Dubai and Northern Emirates Economy

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1 CONSULATE GENERAL OF THE REPUBLIC OF KOREA IN DUBAI

Dubai and Northern Emirates Economy

Weekly Report ≠ 02/2017

Period covered: 05 to 11-Jan-2017

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NEW PROJECTS

New resort and waterpark for Deira Islands

Nakheel and Centara Hotels and Resorts signed a joint venture agreement yesterday to build a 550-capacity, $136 million (Dh500 million) waterfront property on Deira Island. The resort, set to include a waterpark, pairs the Dubai-based developer with the Thai hotel group for the first time.

It will cover an area of 295,900 sq.ft. with features including a waterpark, dining facilities, business centre, children’s club, spa and fitness centre.

The resort will reportedly open in 2020. However WAM has stated that “the resort is anticipated to have a soft opening in 2019 and its grand opening in 2020.”

NON-OIL SECTOR

General overview:

The UAE’s non-oil economy is expected to reach a growth rate of 4.6 per cent by 2020, partly thanks to robust investment programmes, particularly in infrastructure, said the Minister of Economy.

UAE approved last year a Dh248bn federal budget for the next five years, with a prime focus on education, social development and health, as the country bucks the regional purse-tightening trend. "Deficit-financed public investment raises demand and private-sector productivity. That raises growth, which generates higher income and tax revenue. That in turn creates fiscal space, helping resolve the long-term budget concerns. In contrast, a fiscal austerity agenda could transform that pattern into a vicious circle," the Minister of Economy said. "Thus, fiscal austerity would lower public investment, thereby lowering growth, reducing fiscal space and compelling more fiscal austerity."

Overall growth in the UAE is forecast to recover to 2.5% this year, after falling to 2.3% last year, according to the IMF.

Meanwhile, the inflation rate in the UAE is forecast to fall to 2.7% this year, from a projected 3.2%

last year, the minister said. The rate stood at 4.1% in 2015.

The ministry is also working on boosting the participation of small and medium-sized enterprises in the economy and is working on various laws, such as the investment law, to help attract more foreign direct investment to the country, the minister said.

Dubai:

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4 Dubai unveiled last month a Dh47.3 billion budget for this year to create thousands of jobs.

The construction sector will receive a major boost from a 27% increase in infrastructure spending as the emirate prepares for Expo 2020.

The budget shows a 3% rise in overall expenditure, while revenues will be lower because of the restructuring of the budget. It anticipates a deficit of Dh2.5bn, representing 0.6% of GDP.

Sharjah

Sharjah is ready to tackle the new year head on, with four sectors having been identified as key to the emirate's growth; namely transport and logistics, the environment, tourism, and healthcare. These areas are expected to receive a huge boost with the funds available from the emirate's record-breaking 2017 budget, of which 30% has been allocated to infrastructure and 41% to the economic development sector.

Sharjah has approved a record Dh22bn budget for this year, with spending on infrastructure increasing by 7% from last year and representing 30% of the total.

Sharjah’s overall expenditure this year will be 3% higher than in 2016, while its revenue will increase by 7% compared with last year.

Sharjah's foreign trade is valued at Dh9.54 billion in 2005 and Dh42 billion in 2013.

In 2015 the market size for Sharjah's tourism sector reached Dh1.2 billion and was on progress to hit Dh1.5 billion by the end of 2016.

Energy

UAE energy strategy

The new energy strategy, announced in the presence of Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai, aims to increase the contribution of clean energy in the total energy mix to 50 percent, thus saving AED700 billion by 2050. It also seeks to increase consumption efficiency of individuals and corporates by 40 percent.

Sheikh Mohammed bin Rashid said the UAE Energy Plan for 2050 is targeting an energy mix that combines renewable, nuclear and clean energy sources to meet the UAE’s economic requirements and environmental goals. He also said that the UAE aims to invest Dh600 billion by 2050 to meet the growing energy demand and ensure sustainable growth of the country’s economy.

The energy equation targeted by the 2050 strategy is as follows: 44 percent clean energy, 38 percent gas, 12 percent clean coal and 6 percent nuclear.

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5 The strategy also aims to change the energy consumption culture through slashing residential energy consumption by 40 percent.

The new energy strategy will be implemented in three phases. The first phase aims to accelerate efficient consumption of energy as well as diversifying and securing it.

The second phase will find new solutions that integrate with energy and transportation solutions.

The third phase will focus on research and development in addition to innovation and creativity to supply sustainable energy.

