan development sold out on launch day. All 280 units, available in the 55-storey Downtown Residence Fountain Views, were snapped up by eager buyers – a tangible indicator of the strength of the Dubai recovery. To try and reduce “flipping”, the developer has insisted that any reseller will have had to have made at least a 40% repayment.

Some analysts have indicated that certain residential areas of Dubai have experienced rapid growth in 2012 including The Springs, Jumeirah Islands, Arabian Ranches and Palm Jumeirah with price hikes of 38%, 28%, 27% and 20% respectively. On average, year on year villa prices were up 23% and apartments 14%.

This only emphasises that the industry is showing early signs of overheating.  The banking industry is taking steps to curb such excesses which brought Dubai to its economic knees just four years ago.  The Central Bank was reportedly advising financial institutions that it would be setting mortgage caps at 50% for expats and 60% for nationals. Meanwhile, the Emirates Banks’ Association has recommended 75% for non-locals and 80% for Emiratis. Currently of the banks’ total retail market of US$ 136.2 billion, home loans account for only US$ 16.3 billion or 12%. From very high bad loan write-offs, seen in the recent past, the industry estimates that only 0.2% of these loans are now considered bad. However some reports indicate that more than 60% of Dubai property transactions are for cash totalling in excess of US$ 25 billion.

Emirates NBD, 55.6% owned by the Investment Corporation of Dubai, has bounced back in Q4 announcing a profit of US$ 170 million and a 2.8% rise in 2012 profits to US$ 681 million. There will also be some happy shareholders as its dividend pay-out came to US$ 381 million – 25% up on last year. The bank has seen its deposits rise 11% to US$ 58.3 billion and lending up 7% to US$ 59.5 billion whilst there has been a 20% fall in bad debt provisions to US$ 1.1 billion.

Emaar Properties – a true bellwether of the local economy – saw a fourfold jump in Q4 Revenue to US$ 730 million. Its 2012 profit at US$ 577 million was 18.2% up on the year although Revenue was flat at US$ 2.243 billion – a 1.5% rise on 2011’s US$ 2.209 million. 33% of the Revenue (US$ 740 million) was attributable to its retail sector whilst 17% resulted from its hospitality and leisure sectors.

One company that is recovering well from the property crash is the Islamic mortgage lender, Tamweel PJSC, whose major shareholder is Dubai Islamic Bank. This week, it fully repaid a five year US$ 300 million sukuk maturing in January 2013.

It comes as no surprise to see Dubai International Airport become the world’s third busiest international airport, now only behind London Heathrow and Paris Charles de Gaulle. Passenger numbers were 13.2% higher at 57.6 million with a 5.5% hike in aircraft movements to over 344k.

The airport’s growth plans will be further assisted by the fact that Emirates are now taking bookings to 32 of Qantas domestic destinations following Australian interim approval of the airlines’ proposed partnership. At the same time, Emirates Airline has issued a 12-year US$ 750 million amortising bond, launched at 300 basis points; some may consider this to be slightly on the high side.

Despite the gloomy trade climate, DP World managed a 2.4% increase in its 2012 cargo handling to 56.1 million 20’ equivalent container units (TEUs). It is estimated that 80% of the world’s third largest ports operator’s revenue is derived from container handling in its 60 international terminals. With the global economy in turmoil, 2013 promises to be a challenging year for the company.

Meanwhile HH Sheikh Mohammed bin Rashid Al Maktoum has approved an expansion of the present metro network with three new lines – Purple, Blue and Gold – covering 421 km and having 197 stations. The long term project, expected to be completed by 2030, will be in three phases.

Talking of trains, the Dubai Financial Market Index is going along like the proverbial steam engine with a 16.34% gain in the month of January. Over the past week alone, it has surged 5.36% to close at 1888 points – 96 points up on its Sunday opening. Hopefully this can keep on track.

HH Sheikh Mohammed also toured the 38th Arab Health Exhibition which is the second largest of its kind in the world. The number of attendees is staggering and the impact on the hospitality sector immense. This year, it is estimated that there will be over 3,500 exhibitors, 7,500 conference delegates and 80,000 healthcare professionals taking part in this 4-day event.

Another sign of the local recovery comes with the news that Toyota has seen car sales rise by 33% in the country – and 22.5% globally to 9.75 million units – with its Lexus models surging by 50%. (Compare this to their sales in Europe where growth was less than 2%). Most other car makers have fared well with increased UAE sales, including Hyundai (up 66%) and Ford (55%). Oddly enough, the UAE dealer has had to recall 5,000 Lexus vehicles because the wipers have a problem when there is a heavy snow storm!

With the worldwide economy still in deep trouble, it is strange to see that the World Bank has had time to issue a report on the cost of money remittances. Rather surprisingly, the UAE is the cheapest place in the world to remit money from, with average costs of 3.5% compared to the global average of 8.96%. Naturally costs vary from country to country so that Pakistan at 2.46% is less than half the cost of an Indian remittance (5.02%).

