News Analysis: UAE benefits from Arab world's political woes
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E-mail Xinhua, December 23, 2012
The economy of the United Arab Emirates (UAE) continued to benefit from political woes in the rest of the Arab world, but the upswing may face some hurdles in 2013.
The year 2012 was a watershed for the seven emirates comprising UAE, a major Arab oil exporter. The International Monetary Fund ( IMF) expects the UAE of having achieved a real GDP growth of 4 percent in 2012, driven by constant high oil prices, a revival of the once shattered real estate markets in Dubai and Abu Dhabi and a boom in tourism, trade and logistics.
For 2013, however, Masoud Ahmed, the IMF's director for the Middle East and Central Asia region, sketches a less optimistic picture, as he expects growth to decline to 2.6 percent, citing " difficult global environment." The ongoing Euro zone debt crisis and sluggish U.S. economic recovery are poised to weigh on both oil- and non-oil sectors.
At the same time, UAE courts are still overloaded with cases from the real estate crash during the Great Recession. Despite the economic pickup, not a single UAE firm has newly listing its share at the local stock markets since 2008. Meanwhile, de-leveraging and restructuring continue among the 23 local banks.
The UAE's largest lenders Emirates NBD and National Bank of Abu Dhabi are even back in the expansion mode. On Dec. 20, Emirates NBD bought French lender BNP Paribas for 500 million U.S. dollars. In addition, both banks opened their first offices in mainland China in order to benefit from increased trade relations between Beijing and Abu Dhabi. Over the last 10 years, trade between both countries grew five-fold to hit 15.6 billion dollars in 2012, said UAE minister of trade Sheikha Lubna Al-Qassimi at Dubai's Annual Investment Forum on May 7 this year.
INVESTORS, TOURISM SECTOR TOP GAINERS
The turnaround was most visible in the stock markets and in the real estate sector. Mirroring the new boom, the two local stock markets in Dubai and Abu Dhabi posted the largest advances among Gulf Arab countries, edging up by 18 percent and 8.8 percent, respectively. In Dubai, villa prices rose by 23 percent fuelled by rising demand from foreign investors, according to Dubai-based real estate service firm Asteco. In Abu Dhabi, the largest developers Aldar and Sorouh are on the way to seal a merger in order to consolidate the UAE capital's development.
Abu Dhabi, managed to cash in on energy revenues and stepping non-oil business. In a milestone act to reduce the Gulf state's reliance on oil and gas, UAE president Sheikh Khalifa Bin Zayed Al Nahyan inaugurated the new Khalifa Port near Abu Dhabi on Dec. 11, capable of handling 2.5 million tons of cargo by 2014, and 35 million tons of cargo upon completion in 2030. UAE prime minister and Dubai ruler Mohamed Bin Rashid Al-Maktoum (MBR) ordered on Nov. 25 the construction of a new "city with the city" in Dubai. Named after him, MBR city shall host the world's largest shopping mall ( which Dubai already has with the Dubai Mall). THIRST FOR WORLD RECORDS
Amid its never-ending thirst for achieving world-records, Dubai opened recently the world's tallest hotel, the 354.7 meters high JW Marriott Marquis. The twin-tower resort replaced the 333 meters tall Rotana Rose Rayhan, also located in Dubai, from the world's pole position.
The UAE's strength is firstly based on the weakness of some countries in the Middle East and North Africa (Mena). Due to the ongoing turmoil in Syria, Egypt and partly in Lebanon, Yemen, Bahrain and Iraq, the UAE played its card as a stable, well- connected business hub to the maximum this year.
The emirate of Dubai has clearly won another year as the Mideast's leading conference and political summit center. Dubai hosted the World Energy Forum on Oct. 22, when this day was declared World Energy day. The "gateway to the Gulf" also welcomed the region's largest congresses on medicals and hospitals on information technology and on the construction and real estate industry. Dubai's role as a meeting point was crowned in from Dec. 3 to Dec. 14, when the International Telecommunication Union, a UN- agency, held its first general assembly since 1988 and the majority of states agreed on a new telecom treaty.
The UAE's three largest airports in Dubai, Abu Dhabi and Sharjah are on the way to hit a combined capacity of 80 million passengers, according to projections by the UAE General Civil Aviation Authority.
Meanwhile, Dubai's new airport Dubai World Central opened in December for civil aviation. Once fully operational, DWC aims to become the world's largest by hosting 150 million passengers per year.
The Emiratis hope for more. In November 2013, the Paris-based Bureau of International Expositions will decide if Dubai will be host city for World Expor 2020 for which it applied and competes with Sao Paulo, Izmir in Turkey, Russia's Yekatarinburg and Ayutthaya in Thailand. Dubai also thought loud of applying for winning the Summer Olympics in 2024.
NOT RISK-FREE BOOM
UAE state-owned firms paid off, prolonged or restructured some 30 billion dollars of debt in 2012, and new bonds issued were received positively by international markets. However, the dangerous unrest in the UAE's neighborhood prevents some industry sectors from jumping on the bullish bandwagon. While being connected to the world feeds hospitality and trade, the new optimism is only moving parts of the banking, construction, real estate and retail sector upwards.