3rd Emirates Energy Award

In their efforts to build a Green Economy, the Dubai Supreme Council of Energy, DSCE will hold

the 3rd Emirates Energy Award, EEA 2017 in Oman under the theme ‘Innovative Solutions for Clean Energy’.

The Award aims to nurture innovative practices in conserving energy and encouraging clean energy in public and private sectors alike. It also serves as a unique platform to exchange ideas, insights and solutions that contribute to reaching new solutions and methods to achieve sustainable development in clean energy, environment and water to ensure a sustainable and safe future for us and for generations to come.

Microsoft HoloLens

Dubai Electricity and Water Authority (DEWA) has adopted the Microsoft HoloLens to enhance its operations.

DEWA will take advantage of HoloLens to visualize their Smart Power Plant, provide interactive 3D models for the plants’ equipment, and remote expert assistance; including access to maintenance job cards, equipment, training manuals, and other operating procedures.

The HoloLens will enable DEWA to obtain virtual estimations, relating to the remote maintenance of the smart power plants. This ensures faster technical decision making, and helps DEWA manage future demand, while improving energy efficiency and reducing power consumption.

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Construction

The UAE Projects Market performed badly in 2016 unlike previous year. It registered a net loss of

$11bn.

Real Estate Dubai

A surge in off-plan sales in the second half of the year made sure Dubai’s property market did not see a steep decline in transaction volumes in 2016 compared with the 2015 tally. Based on Reidin-GCP data, overall freehold transactions closed 2016 with 23,579 units against 2015’s 24,326 — a dip of only 2.3 per cent.

In both November and December, more than 2,000 — this includes off-plan and ready — units apiece were sold, with the final month tallying 2,445 units. (June saw the highest sales tally, of 2,495 units, as per the data.) These had their impact in the overall value generated by freehold property sales through last year. The Reidin-GCP data estimates Dh18.04 billion in off-plan units being sold against 2015’s Dh20.18 billion. That amounts to a 11 per cent decline as against the 21 per cent experienced by ready properties — Dh18.22 billion from Dh23.12 billion in 2016.

At the half-way mark last year, it was felt that the downturn would exact a heavy toll on off-plan buying activity, as secondary market values kept dipping and a tight economy made it difficult for potential buyers to commit. Developers with ongoing projects were going slow with project schedules, expecting this would slow down new supply hitting the market and remaining unsold.

The thinking then was why should developers take on more off-plan launches and add to the uncertainty.

But everything changed around the time of Cityscape 2016, when Dubai’s leading developers started aggressively going after mid-market options rather than stick with only luxury. By targeting mid-market in new or emerging locations, they were able to bring down the average selling price across the board, including for ready properties and those available in the secondary market.

2017 expectations

JLL forecasts 31,000 units to be readied this year in Dubai and Abu Dhabi likely to see about 7,000 new homes.

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7 But this comes with a caveat: “Based on the historic materialisation rate of 35 per cent, we expect actual deliveries to be lower than those announced,” the JLL report states.

While property values have stabilised in Dubai, going by data from the second-half of last year, Abu Dhabi still has some way to go before it does so.

On the office realty side of things, the delivery pipeline in Dubai remains fairly strong. The JLL report estimates completion and handover of 129,000 square metres of leasable office space last year, which brings the city’s total office stock to 8.55 million square metres.

This year is expected to record delivery of “approximately 300,000 square metres of office space.

Sharjah

Rents in Sharjah’s residential and commercial property markets have fallen for a second year in a row, increasing tenancy options in the emirate, according to real estate consultancy Cluttons.

The Cluttons Winter 2016/2017 Sharjah Property Market Snapshot highlights that for the residential rental market in particular, those who are willing to pay extra to upgrade, have more affordable options in Dubai, while tenants who are looking to get more for their money are moving towards Sharjah’s more spacious communities or the significantly more affordable community spaces in Ajman.

Sharjah’s residential rental market has been tracking the market in Dubai for almost two years now, with rates in Dubai down 8 per cent on this time last year. After dipping by 5.7 per cent in Q1, residential rents in Sharjah fell by 2.5 per cent in Q2 and a further -4.7

per cent during Q3, marking a year to date change of -7.1 per cent.

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8 According to the Cluttons research, Sharjah’s landlords have been left with no choice but to lower rents in order to remain competitive to Dubai and Abu Dhabi. There has also been a marked decline in overall tenant requirements as tenants find themselves in the unique position of being spoilt for choice. Weaker jobs growth and the loss of tenants to Dubai has led to rising vacancy rates in Sharjah.