A week after mining giant Rio Tinto had to write off US$ 14 billion on two bad project investments in Mozambique, Anglo American finds itself doing likewise. After reviewing its Brazilian Minas Rio iron ore operation, it seems that it paid too much for the 2007 acquisition and underestimated the cost of bringing the mine on stream by US$ 4 billion. A disappointed Chief Executive, Cynthia Carroll, is to be replaced by Mark Cutifani, currently with AngloGold Ashanti.

Yet again the IMF has deemed it appropriate to lower its forecasts. China will see the biggest growth in excess of 8% with India and the Asean economies coming in at around the 5% mark. Behind will be Latin America, ME and Africa at over 3% with the UAE nearer the 4% level whilst the US will see a 2% expansion. The latter forecast could be seen as a little optimistic as Q4 saw the US economy actually contract by 0.1% after posting a 3.1% GDP growth in Q3. Indicators point to an economy that will struggle to hit the IMF’s latest estimate with European problems, a Chinese slowdown and a domestic fiscal cliff not helping its cause.

Despite there being a projected 0.2% contraction in Europe, so many politicians are still trying to talk up its prospects and this is just not going to happen. Europe is in a mire in every direction. Youth unemployment in the UK is nearing one million and as the country heads for a triple dip recession, this is not going to improve in 2013. Spain – with its property crash, a banking system in tatters, massive debt and a severe austerity programme in place – will again contract and have inevitable civil disturbances this year.

France has been described as “totally bankrupt” by its own Labour Minister, Michel Sapin, at a time when President Francois Hollande is hoping to cut the Gallic deficit from 4.5% of output to 3%. Some hope! One wonders what Yannis Stournaras is on as the Greek Finance Minister has declared 2013 to be the country’s last year of recession. Some wish! Here we are all Wishin’ and Hopin’ that the good times continue in Dubai with our only worry being when the  new draft bankruptcy law will be enacted.

Posted in Finance | Tagged , , , , , , , , , , , , , , , , | Leave a comment

Don’t Turn Around

Posted on January 31, 2013 by howesdubai

sven-dubai-alnasrThe on-going mortgage lending saga took another turn this week with reports that the Central Bank Governor, HE Sultan Nasser Al Suweidi, has advised that changes to the mortgage cap were not imminent and would not go ahead without consultation with the country’s commercial banks. Because of this, any possible amendments would probably take until Q4 to bear fruition.

The debate on mortgage capping is a consequence of the recent spikes in the prices of property and rentals with 2012 estimated increases of 17% and 14% respectively. To some observers, this could have been the beginning of another property bubble, four years after the last one that brought the Dubai economy to its knees. The other impact that this may have on the local economy is rising inflation – indeed 2013 may see rates turning out higher than the 1.5% which some analysts have predicted. (This year it is estimated that 18k new residential units and 550k sq mt office space will come on line).

2012 property sales rose by 8% and topped US$ 42 billion with nearly 42k transactions, according to Dubai Land Department. The 1,282 villa sales accounted for only US$ 1.4 billion of that total of which 671 were mortgages valued at US$ 545 million.

The Department of Economic Development has released 2012 figures showing that its export promotion agency, Dubai Exports, facilitated US$ 1.36 billion of trade through local companies – a 66.7% jump on the previous year. Over 50% of the business was with Saudi Arabia. In H1 2012, 210 companies participated in exhibitions and trade fairs arranged by the agency.

Although highly commendable, this is small change when one considers Dubai’s non-oil exports / reexports for the first ten months of 2012 which increased by 15.7% to US$ 114.4 billion (whilst imports hit US$ 165.9 billion – a 10.9% jump).

One company that is taking advantage of the local economic boom is Canadian convenience store chain, Circle K.  With 29 shops currently  in the UAE, it plans to spend US$ 55 million to open a further 500 outlets over the next four years. There is no doubt that groceries are big business in this country with 9,400 such shops generating a massive US$ 9.5 billion in sales.

After recently receiving US$ 100 million funding from private equity firm Olympus Capital Asia, Dubai-based DM Healthcare is looking at acquiring two southern Indian hospitals. By 2015, it hopes to quadruple the number of beds in India to 4,000 and, at that time, to consider an IPO either in London or Mumbai. This is in addition to its US$ 300 million regional expansion plans that will see new facilities in Dubai, Sharjah, Saudi Arabia and Qatar.

Just as borrowing costs are at their lowest (currently at 211 basis points), the Dubai government is looking at a potential US$ 1 billion Islamic bond in the very near future. The government’s last foray in this market was in April 2012 when its US$ 1.25 billion sukuk was well oversubscribed. Which comes first – this issue or the planned US$ 1 billion DEWA sukuk – remains to be seen.