In the first nine months, the 23 local UAE banks earned a tiny 2 percent more than in the same period last year, central bank figures reveal. "The ongoing turmoil in some Arab countries curtails banking growth in the region", said Sjoerd Leenart, chief executive of U.S. investment bank of J. P. Morgan for the MENA region.
While commodity markets like the Dubai Mercantile Exchange (DME) and the Dubai Gold Commodities Exchange celebrated new trading records in 2012, trading volumes at the stock markets DFM in Dubai and Abu Dhabi's ADX remained moderately low.
Foreign banks are squeezed from two sides, regional turmoil and the Euro zone and U.S. debt crisis. Global banks like Citigroup, UBS, Credit Suisse, BNP Paribas announced cutting some 30,000 staff altogether worldwide which also affected headcount in the Gulf Arab region redundancies (albeit on a low level).
The ongoing uncertainty has already taken its toll on capital markets. On Dec. 18, Dubai-based family-owned conglomerate Al- Habtoor, valued at 6 billion dollars by auditing firm Grant Thornton, called off plans to go public on the NASDAQ Dubai in spring 2013, citing a lack of price expectations for the IPO.
The sluggish capital market activity triggered the UAE's oldest investment bank Shuaa Capital in Dubai to announce a complete revamp of its business model. Shuaa executive chairman Sheikh Maktoum Hasher Al-Maktoum unveiled on Oct. 1 a new strategy of the once sparkling investment bank, whose share price almost halved since March 2012 and has been trading around half a Dirham (that's barely 14 cents) since Dec. 1.
According to Ernst and Young, Islamic finance will reach the mark of 1.8 trillion dollars globally. 2012 was the best year for newly Islamic bonds, known as sukuk. Worldwide, sukuk issuances reached 121 billion dollars this year.
In addition, the absence of an internationally compliant bankruptcy law prevents banks and entrepreneurs alike to restructure entities. When a debtor pays by check and the check bounces due to insufficient fund on his account, his act is still considered a criminal offense and indebted entrepreneurs and private people usually are jailed until settling their outstanding debt. According to Fahad Al-Raqbani, the director general of the Abu Dhabi council for economic development, a new law that ensures private people or firms can restructure debt without being labeled criminal is under review by the Federal National Council (FNC), the UAE parliament which has an advisory role to the government.
On the international front, the FNC strongly denied accusations by the European Union (EU) Parliament that human rights were on the retreat in the UAE. The EU referred to the arrests of some 60 people, foreigners and nationals, whom the UAE blamed of working for the Muslim Brotherhood, the religious party which is banned in the Gulf state but whose candidate Mohamed Morsi was elected president in Egypt in June this year.
Regarding foreign relations, the UAE continued to keep an intelligent balance in its foreign affairs. Abu Dhabi strengthened relations to its former protection power UK, who's prime minister David Cameron paid a visit to the Gulf state on Nov. 6 in order to push for the sale of 60 UK-made Typhoon fighter planes, as well as to the United States. Washington increased bilateral trade relations with the UAE since the West under U. S. guidance stepped up financial and trade sanctions against Tehran in order to force Iran to give up its uranium enrichment program, weighing on economic relations between the two Gulf states.
With the newly installed oil pipeline from Abu Dhabi to the port of Fujairah, the UAE's most Eastern sheikhdom, the Gulf state became able to pump oil to world markets circumventing the Strait of Hormuz which Iran frequently threatened to close if Israel would attack its nuclear facilities. As the danger of a war in the Gulf is still eminent, the UAE's economy could be dragged down in 2013.
EAST MEETS EAST
At the same time, the UAE continued spreading its wings to the East. The go-east-trend was most visible when China's outgoing premier Wen Jiabao paid a landmark visit to the UAE from Jan. 16 to Jan. 17 during the World Future Energy Forum in Abu Dhabi.
"So far, relations between China and the Gulf states were based on oil deliveries from Arabia," said IMF's Ahmed. "But now both sides expand their ties on nearly all fields of products and know- how transfer." Some 200,000 Chinese nationals live in the UAE and some 3,000 firms from the Middle Kingdom reside here.
Because the International Energy Agency (IAE) forecasted recently that the United States will produce sufficient oil and gas for its own needs until 2020, Deutsche Bank Co-CEO Anshu Jain said on Nov. 21 at the Dubai International Financial Center conference that his bank expected the Middle East and the Far East to move even more close together in the future.
Dubai's oil futures exchange DME jumped on the Sino-Arab bandwagon when it appointed Christopher Fix as CEO in September, an American commodity expert who speaks Mandarin fluently. In November, average daily volumes in the window reached 1,696 contracts, a 4 percent increase on the previous record (1,636 contracts traded in October 2012). At the crossroads between Europe and Asia and with a crude oil futures contract "that reflects the economics of the Asian region like no other, DME is the only credible price formation venue for sour crude oil destined for the East of Suez," said DME CEO Fix.
Other Asian states also intensified their operations in the Gulf. Korea Electric Power or KEPCO started with the construction of four nuclear power plants for 20 billion dollars in the Baraka West of Abu Dhabi. Until 2030, nuclear energy shall provide 25 percent of the UAE's power needs. Endi
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