Is the UAE mired in an economic whirlwind?
Economic data alone doesn’t paint a country’s full picture of health, but it does point to areas where weaknesses need to be addressed.
Dubai is a growing city with a population continuing to expand, by 3.5% to 3.08 million in the first half of 2018, according to Reuters.
But in UAE’s case, the numbers tell a story of slowdown within a mixed bag of feel-good signs, but surely the pressure is on with Saudi looking to draw investors’ attention its own way as the country grapples with its own set of financial challenges.
Reuters pointed recently to Dubai’s upscale Jumeirah Beach Residence district rents there falling about 15% yoy as a sign that the UAE’s recipe for economic success is getting stale.
“Residential property prices have dropped by more than 15% since late 2014 and are still falling,” says Reuters.
Cavendish Maxwell said average residential property prices registered a year-on-year decline of 2% in the first quarter of 2018, while rents declined by up to 5% in some areas.
In Q1 2018, apartment rents in Dubai fell 6.5%yoy while villa rents plunged 10.2%, according to real estate experts Jones Lang LaSalle (JLL).
Also, off-plan transaction volumes and the overall number of transactions fell almost 28% from the previous quarter.
But demand for luxury rental properties in Dubai spiked in Q2, according to a new report from Luxhabitat.
“Secondary residential market transactions in Dubai remains stable in the second quarter of 2018, with a total volume of $3.3bn, compared to $3.9bn in Q1,” says Luxhabitat.
With regards to rent, Ryan Kasper Luxhabitat’s rentals director noted that while rental prices continue to fall across Dubai, a “considerable demand for high-end, luxury rental properties has spiked.”
Stock Market and FDI
The stock market is down 13% this year, the worst performance in the region, according to Reuters.
The Dubai Financial Market posted an 8% decline in 2017 profits and a 13% drop in trading value to $31.3 bn.
But DFM also announced a net profit of $63.4 million for 2017 on revenues of $115 million, albeit down 8% compared to the previous year.
Essa Kazim, chairman, said: “The DFM maintained its attractiveness as the market of choice for companies looking to list their shares whether through IPOs or as a dual listing.
“The exchange is well positioned to attract more potential future IPOs.”
He said the market attracted more than 6,000 new investors in 2017 and net investments of foreign investors reached $340.6 billion.
A recent ADCB report said foreign direct investment (FDI) is forecast to reach $10.9 billion in 2018, a 4.8% increase over $10.4 billion a year earlier, but less than an 8% yoy in 2017 and a 9% rise in 2016.
But Reuters in February reported that 46% of funds now expect to raise their allocations to the Saudi stock market in the following 3 months and none to reduce them, quoting a poll of 13 leading managers.
“In coming years, direct investment may follow; U.S. oilfield services firm McDermott International has said it expects to move business slowly from Dubai’s Jebel Ali Port to a new Saudi facility by the mid-2020s,” said Reuters.
According to the Wall Street Journal, Saudi is ramping up efforts to lure international companies after foreign investment fell to a 14-year-low in 2017.
The latest UNCTAD World Investment Report, published on June 7, said foreign direct investment (FDI) into Saudi Arabia last year amounted to just $1.4 bn, down from $7.5bn the year before and as much as $12.2bn in 2012, as reported by Forbes.
Saudi moves include plans to create two investment funds totaling over $18 billion for the government to enter into ventures with foreign companies, said people familiar with the matter.
Dubai issued 4,722 new business licenses in the second quarter of 2018, down 26% from the same period in 2016, the year when new licenses peaked, said Reuters.
The Department of Economic Development (DED) in Dubai said it issued 1,185 new licenses and concluded more than 19,850 transactions in June.
Renewal transactions reached 11,043 during June 2018. Automobile renewal of licenses saw a steep increase, with 5,314 transactions, while 919 were related to commercial permits.
62% of licenses were commercial, and 35.6% professional.
Growth in passenger traffic through Dubai’s international airport (DIA) has fallen to near zero this year, after 15 years of strong increases, said Reuters.
“Increasingly long-range aircraft may loosen Dubai’s dominance as a travel hub connecting Asia and Europe,” it added.
DIA is the world’s busiest for international traffic and received just 1.1% more passengers during the first quarter of 2018 after seeing a slowdown in growth last year, according to Dubai Airports (DA).
“The emirate’s aviation hub saw 5.5% passenger growth in 2017 to 88.2 million, the lowest increase in nine years,” said DA.
But DA expects passenger traffic to grow 2.4% this year to 90.3 million.
According to the ADCB report, credit card spending on consumer goods fell around 5% yoy in Q1 2018, as reported by Gulf News, leading to a slower growth rate in the consumer spending index of just 7% in Q1, 2018 compared to a nearly 12% rise a year earlier.
Inflation in Abu Dhabi is forecast to top 3% in Q3 2018, according to the Statistics Centre-Abu Dhabi.
“Consumer prices in June rose 3.3%, compared with 1.8% for the same month a year earlier, the authority said on Sunday.
In the first six months, the inflation rate reached 3.6%.
The UAE central bank projects consumer prices to moderate to 3.5% this year and 2.5% next year.
The International Monetary Fund (IMF) estimates UAE GDP growth to reach 3% in 2018.
“The emirate continues to attract businesses and investors as a competitive hub for sustainable business development,” Dubai’s DED said in a recent statement.
But much of this year’s growth is due to a big rise in state spending, according to Reuters, “as Dubai builds infrastructure to host the Expo 2020 world’s fair.”
“The 2018 budget soared from 2017 to a record $15.4 billion but the government cannot keep boosting spending at that speed indefinitely.”
The pressure is also on UAE’s exports and re-exports to Iran, which totaled $19.9 bn in 2017, but an economic alliance with the US which imposed sanctions on the Persian country now threatens future UAE trade with Iran.
Better times ahead
Dubai is trying to shore up its competitive position.
“In the last few months the government has said it will reduce municipal fees, scrap some aviation charges, freeze school costs and take other steps to aid foreign firms and residents,” said Reuters.
The most far-reaching reform was to permit 100% foreign ownership of some UAE-based businesses, up from the current 49% limit, and grant long-term residency visas of up to 10 years to foreign investors and some professionals.
A recent report by rating agency Moody’s Investors Service warned that the UAE’s main credit challenge remains its “fiscal reliance on hydrocarbons.”
Oil revenue represented 42% of total government revenue in 2017, compared to 70% in 2014, according to the report.
Th good news is that the price of oil has recovered to swing between $70-$80 per barrel.
Also, the UAE expects its non-oil bilateral trade with China to rise more than 9% this year and reach $58bn, said UAE economy minister Sultan Al Mansoori.
Chinese investments in the UAE are also expected to increase after reaching nearly $3bn in 2017.
Analysts at the Institute of Chartered Accountants in England and Wales (ICAEW) said the UAE’s GDP growth would bounce back to 2.6% in 2018 after a difficult 2017 when growth slowed to a seven-year low to 1.5%.
Last month, the UAE Central Bank of the UAE lifted its growth forecast for the country’s non-oil GDP to 3.9% in 2018 from 3.6% on the back of improving domestic economic activity and better prospects for the global economy.
Q2, 2018 witnessed a major announcement by Sheikh Mohammed Bin Zayed introducing a $13.6bn economic stimulus package for Abu Dhabi to drive economic growth, outlines JLL’s latest report.