Suzanne Eveleigh, Property Management Director at Cluttons, said:

“Despite the ongoing correction, average rents in Sharjah are still 30 per cent higher than they were at the start of 2012, highlighting the strength of rent rises in recent years.

“Still, Sharjah’s rents remain at almost half the levels seen in Dubai or Abu Dhabi, with one-bedroom flats in Sharjah rent for roughly Dhs41,000 per

annum, when compared to more than Dhs100,000 per annum in Dubai, or Abu Dhabi.

“On the other side, rents in Ajman are even lower than those of Sharjah with buildings of equally good quality and similar facility offerings. The key to winning back those who have migrated to the more affordable options in Ajman would be through offering flexible payment plans, in addition to better packages, including facilities such as parking.”

Faisal Durrani, Head of Research at

Cluttons, said: “The residential rental market has felt the impact of a falling market in Dubai and our expectation for a 10 per cent drop in average rents this year appears on track.

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“While Dubai should see a reversal in the fortunes of its residential markets in the autumn next year, any subsequent improvement in Sharjah, as has been the case historically, is likely to arrive shortly thereafter. Until we arrive at that tipping point, rents in Sharjah are likely to continue ebbing, with a further 5 per cent to 7 per cent fall next year before things stabilise.”

Logistics

Maritime Partnership

Gulf Navigation Maritime, a subsidiary of Gulf Navigation Holding Group, and Polimar Turkish signed a partnership related to the oil and gas sector, offshore vessels, container liner vessels, bulk carriers, cruise ships and yachts.

The Gulf Navigation fleet is expected to grow from four service boats to 10 crews, tugs and offshore support vessels with a value of US$3 million per vessel as part of the deal. The revenue from the partnership is expected to be about $27m.

The partnership also expects to invest in marine tourism, yacht marina and hotels in the UAE and Turkey. The joint venture company will be a subsidiary of Gulf Navigation Holding Group and based in Dubai from this month.

Also in December, Gulf Navigation entered into an alliance with Dubai-based energy trading company Mena Energy for cooperation in ship acquisition, chartering and management. As part of the deal Gulf Navigation will acquire or order up to 12 vessels.

The Dubai shipping company declared last month its will to invest $950m by 2020 to double its petrochemicals fleet and expand operations in the Northern Emirates.

Tourism Visitors:

Pilipinos, Pakistanis and Chinese are in the top of the list of Dubai visitors in the first 10 months of 2016 and their number increased compared to the same period in 2015.

Dubai also witnessed an increase in the number of

Russian visitor- a market that had been affected by Ruble devaluation in 2014-2015.

Infrastructure

Nationality 2015 2016 Change Philipinos 262,000 311,000 18.7 % Pakistanis 489,000 421,000 16.1 % Chinese 428,000 379,000 12.9 % Russians 164,000 177,000 7.9 %

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10 Hospitality

1- The luxury Shangri-La Hotel in Dubai has announced the completion of phase one of its AED70 million ($19 million) renovation programmewhich began last June. The renovation project will now move on to phase2 which includes the renovation of 302 rooms and suites to be completed in 2018.

2- Demand for hotel rooms in Dubai reached a five-year high by the end of 2016. After going through a sluggish period, hoteliers got very busy during the last few days of 2016, when rooms were more than 90 per cent occupied for three consecutive nights. On New Year’s Eve alone, occupancy levels reached more than 95 per cent.

The last quarter of the year is one of the busiest periods for the emirate’s hospitality industry. Last November, Dubai International welcomed more than 6.5 million passengers, up from 6 million from a year earlier.

Hotel occupancy went up by 3.2 per cent to 79.7 per cent in December, while demand jumped 9.1 per cent, the highest since five years ago.

However, the average daily rate dropped 8.4 per cent to Dh824.58 in the same period. The revenue per available room (RevPAR), a benchmark for hotel profitability, fell 5.4 per cent to Dh657.37, while supply rose by 5.7 per cent.

Sources in the hotel industry had earlier anticipated an increase in demand as Dubai unveiled a number of mega projects, including theme parks and resorts in one year, such as Dubai Parks and Resorts, Dubai Water Canal and IMG Worlds of Adventure.

