UAE looks to non-oil sector with 4% growth target for 2017

The UAE is targeting an economic growth rate of about 4 per cent next year as it looks to the non-oil economy for expansion, the undersecretary of the Ministry of Economy said yesterday.

The UAE’s economy grew 3.8 per cent last year, according to the Minister of Economy, Sultan Al Mansouri.

“Our aim is to maintain the same level of growth [in 2017] and that it will be around 4 per cent,” said Abdullah Al Saleh at the UAE Economic Planning Forum in Umm Al Quwain.

The non-oil sectors, particularly services and industry, will help the economy grow, he added.

The services sector includes construction, logistics, hospitality, education, health care and transportation.

The IMF believes that growth in the UAE’s non-oil economy will slow next year, as the two biggest emirates in the federation – Abu Dhabi and Dubai – experience contrasting economic fortunes, said Masood Ahmed, the IMF’s director of the Middle East and Central Asia department, last month.

Overall growth in the UAE will fall to 2.3 per cent this year as the effect of lower oil prices impacts the wider economy, he said. Next year he is expecting a slight recovery, to 2.5 per cent.

Growth in Dubai will fall to 3.3 per cent this year, down from 3.5 per cent last year, before recovering to 3.6 per cent next year.

Abu Dhabi’s GDP growth would experience a “sharp decline,” he added, down from 4.3 per cent last year to 1.5 per cent this year and 1.7 per cent next year.

Economic sentiment in the UAE dipped in September as a slowdown in global growth put pressure on domestic busi­nesses.

Business conditions in September improved at the weakest pace since June, according to the UAE purchasing managers’ index (PMI), a measure of business activity in the non-oil private sector.

The Emirates NBD-sponsored index, which covers manufacturing and services, slipped to 54.1, down from 54.7 in August. A figure above 50 means businesses in the country are expanding, while below 50 signals a contraction.

The figure was also broadly in line with the average so far this year (53.8), albeit noticeably lower than 2014 (58.1) and 2015 (56.0) averages.

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UAE sets growth target of 4 per cent for 2017

The UAE is targeting an economic growth rate of about 4 per cent next year as it looks to the non-oil economy for expansion, the undersecretary of the Ministry of Economy said yesterday.

The UAE’s economy grew 3.8 per cent last year, according to the Minister of Economy, Sultan Al Mansouri.

“Our aim is to maintain the same level of growth [in 2017] and that it will be around 4 per cent,” said Abdullah Al Saleh at the UAE Economic Planning Forum in Umm Al Quwain.

The non-oil sectors, particularly services and industry, will help the economy grow, he added.

The services sector includes construction, logistics, hospitality, education, health care and transportation.

The IMF believes that growth in the UAE’s non-oil economy will slow next year, as the two biggest emirates in the federation – Abu Dhabi and Dubai – experience contrasting economic fortunes, said Masood Ahmed, the IMF’s director of the Middle East and Central Asia department, last month.

Overall growth in the UAE will fall to 2.3 per cent this year as the effect of lower oil prices impacts the wider economy, he said. Next year he is expecting a slight recovery, to 2.5 per cent.

Growth in Dubai will fall to 3.3 per cent this year, down from 3.5 per cent last year, before recovering to 3.6 per cent next year.

Abu Dhabi’s GDP growth would experience a “sharp decline,” he added, down from 4.3 per cent last year to 1.5 per cent this year and 1.7 per cent next year.

Economic sentiment in the UAE dipped in September as a slowdown in global growth put pressure on domestic busi­nesses.

Business conditions in September improved at the weakest pace since June, according to the UAE purchasing managers’ index (PMI), a measure of business activity in the non-oil private sector.

The Emirates NBD-sponsored index, which covers manufacturing and services, slipped to 54.1, down from 54.7 in August. A figure above 50 means businesses in the country are expanding, while below 50 signals a contraction.

The figure was also broadly in line with the average so far this year (53.8), albeit noticeably lower than 2014 (58.1) and 2015 (56.0) averages.