The government’s direct debt is currently US$ 33.2 billion with US$ 1.8 billion maturing this year. The emirate’s primary investment fund,  Investment Corporation of Dubai, has a US$ 29.5 billion portfolio with US$ 5.6 billion in listed shares and US$ 23.9 billion in unlisted companies, including Emirates airline.

Notwithstanding all the country’s troubles, development work in Lebanon is progressing with news that Dubai’s Majid Al Futtaim Properties have just been awarded a US$ 225.0 million contract to develop Waterfront City in Beirut in a JV with Arabian Construction Company and Matta et Associes.

In the apparent wake of possible future sanctions, and the corresponding negative impact that this would have if the company were to seek external investment, MAF have spun off its Syrian and Lebanese portfolio directly to its owner, Majid Al Futtaim. In 2012, the company issued bonds to the value of US$ 900 million. (His holding company has also announced that 2012 Revenue surged 10% to US$ 5.88 billion with EBITDA up 7% to US$ 817 million).

The UAE’s well-earned victory in the Gulf Cup last Friday resulted in huge celebrations over the length and breadth of the country. The team has been showered with praise and cash rewards with at least US$ 50 million gifted by the emirates’ various ruling families and other supporters.  Also on the football and money sides, it was interesting to see that Dubai’s own “fake sheikh” has returned – this time as technical director of local side, Al Nasr. Former England coach, Sven Goran Eriksson, reiterated that he was not here for the money!

For the past four years the QE2 has been in Dubai limbo after its 2009 retirement following 39 years sailing six million miles and crossing the Atlantic over 800 times. Now after much conjecture, it seems that the grand old lady will become a luxury floating hotel with 500 rooms. Although there will be a Dubai shareholding in the new consortium, it seems strange that its final destination will be the Far East – rather than here.

Sofitel has announced its expansion in the region with 2013 additions of eight properties to their portfolio of which two will be located in Dubai. With an additional 1,200 rooms, the two hotels will be in Downtown Dubai and Palm Jumeirah whilst the operator has plans for a further opening in JBR. According to the developers, Enshaa, the 217-suite and 169-apartment Palazzo Versace will be completed this year. This project also includes the 80-floor D1 Tower and is located in Cultural Village.

Despite making a Q4 US$ 7.5 million profit, Tamweel’s full year return fell 28.9% to US$ 19.8 million. The Islamic mortgage lender is the subject of a take-over from its major 58.2% shareholder, Dubai Islamic Bank which is offering one of its shares for every 1.8 Tamweel shares. The latter’s share value is currently at US$ 0.31 – 99% up in the past year; what happens when it starts making reasonable profits?

Meanwhile, Dubai’s much-troubled property developer, Nakheel, declared a 57% jump in 2012 profits to US$ 549 million on a 91% surge in Revenue at US$ 1.12 billion. The company is confident that it will be able to meet its debt obligations which is said to be US$ 3.32 billion with US$ 2.18 billion owing to banks and US$ 1.14 billion in sukuks. Some analysts still have their doubts however.

Despite a 3.7% hike in profits to US$ 232 million, Commercial Bank of Dubai’s year end results fell short of estimates. Despite the market’s disappointment, its shares rose 4.8% to US$ 0.83 in Wednesday trading and shareholders received a 10% dividend yield of US$ 0.08.

The Dubai Financial Market Index had another shortened trading week closing on Wednesday almost 1% up at 1792, having opened on Sunday at 1775 points. In the first 23 days of the year, the market is already 10.46% higher and a creditable 33.68% up over the last 52 weeks. The Dubai bourse is running in tandem with the likes of the FTSE, S&P and All Ords  all with recent stellar performances that may be a precursor of a stock market bubble.

This week was not a good one for the Anglo-Australian mining conglomerate, Rio Tinto, which was forced to write off US$ 14 billion in its investments in failed aluminium and coals projects in Mozambique. Two senior executives, CEO Tom Albanese and Doug Ritchie, the “brains” behind these two acquisitions, have been forced to stand down. This is another blow for the mining giant which has seen several big projects put on hold as a result of a Chinese slowdown and the continuing economic debacle in Europe.

The global economic landscape shows little signs of improvement with Europe the biggest obstacle to any turnaround. Having gained 3% in 2011, growth in Germany slowed considerably to 0.7% whilst its eurozone partners continued in recession with governments having to slash spending amid increasing austerity programmes.

Any reports that the worst is over need to be treated with caution. The latest IMF prediction is for slower growth indicating that the two-speed global economy will continue with the emerging economies outpacing the high-income countries, where business and consumer confidence are in tatters. Whilst record numbers are on the dole queues, it is impossible for any economy to recover. Then there is the possibility of the eurozone crisis moving north and dragging the likes of Germany and France deeper into the malaise whilst the US debt mountain will not go away and will bring more uncertainty into the economic arena.