Transport

3- The Roads and Transport Authority (RTA) has signed an exclusive operation contract with DP World whereby the Dubai Taxi Corporation (DTC) at the RTA will provide taxi and VIP limousine services to lift tourists from and to The Hamdan bin Mohammed Cruise Terminal at Mina Rashid (Rashid Port).

4- According to JACDEC's Airline Safety Ranking 2017 study, Emirates and Etihad were among the top ten safest airlines with Emirates Airlines ranked in 7th place, and Etihad Airways ranked in 8th place.

Manufactoring

ArabPlast 2017, the largest plastics, petrochemicals and rubber industry exhibition in Mena, the Middle East and North Africa region, opened on Sunday in Dubai.

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11 According to the Dubai Chamber of Commerce and Industry, the manufacturing sector has achieved positive growth in 2016 in Dubai. Also world-class techniques in petrochemicals, plastics and rubber are being practised in UAE and this comes at a time when Dubai is opening up new markets, such as in Africa and Latin America, as well as improving the potential of existing markets, such as in India.

Agriculture

The UAE Ministry of Climate Change and Environment, MoCCAE, has announced that the food safety rating in the UAE has increased 24% in the last three years to reach 98%in 2016 compared to 74%in 2013.

Market Trends

Emirates NBD Dubai Economy Tracker Index

The seasonally adjusted Emirates NBD Dubai Economy Tracker Index registered a score of 55.9, up from the 55.2 in November and the highest since July. The index has now posted above 50 for 10 months running. A reading of below 50 indicates that the non-oil private sector economy is generally declining; above 50 that it is generally expanding.

But job creation gains continue to be marginal, with key sectors such as travel, construction and retail recording “relatively subdued rates of employment growth”. Interestingly, construction companies saw the fastest rise in staffing levels, with job creation rebounding to its strongest since May amid reports citing greater workloads and improving confidence regarding the business outlook.

Apart from travel and tourism, the other performing sub-categories were construction and wholesale/retail. According to KhatijaHaque, Head of MENA Research at Emirates NBD, the rebound in construction sector activity in December is particularly encouraging after relatively sluggish performance for most of H2-16.

Stock Market Watch

Brent Crude Oil over the last week, WTI Crude Oil over the last week The prices are in USD/bbl

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12 The prices are in USD/bbl

Dubai Mercantile Exchange

The Dubai Mercantile Exchange, DME, has announced a 20% increase year-on-year in physical delivery volumes during 2016, reinforcing its increasingly influential role in the global energy trading marketplace.

DME registered the highest physical delivery in the history of the exchange in 2016, shipping a total of 260,688,000 barrels during the year compared to 216,163,000 barrels in 2015. Average daily volume touched a new high in 2016 at 8,762 lots, an increase of 19% over the previous year, while monthly delivery volumes rose 20.5% to 21,724,000 barrels.

Physical delivery for the month of January pegged at 28,509,000 barrels and a record 29,887,000 barrels due for delivery in February; the highest ever monthly volume registered on the exchange.

Gold Prices over the last week

Updated: Thursday 12 January 2017, 06:48 am Dubai time.

These gold rates are based on the spot gold price in USD and are converted to AED and other currencies according to the current exchange rates, where 1 USD= 3.67 AED

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13 Gold Price remains steady in Dubai last week.

Dubai Financial Market General Index (DFMGI) Last Update : 11 Jan 2017 2:15 pm Dubai time

DFM analysis

Shares in Dubai continued their buoyant start to the year on Sunday, with higher oil prices and the prospect of new real estate projects boosting blue chips.

The Dubai Financial Market General Index rose for a sixth straight trading day, its longest winning streak since July, ending up 1.8% at 3,692.22.

According to SanyalakManibhandu, the head of research at NBAD Securities in Abu Dhabi, January 2017 is so far looking very different due from January 2016, because of the difference in crude prices and the short-term outlook.

Emaar Properties and DIB led blue chip gains, rising 1.6% and 2.3% respectively, with just three stocks closing lower.

Union Properties dominated trading, with nearly 190 million shares changing hands. The developer’s shares closed up 4.4%at Dh1.18.

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14 According to Hani Konquar of Mubasher Financial Services, investors are showing positive speculative activity on some of the main real estate as the talk is about new large projects being signed ahead of Expo 2020.

Banking stocks dominated a quiet day of trading in Abu Dhabi, where shares gained 0.5 per cent at 4,623.82.

FGB and ADCB were the pick of the gainers, rising 0.8% and 2.2% respectively, followed closely by NBAD and ADIB.