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Standard Chartered Bank expects a strong pipeline of sukuk, or Islamic bonds, with issuance coming predominantly from sovereigns and financial institutions, a bank executive said yesterday.

Sukuk issuance has been subdued this year compared with conventional bond sales because of declining liquidity.

The issuance of sukuk globally is likely to reach US$50 billion to $55bn this year, compared with $62bn last year, ratings agency Standard and Poor’s said in September. About $39.4bn worth of sukuk have been sold so far this year, the agency said.

“The sukuk pipeline remains strong,” said Ahsan Ali, the head of Islamic origination at Standard Chartered Saadiq, the Islamic arm of the lender. “There has been some effect of liquidity.”

Mr Ali declined to give figures or a timeline for the pipeline.

“There is an interest,” Mr Ali said. “Some of them [potential sukuk issuers] are in different stages of preparation, therefore it depends on their particular needs and combination of market conditions.”

Issuers such as Qatar, Abu Dhabi and Saudi Arabia opted this year to sell conventional bonds to help finance their fiscal deficits.

Saudi Arabia last month sold a $17.5bn bond, emerging markets’ biggest ever issuance of a sovereign bond. Earlier, Abu Dhabi issued $5bn in conventional bonds, while Qatar sold $9bn.

Meanwhile, Bahrain sold a $1bn sukuk and $1bn conventional bond last month. “They [issuers of Islamic bonds] have been able to get good pricing and demand from market constituents, not just from the Middle East, but also from Europe and Asia,” Mr Ali said.

Sovereigns and financial institutions, which have traditionally been the prime sellers of sukuk, will continue to lead issuance, he said.

While sovereigns, particu­larly in the Arabian Gulf, need to fin­ance deficits, financial institutions may offer sukuk to tap liquidity or boost capital.

“As the Islamic base and asset book grows they [Islamic fin­ancial institutions] will need either more liquidity or capital, and we have seen the tier 1 and tier 2 sukuk as well,” Mr Ali said.

Islamic lenders are increasingly issuing capital boosting tier 1 and tier 2 sukuk to meet their capital requirements, particularly to comply with Basel III banking standards.

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Lebanese economy expected to grow following installation of president

Lebanon’s economic growth could accelerate to 3.3 per cent next year following the election of a president after a 29-month political vacuum, according to a report from the International Institute of Finance (IIF).

Lebanon’s parliament on Monday elected Michel Aoun, an ally of Hizbollah, as president, a post that had remained vacant since May 2014 because of political haggling over the successor to Michel Suleiman.

The next step is to form a national unity government, which is expected to be headed by Saad Al Hariri, who helped to broker consensus for the election of Aoun.

Growth, which is forecast to have risen to 1.4 per cent this year from 1.2 per cent last year, will pick up next year thanks to “modest recovery in private investment and exports of goods and services”, said Garbis Iradian, chief economist for the Middle Eastern and North Africa for the IIF in the report.

These growth estimates are more optimistic than the IMF, which is forecasting 1 per cent growth this year and 2 per cent for next year.

The economic recovery could be boosted if the blocked trade routes with Syria and Iraq are reopened in the event of the defeat of ISIL, a de-escalation of fighting in Syria takes place and Lebanon’s ties with Arabian Gulf countries improve, according to the IIF.

Arabian Gulf countries, which have in the past provided financial support as well as a steady flow of tourists to Lebanon, have advised their citizens to refrain from travelling to the country after a deterioration in ties between Beirut and Riyadh.

Saudi Arabia is the broker of the 1989 Taif agreement that ended Lebanon’s 15-year civil war and has played a key role in Lebanese politics.

Tensions between the two countries came to a head when the Lebanese foreign minister did not condemn an attack on the Saudi embassy in Iran in January. The Lebanese position prompted the kingdom to withdraw a US$4 billion aid package that it had pledged to bolster Lebanon’s security forces.

If formed seamlessly, a national unity government will still have an uphill struggle tackling a rising fiscal deficit and large external imbalances, according to the IIF.