The US leads the world in cranking up its money printing presses to  keep its economy ticking over and is now seeing Japan following suit. 2013 may be the year that the world economic problems are exacerbated by currency wars as certain countries intentionally try to devalue their currencies to revive their flagging economies.

In contrast, Dubai has ticked all the right boxes since its well-publicised problems following the GFC. Now it has more than regained its credibility with the investment community and is looking at growth rates in excess of 4% this year. Not only is it considered as the safest haven in the MENA region, Dubai is indeed the financial capital of the wider region. Don’t Turn Around could be a theme for an emirate that has always looked forward and never has had to rest on past laurels.

Posted in Finance | Tagged , , , , , , , | Leave a comment

We Are The Champions

Posted on January 18, 2013 by howesdubai

United-Arab-Emirates-National-Football-TeamLatest figures show that Dubai hotels are going from strength to strength with their best returns for three years. Occupancy levels hit 90.8% in November with average room rates up 3.1% to US$ 360.47 with even bigger leaps in revenue per available room and gross profit per available room – 5.2% to US$ 327.16 and 12.3% to US$ 297.15 respectively. Since the emirate attracted over 9 million visitors last year, with more expected in 2013, the outlook is indeed bright for Dubai’s 105 5-star hotels and the other 500+ establishments. This week alone, the country’s biggest hotel chain operator, Rotana, opened two new properties bringing their Dubai inventory to 15 hotels and 3,800 rooms.

Also helping to fill hotel’s coffers is the Dubai Shopping Festival. Organisers are confidently predicting an 8% increase in visitor numbers to 4.65 million this year with the highest number of tourists coming from Saudi Arabia. The 32-day festival ends on 03 February and is expected to see sales up by 18 % to US$ 4.9 billion.

Even with some major  projects coming on stream this year, the outlook for the retail sector is bullish. An upturn in consumer confidence and the impressive growth in tourist numbers will ensure that the malls – including ten new ones such as Jumeirah Beach Village and Jumeirah Residence – continue to perform well.

The RTA ha reported that the emirate’s taxis made 37 million journeys over the past twelve months – a 12% increase on 2011. The taxi sector had a 46.8% surge in net profit to US$ 58.4 million on revenues of US$ 297.0 million. This week Salik charges were reintroduced for taxis in a bid to reduce their passenger numbers and move them to using the metro.

How times have changed!  At the turn of the century, there were no buildings  higher than 200 metres to be found in Dubai. Now it can boast of having 20% of the world’s tallest 100 towers as well as the top four global residential buildings. Not one to rest on its laurels, last year four of the six tallest buildings completed globally were located in Dubai.

Recent directives from the Ministry of Economy will result in the prices of 2,000 basic food items being fixed for 2013. Not surprisingly, some retailers are upset as they will see their profit margins slashed whilst most consumers will be happy to take advantage of cheaper produce. One possible downside is that suppliers may be reluctant to deliver at capped prices which may result in shortages of certain items.

One Dubai-based company is to invest US$ 90 million in India. Marina Home Furnishings is expected to open up to fifty outlets in the sub-continent over the next five years and is set to expand even further afield to the UK, US and Canada.

With year-end corporate results set to be released as from next week, positive news from Dubai Gold and Commodities Exchange which registered a staggering 137% growth in 2012 to over 9.6 million contracts with a value of US$ 372.8 billion.

It seems likely that there will soon be a total restructuring of Dubai Holding’s US$ 10 billion debt holding following an agreement with four banks – RBS, Commerzbank, Standard Bank and Commercial International Bank – who have now settled their dispute with this arm of Dubai Group. It is reported that the settlement included 18.5% of the debt being repaid in cash plus responsibility for their debts. Thirty five other banks – owed in the region of US$ 1.5 billion – will be offered the same arrangement. For any deal to progress further, there has to be agreement among its other creditors.

Another entity considering restructuring of their debt is Amlak Finance who are in talks with their creditors to restructure US$ 2 billion worth of liability. The Islamic mortgage company is partly owned by Emaar Properties, who this week announced the 28 January launch of The Address Residence Fountain Views. This follows the Q4 sell-out of its 72-storey project, The Address The BVLD last year.

There are unsubstantiated reports that Emaar is planning to divest itself of its retail and Turkish units and list them on the local bourse and Istanbul exchange. Its current share value stands at US$ 1.11 but its significance to the Dubai exchange can be gleaned from the fact that its US$ 6.85 million Thursday trading accounted for 18.5% of the DFMI’s total daily trade of US$ 36.95 million. The market itself is surging closing on Thursday at 1775 – up 1.1% on the week, 9.39% up in 2013 trading and 35.45% over the past year.

The Central Bank has been in the news more than usual recently especially with its declarations on bounced cheques and mortgage lending policy. To try and burst the property bubble before it inflated too quickly again, the Central Bank has ruled that residential mortgages be capped at 50% (60% for nationals) on the purchase of a first property and then 40% (50% for nationals) on the second and subsequent purchases. In some quarters, the news has gone down like a lead balloon.