New Laws & Regulations Venture capital funds

The UAE government has announced new regulations for venture capital funds, one of the first outputs of the recently announced Government Accelerators programme.

The new legal structure, which is designed to enhance the UAE’s innovation culture and further attract venture capital funds to the country, was formulated via a Government Accelerators team consisting of the Ministry of Economy and the Securities and Commodities Authority.

The new regulations, first announced on Saturday by state news agency Wam, stipulate that a venture capital fund’s net asset value should be equal to or greater than its risk exposure.

Venture capital funds with assets under management over Dh180 million are obliged to issue an annual report according to the IFRS standards and appoint a risk management officer. Funds with assets under management of Dh180m or less are obliged to draft an annual report summary.

Funds are also obliged to conduct a review of investments at least once a year.

First fintech accelerator

DIFC launches the region’s first fintech accelerator in Dubai.

Set to be operational in the first quarter of 2017, the FinTech Hive at DIFC will introduce cutting- edge financial services technologies to the MEASA markets while providing a platform that brings financial and technology firms together.

Globally, the fintech sector has attracted more than US$50 billion in investments since 2010, but currently the Middle East and North Africa only attract around 1 percent of that investment.

The DIFC accelerator aims to bridge the gap by creating a platform that drives innovation and showcases success. It will identify leading technology entrepreneurs and companies through a competitive process and offer them the opportunity to develop, test and modify their innovations in collaboration with top executives from DIFC and regional financial institutions.

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15 Emirates NBD and Mashreq will be the first local financial institutions to join the accelerator programme while HSBC and VISA are the first international financial services providers.

Sushil Saluja, Accenture’s Senior Managing Director for Financial Services in Europe, Africa, the Middle East and Latin America region, said, "DIFC is uniquely positioned to become the regional hub for fintech. By putting together local banks and fintech firms to ideate, collaborate and partner, DIFC is helping both sectors to be at the forefront of the financial services industry. The accelerator programme will identify the best entrepreneurs within the financial services industry and grant them invaluable access to and feedback from potential customers and funders."

"The digital era will define the region’s future in terms of liquidity and growth. The fintech market, with a global investment of US$22.3 billion in 2015, has already begun revolutionising the banking industry by offering new ways of unlocking resources and capital while driving efficiency and creating new partnerships. With 99 percent of consumers in the UAE using a mobile or a smartphone, fintech has the potential to make a real difference," said Omar Boulos, Regional Managing Director of Accenture in the Middle East and North Africa.

Value added tax

The UAE, which plans to introduce (VAT) next year.

According to the Ministry of Economy, VAT is expected to yield Dh12bn in the first year of its implementation and up to Dh20bn during the second year.

The IMF has argued that introducing VAT at a low rate could generate 1.5 to 2% more GDP for the Gulf states.

The fund said in October 2015 that the Gulf states would have a combined fiscal deficit of between 2015 and 2019 that would exceed US$700bn if they did not undertake reforms.

Dubai Free Zone

Jebel Ali Free Zone (Jafza), the UAE’s biggest trade and logistics hub, has brought in regulations to give companies flexibility in how they set up shop, as it seeks to boost investments.

The cornerstone of the new regulations, Jafza said on Tuesday, is the option for companies to transfer to the free zone and continue operations without having to open a new branch or establish a new company, it said.

Jafza stated in a statement that for the first time it has brought together all the legal entities such as the Free Zone Establishment (FZE), Free Zone Company (FZCO) and Branches under one

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16 regulation and has introduced a new legal definition such as Public Listed Companies (PLC) and that companies can restructure and rearrange their operations by converting from an FZE or FZCO to a PLC and vice versa, enabling continuity of business in the free zones.

Bankruptcy

The bankruptcy law that was announced last year will come into force in the first quarter of 2017.

This will serve as an instrument of stability and risk mitigation and provide for the creation of a pre-emptive settlement regime under which creditors will actively work with their customers in restructuring debts. As the whole process is overseen by the courts, this would mean greater assurance of repayment for lenders while businesses are saved from the immediate threat of bankruptcy, allowing them to maintain normal operations.

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REFERENCES

www.wam.ae www.thenational.ae www.arabianbusiness.com www.gulfnews.com

www.emirates247.com www.khaleejtimes.com www.marketstoday.net www.nasdaq.com

www.goldpricesdubai.com www.7days.ae

www.wam.ae

Dubai and Northern Emirates Economy