The deficit, which reached 7.8 per cent of GDP last year, is projected to rise to 8.6 per cent of GDP this year then decline to 7.9 per cent of GDP next year. The debt-to-GDP ratio, which reached 137.7 per cent last year, is forecast to increase to 143.9 per cent this year and 147.7 per cent next year.

“An exit from the debt overhang will take strong fiscal efforts and structural reforms to reduce the deficit and to create conditions for higher and sustainable growth,” said Mr Iradian.

These reforms include fighting tax evasion, selling non-performing state assets such as real estate holdings, increasing tob­acco taxes and public pension reform.

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UAE Cabinet approves five-year Dh248 billion federal budget

The UAE Cabinet has approved a Dh248 billion 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.

The budget for next year was set at Dh48.7bn, a slight increase from this year’s Dh48.57bn, which also focused on social development, education and health.

The lion’s share of the 2017 budget, around Dh25.2bn, is dedicated to sectors affecting the lives of UAE citizens.

About 20.5 per cent of the 2017 budget, or Dh10.2bn, has been earmarked to the education sector, 8.6 per cent or Dh4.2bn to the healthcare sector, 8.2 per cent or Dh4bn to public sector wages, 6.6 per cent or Dh3.2bn to social development and 3.3 per cent or Dh1.6bn to housing.

“Utilising the financial resources to achieve the highest degree of prosperity and welfare of the citizens and residents is a priority, underlining education, health and community welfare as key pillars for the development of the society,” said Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai.

The Cabinet also set aside Dh3.3bn for federal projects in the 2017 budget. These include: Dh891 million for federal government projects, Dh771m for developing the power and water sector through projects undertaken by the Federal Electricity and Water Authority and Dh1.4bn for the Sheikh Zayed housing programme.

In addition, Dh2bn has been earmarked to support government innovation through the establishment of the Mohammed bin Rashid Innovation fund to help inventors, in line with the targets of Vision 2021.

The federal government of the UAE is maintaining spending over the next five years despite a drop in oil prices, which has eaten away into its biggest source of revenue.

The UAE swung to a deficit of 2.1 per cent of GDP last year as oil prices plunged by more than half their value in 2014.

The country is forecast to post a 3.9 per cent deficit this year, and a 1.9 per cent deficit next year, according to IMF estimates. The IMF is projecting that the UAE’s cumulative fiscal deficit will reach US$18.4bn between this year and 2021 as low oil prices reduce government income.

To help nudge growth higher this year, the IMF has urged the UAE to ease the pace of spending cuts and instead use its ample financial reserves to balance the budget. The fund’s growth forecast for the UAE is 2.3 per cent for this year, down from the 4 per cent growth of last year.

Because of the oil price plunge, the UAE has embarked on a number of cost-reducing initiatives, including a reduction in energy subsidies and other public spending cuts.

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DP World gross container volumes increase amid softer performance at home

DP World has reported a 2.2 per cent increase in gross container volumes on a reported basis in the first nine months of this year, although throughput in the UAE declined during the period, the Dubai-based port operator said yesterday.

The port operator handled 47.5 million twenty-foot equivalent units (TEU) during the period, it said. It also handled 21.9 million units at terminals it controls, a 0.3 per cent increase on a reported basis.

The increase in gross levels was attributed to “a robust performance” from Europe and India, while Australia and Latin America had “challenging” conditions.

In the UAE, volumes fell by 6.7 per cent year on year to 11.1 million TEU because of a drop in “lower-margin transshipment cargo” – goods that are meant for markets other than the UAE.

DP World expects new developments in the Netherlands, India, UK and Turkey to counter a soft near-term global trade growth outlook, according to the group’s chairman, Sultan bin Sulayem.

“We will continue to maintain capital expenditure discipline by bringing on capacity in line with demand, while focusing on targeting higher margin cargo, improving efficiencies and managing costs to drive profitability,” Mr Sulayem said. “Given the performance in the first nine months, we are well placed to meet full-year market expectations.”

DP World said in August it plans to slow down the expansion of its flagship Jebel Ali Port because of softer market conditions amid a grim global trade outlook.