Because harsh economic reality is at last hitting home and the need to drastically cut costs, many banks have been in the process of slashing their payroll numbers. One such bank, Morgan Stanley Inc, is reported to have made 1,600 employees redundant with the knock-on effect of their Dubai office being downsized. Other financial institutions – including HSBC, UBS, BoA and Merrill Lynch – have already gone through this exercise and reduced their Dubai numbers with others planning to follow suit. Some investment bankers may have to live on their past year bonuses for a while at least.

The economic climate in the eurozone continues to deteriorate with latest data showing that industrial output fell once again, by 0.3%, to a year on year fall of 3.7% and obvious signs that when Q4 figures come out it will indicate the fourth straight quarter of recession.

The World Bank had reduced its 2013 global growth outlook from its original estimate of 3.0% to 2.4% including advanced economies at 1.3%, developing countries 5.5% and China 8.4%. The usual suspects – high unemployment and fragile business confidence – are the causes of this dismal outlook.

Even the lucky country is not immune from the economic downturn with a slowdown in mining with other sectors under pressure because of the high Oz dollar (currently at over 1.05 to the greenback) and weak consumer demand. December unemployment rates rose to 5.4% as the manufacturing sector contracted for the 10th straight month. Undoubtedly, the country has become an expensive holiday destination and the cash-strapped tourists will inevitably seek cheaper destinations. There are some analysts who are also predicting that Australia will see a bursting of its housing bubble this year.

In the US, lawmakers have six weeks to hammer out an agreement pertaining to the spending cuts as well as to agreeing to some sort of arrangement for its pre-determined debt ceiling, currently standing at US$ 16.4 trillion. No doubt that the US will be peering over the fiscal cliff again come the 01 March deadline.

Dubai and the UAE had more pressing things to worry about with the country’s involvement in the Gulf Cup, being played in Bahrain. Having won all of its first three games to progress to the semi-final, Mahdi Ali’s men received a boost. The various emirates’ rulers authorised free air travel, refreshments and tickets for the match against Kuwait – up to 9,000 fans availed themselves of this largesse and saw Ahmed Khalil score the only goal to secure victory and a berth in Friday’s final against Iraq. No doubt the good run will continue and there will be the usual fun and festivities as the celebrations take to Dubai’s roads.  We Are The Champions.

Posted in Finance | Tagged , , , , , , , , | Leave a comment

One More Cup of Coffee

Posted on January 14, 2013 by howesdubai

starbucks-dubaiA sign of the global downturn came with Singapore Airlines’ announcement that it was asking its 2,400 captains to volunteer for unpaid leave. It seems that the carrier continues to struggle after declaring a 69% drop in annual Net Profit last March. Long haul travel demand has weakened as passengers’ disposable income has declined. Compare this to the ME carriers which saw a 10.5% November increase in passenger loads – compared to the global growth of 4.6%.

Meanwhile Emirates go from strength to strength with the opening of its new purpose-built A380 terminal costing US$ 3 billion. Covering an area of 528k sq mt on 11 levels, it has 20 gates that will be utilised to manage traffic from the 31 jumbos already operating and the further 59 on order. The facility has the capacity to cope with 15 million passengers. Recently Emirates President has indicated that he would, in principle, buy a further 40 of these aircraft but for lack of room at the burgeoning airport.

As one of FIFA’s biggest sponsors, Emirates’ eight year US$ 195 million agreement runs out after the 2014 World Cup. This week, the airline indicated that it was satisfied that the world governing body was doing its best to rid itself of internal shenanigans and that as far it was concerned the brand was not being tarnished because of this association.  (An August blog – A Sign of the Times –  cited that Jose Havelange, IOC member from 1963 – 2011 and former FIFA president , was a beneficiary of bribes from ISL, a company granted exclusive marketing and TV rights for the 2002 and 2006 FIFA World Cups. It was revealed that Havelange and his cohort and ex son-in-law, Ricardo Teixeira, received at least US$ 1.5 million and US$12.6 million respectively).

One of Dubai’s older shopping centres is undergoing major renovation over the next eighteen months. Burjuman will see its retail space increase a further 20% to reach 1 million sq ft and will add a new Carrefour hypermarket, a cinema multiplex and a doubling of its food court.

On the subject of food, the largest Cheesecake Factory in the world has opened in MoE. As Dubai and most of the developed countries are becoming increasingly obese this is just what the doctor ordered! Market analysts expect the UAE restaurant market to surge 30% to US$ 780 million by 2015 and there is no surprise in the news that American brands account for 47% of all food and beverage outlets in Dubai malls.

Fairmont the Palm became the first of many new hotels to be opened in 2013. Located on Palm Jumeirah’s trunk, the 5-star property, costing US$ 330 million with 380 rooms and 460 metres of beachfront is part of a project that also includes a further 560 luxury apartments. The Fairmont will be seen as a premium location and will have room rates at the top end of the market – well in excess of the October average room rate of US$ 476 for beachfront hotels.

A recent report showed that the UAE currently has over 20k hotel rooms under construction at 2012 year end. Latest figures (October 2012) indicate a 17.3% jump in Dubai’s hotels’ RevPAR and a 5% spike in occupancy rates.

Despite the optimism in this sector, there are still some projects on hold including the likes of Jumeirah Hotel in DMC, the Creek’s Palazzo Versace and the Palm’s Oceana and Royal Amway hotels.

January is traditionally a great month for the emirate’s hotels which will be further boosted by the DSF and numerous exhibitions. This month alone, Dubai World Trade Centre expects at least 150,000 trade visitors attending the likes of Arab Health, the world’s second largest health care exhibition, Arabplast, Tekno Tube Arabia, Intersec and Aircraft Interiors ME. February and March will see larger exhibitions with even more visitors boosting the local economy. It is estimated that the DWTC adds almost US$ 1.8 billion to the Dubai purse, accounting for 2.1% of its GDP.

The emirate’s largest private developer, Damac, is offering prospective customers “free” Audi cars if units are purchased during the Dubai Shopping Festival. Penthouse buyers will be entitled to an R8 (valued at US$ 136k) with A8s, A6s and A4s on offer for 3, 2 and I bedroom apartments respectively.

The second phase of the government’s US$ 380 million Barsha housing project has been completed on time. This is part of HH Sheikh Mohammed bin Rashid  Al Maktoum’s initiative  to ensure that all his citizens live in a secure and comfortable environment. With almost 80% of the work now finished, the final completion is slated for September 2014.

Two of the bigger Dubai-based contractors, Brookfield Multiplex and Arabtec, were awarded major contracts. The former was on the receiving end of Emaar’s new 72-srorey, Address Hotel, with 200 rooms and 523 serviced apartments. At 370 metres, it will become the second tallest structure in Dubai when completed in 2015. The Canadian company – with an Australian background – has already built several iconic landmarks including Emirates Towers, the Standard Chartered Gate Building and DIFC Gate Building as well as several Marina developments. Arabtec were awarded a US$ 650 million contract for the Jean Nouvel- designed Louvre Abu Dhabi.

Nakheel is slowly extricating itself from its financial mess arising from its “cloud-building” exercises pre GFC. This week it issued a US$ 33 million Islamic bond, being the third tranche of a sukuk that is part of its August 2011 US$ 16 billion restructuring plan. There is still plenty of work to be done to return the developer to some form of financial normality.

DEWA expect to spend a little more this year with expenditure up under 2% to US$ 3.76 billion. 90% of the spend (US$ 3.4 billion) will be operational expenditure that will help maintain electricity and water production capacity higher than the 2012 levels of 9,646 MW and 470 MIGD respectively. To pay for some of these projects, as well as to refinance existing debt, the utility provider is planning a Q1 Islamic bond issue in the region of US$ 1 billion.

Another Dubai entity seeking additional finance is Emirates Islamic Bank (EIB). The bank’s capital base will be raised to US$ 1 billion as it issues 1.5 billion Dhs 1 shares with a rights issue.

It seems likely that the Islamic home finance provider, Tamweel, will be taken over by Dubai Islamic Bank who already hold 58.2% of the shares. The offer price would see 18 Tamweel shares being swapped for 10 DIB scrip with shares in the former valued at US$ 0.61 and the latter at US$ 0.34.

The local bourse has started the year on fire with a YTD 6.24% rise in the first ten days of 2013; on the week it is 3.66% up having ended the Thursday session on 1756 and a massive 31.03% over the past 52 weeks.

Another indicator on the growing strength of the local economy was Germany’s BMW’s announcing a record 21,300 vehicles being sold to ME customers in 2012. Of this total, the UAE accounts for nearly 50% of the market with sales in excess of 10k units.

Although the German car industry is ticking over, it seems that country may be edging closer to a recession with the latest quarterly results the worst in four years. There is no doubt that Germany is being dragged down by its poorer  eurozone partners. Unemployment rates in the bloc rose to their highest ever level of 11.8% or 18 million. Worse still was the youth unemployment rates in places like Spain and Greece where they currently stand at 56.1% and 57.6%!

The UK’s economy has yet to recover the level it was at four years ago, pre GFC, and there are distinct possibilities of a triple dip recession in 2013. Eurozone’s PIGS all have debts as a percentage of GDP ratios of over 100% whilst the UK’s 86.3% is a worrying sign. Japan fares even worse with a rate of 212% – second  in the world behind Zimbabwe!  It is no surprise that, with Prime Minister Shinzo Abe facing general elections in July, the government has introduced a US$ 110 billion stimulus package  in a belated attempt to end deflation and boost growth.

It can only be Dubai with Starbucks’ announcement that it had opened a 24 hour drive in on Beach Road for its customers. It proves that the coffee chain is making life less taxing for its patrons just as it does for itself in the UK. This is their 103rd opening in the UAE – a country that drinks the equivalent of 3.5 kg of coffee annually – twice as much as any other GCC nation. One More Cup of Coffee for the thirsty Dubai populace.

Posted in Finance | Tagged , , , , , , , , , , , , , , , , | 1 Comment

Simply The Best

Posted on January 6, 2013 by howesdubai

Burj-Khalifa-New-YearDubai’s 2013 budget hopes to cut its annual deficit by 18% to less than 0.5% of GDP with Revenue expected to rise by 7.8% to US$ 8.9 billion and Expenditure up 6.0% at US$ 9.3 billion. It is not known what vehicle the government will use to finance this deficit of US$ 400 million.  39% of spending will be payroll-related, which includes an additional 1,600 jobs for Emiratis as part of the drive to put more locals into employment.

A recent FT survey yet again places Dubai as the region’s top destination accounting for 30% of all the ME’s DFI (direct foreign investment). There is no doubt that it has been helped by its superb infrastructure, Jebel Ali Port and Emirates.

04 January will not only be the 7th anniversary of HH Sheikh Mohammed bin Rashid becoming the Dubai ruler but it will also see  the completion and opening of the upgrade to the Al Khail Road. Costing US$ 517 million, with new flyovers and 8 line highways in some places, it is situated between SZR and Emirates Road. Indeed, with possible congestion on SZR over the next eighteen months – caused by the expansion of Dubai Creek through Jumeirah – Al Khail Road takes on added significance.

Dubai will continue developing its roads and infrastructure in 2013 and the RTA is expecting to spend US$ 1.7 billion with US$ 820 million and US$ 880 million earmarked for its operational and capital budgets respectively. Of the total, 34% (or US$ 580 million) is for the Traffic & Roads Agency.  An 11% increase in forecast Revenue will help defray some of the costs.

The quay wall extension at Jebel Ali Port, an integral part of its 1 million TEU (20’ equivalent container units) expansion, has been completed. With an additional extension of 400 metres to 3,000 metres, the facility will be able to cope with handling six 15,000 TEU mega ships at the same time and is due to open in Q2 2013. At the end of September, the port had posted a 4.6% increase to handling almost 10 million TEUs.

Having splashed out a record amount to extend shirt branding of Arsenal FC through to 2019 and naming rights to the stadium until 2028 (thankfully they have started winning again), Emirates is now the official airline of the men’s tennis tour for the next five years. Last February, it also signed a seven year US$ 90 million deal to be the title sponsor for the US Open and nine other US tennis tournaments.

At the end of 2012, it seems likely that Emirates will become the world’s second biggest airline, overtaking Delta, but still well behind United which merged with Continental last year. Local “rivals”, Qatar and Etihad, are ranked 17th and 28th respectively. Meanwhile Dubai Airport came in as the 5th biggest airport in terms of seats per week. Its 1.6 million was just behind Heathrow’s 1.7 million and not far from the biggest airport, Atlanta’s Hartsfield Jackson with 1.9 million. Interestingly, no other ME airport made the top 50.

As recent blogs have indicated, there has been tremendous growth in the UAE’s non-oil trade figures, expected to reach almost US$ 1 trillion this year with a 15% 2012 growth projected and next year will be along the same lines. UAE free zones, with a 20% increase, accounted for US$ 120 billion of the total. In the latest available figures, 46.2% of trade was with non-Arab Asian countries whilst the EU, Americas and GGC trailed behind with 21.5%, 9.3% and 9.2%.

The last week of the year started with claims and counterclaims as Qatar Airways filed a US$ 600 million suit against the Dubai / German JV Lindner Depa. The reason claimed for the legal dispute was that LDI failed to complete the construction of 19 airport lounges at the new US$ 15.5 billion Doha Airport putting back its opening a year to H2 2013. This in turn affected the airport’s expansion plan and inconvenienced the 20 million passengers – 80% of which are flown by the national carrier.

This was followed by LDI’s statement to Nasdaq Dubai (Depa is one of only two companies listed on that bourse). It indicated that the Qatari claim was false and misleading and, whilst being deeply disappointed by the allegations, it rebutted all claims.

Reports that certain properties in the Downtown area have seen prices increase by up to 10% in Q4 alone (and 25% in 2012) may well have sounded the alarm bells about the possibility of the start of another asset bubble. But those fears were quickly put to rest by the shock Central Bank announcement that banks have to cap mortgage lending for expatriates to 50% of the property’s value. Although it should stop the perennial flippers and speculators in their tracks, it will come as disappointing news to the genuine investor / buyer and could have a negative impact on other realty stakeholders, including developers and agents.

One wonders what hit the construction sector will take and what impact it will have on the Dubai economy. In 2011, the industry accounted for 10.3% of Dubai’s GDP with a total construction project value of US$ 86.9 billion – way ahead of Saudi Arabia’s US$ 59.6 billion.  With over 80% of the population expatriates, it is hard to see where most of those, who would normally buy property, will access their money.

Despite this shock, Nakheel is going ahead with a self-financing US$ 136 million project for 381 villas in Jumeirah Park. This is a major step forward for a developer that reportedly had to write off assets, valued at US$ 21.4 billion after the last bubble burst in 2008. It is estimated 50% (or 4,500) pending units have already been handed over, with the balance slated for completion by the end of 2013.

Nakheel’s iconic Palm Jumeirah has received a boost with DEWA set to spend US$ 16 million to extend, by 3 km, a water transmission network from the island’s trunk to the crescent of the Palm. Completion is expected within eighteen months.

Contrary to earlier reports it seems that expatriates will not be immune from criminal charges in relation to bounced cheques. The new Presidential directive applies only to nationals and includes decriminalisation of such cheques presented by UAE citizens.

On the political front, the Syrian tragedy continues but this will be resolved one way or another in H1. The troubled relations between Japan and China will not go away and this will deteriorate even further this year. As North Korea becomes less isolationist, it will look for ways to improve their political and economic relations with the rest of the world. Nearer home, Egypt’s political impasse will drag on to the detriment of any meaningful economic progress.

Dubai has two stock markets. Nasdaq Dubai has only two listed stocks – DP World which ended 20.8% up on the year at US$ 11.73 whilst troubled Depa Limited closed 16.7% down at US$ 0.35. The Dubai Financial Market Index ended 2012 on 1623 points – a very credible 19.89% up on the year. It performed a lot better than most other global bourses such as Australian All Ords – 14.6%, Dow Jones – 7.3% and London FTSE – 5.84%.

Although the global economic climate remains bleak, the DFMI should continue its upward trend and could well break through the 1700 point level in H1. If anything, gold and silver did not perform as well in 2012 as some pundits had forecast. Gold stood at US$ 1,673.59, having risen 6.96% in 2012 but is now likely to test the US$ 1,800 level over the medium term. Having ended up 8.28%, at US$ 30.12, on the year, silver is expected to reach US$ 33.00 over the same time frame. (The almost daily volatility of these two metals may lead some to think that a little market manipulation may be occurring).

Over the past four years, Brent Crude has seen 3.78%, 13.35%, 21.27% and 65.82% rises and ended 2012 at US$ 111.27. It is hard to see oil trading over US$ 95 come the beginning of Q2 – unless, of course, there is some major catastrophe. Longer term, the price is set to drop quite significantly when new drilling technologies – including fracking – take effect. The world may become a different place if – and when – the US becomes the world’s top oil producer.

On the local front, property prices, in prime locations, will continue to rise – albeit at a slower rate whilst there will be more worrying news for tenants with annual rental increases of around 8% in the offing. Emirates will once again stun the aviation world when their annual results are released in April. Consequently both Dubai Airport and Dubai Duty Free, riding on the airline’s coattails, will continue announcing record figures – 60 million passengers and Revenue of US$ 2 billion in 2013 are not out of the question for these two entities.

If the world were not in such an economic mess, Dubai would grow at a faster rate than the predicted 4% for this year. Inflation will rise but will be still low on global comparisons. The hospitality sector will remain buoyant with 80%+ occupancy and RevPar rates nearing US$ 300. Whether the banks do anything about reducing their high provision rates for non-performing loans is problematic but these still continue as a millstone for local SMEs. The emirate’s government related companies will have no problem with US$ 9.4 billion bond repayments due this year – 2014 is another issue.

The eurozone is set to sink even further; do not be surprised to see turmoil in the markets and civil unrest on the streets of Greece, Spain, Italy and even France. The UK economy is expecting little growth following a double dip recession. When the IMF predicts Germany as one of its 20 worst performing economies, the Europeans portents look bleak indeed.

Elsewhere the BRICs are being superseded by the MICKS. Whilst China still remains an integral part of any possible recovery in 2013, the inefficiencies and corruption levels in the other three countries mean that they have been replaced by Mexico, Indonesia, Korea (South) and Southern Sudan. These countries have great growth prospects in the coming year.

The political lemmings in the US have avoided falling over the cliff – but the reprieve is only temporary. The huge debt problem is the main danger to the economy and there has to be some sort of bipartisan agreement to rein in that government’s US$ 16.4 trillion. Expect some more drama and show-boating by the end of February.

The Dubai Shopping Festival opens on Friday and has the tagline – “Dubai at its Best”. New Year’s Eve saw the emirate put on the world’s greatest fireworks display, watched by one million in the Down Town area and over a billion around the world. If Tina Turner had sung “Simply the Best”, nobody here would have argued.

Posted in Finance | Tagged , , , , , , , , , , , , | Leave a comment