The Nasdaq Dubai-listed company last year had planned to spend US$1.6 billion on a fourth terminal in Jebel Ali, to boost capacity by 16 per cent to 22.1 million TEU by 2018.

DP World is now delaying the 1.5 million TEU expansion of Terminal 3 at Jebel Ali into next year, and will delay construction on Terminal 4, and did not give a new date of completion.

The port operator’s net profit attributable to equity holders before separately disclosed items in the six months to June 30 rose by 50.2 per cent year on year, on a reported basis, to $608 million.

The 50.2 per cent increase was attributed to continued integration of acquisitions of the Jebel Ali Free Zone and Prince Rupert Terminal in Canada.

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DP World gross container volumes increase amid softer performance in the UAE

DP World has reported a 2.2 per cent increase in gross container volumes on a reported basis in the first nine months of this year, although throughput in the UAE declined during the period, the Dubai-based port operator said yesterday.

The port operator handled 47.5 million twenty-foot equivalent units (TEU) during the period, it said. It also handled 21.9 million units at terminals it controls, a 0.3 per cent increase on a reported basis.

The increase in gross levels was attributed to “a robust performance” from Europe and India, while Australia and Latin America had “challenging” conditions.

In the UAE, volumes fell by 6.7 per cent year on year to 11.1 million TEU because of a drop in “lower-margin transshipment cargo” – goods that are meant for markets other than the UAE.

DP World expects new developments in the Netherlands, India, UK and Turkey to counter a soft near-term global trade growth outlook, according to the group’s chairman, Sultan bin Sulayem.

“We will continue to maintain capital expenditure discipline by bringing on capacity in line with demand, while focusing on targeting higher margin cargo, improving efficiencies and managing costs to drive profitability,” Mr Sulayem said. “Given the performance in the first nine months, we are well placed to meet full-year market expectations.”

DP World said in August it plans to slow down the expansion of its flagship Jebel Ali Port because of softer market conditions amid a grim global trade outlook.

The Nasdaq Dubai-listed company last year had planned to spend US$1.6 billion on a fourth terminal in Jebel Ali, to boost capacity by 16 per cent to 22.1 million TEU by 2018.

DP World is now delaying the 1.5 million TEU expansion of Terminal 3 at Jebel Ali into next year, and will delay construction on Terminal 4, and did not give a new date of completion.

The port operator’s net profit attributable to equity holders before separately disclosed items in the six months to June 30 rose by 50.2 per cent year on year, on a reported basis, to $608 million.

The 50.2 per cent increase was attributed to continued integration of acquisitions of the Jebel Ali Free Zone and Prince Rupert Terminal in Canada.

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Middle East carriers recorded the strongest regional growth in international passengers numbers in July, the International Air Transport Association (Iata) said on Wednesday.

Regionally, in that month airlines posted a 13.1 per cent year-on-year increase in passenger traffic, following a slow month in June because of Ramadan.

Capacity of Middle East carriers rose by 15.5 per cent year-on-year in July, leading load factor to drop 1.7 percentage points to 78.6 per cent. Overall, Middle Eastern carriers had a 9.4 per cent share of total global passenger numbers.

The region also recorded the highest revenue passenger kilometres (RPKs) and available seat kilometres (ASKs), two key industry performance indicators, out of all regions. RPKs for regional airlines rose by 12.5 per cent, while ASKs climbed by 15.1 per cent.

Globally, demand for air travel grew 5.9 per cent in that month compared with a year earlier, with European airlines showing the slowest growth out of all regions.

Globally, July’s international passenger traffic increased by 7.1 per cent year-on-year, which was higher than the 5 per cent yearly rise in June. Total airline capacity rose by 7.3 per cent, leading load factor to dip 0.2 percentage points to 83.5 per cent.

“Demand was stimulated by lower fares which, in turn, were supported by lower oil prices,” said Alexandre de Juniac, Iata’s director general and chief executive. “And near-record high load factors demonstrate that people want to travel.”

Middle East carriers’ air freight demand climbed by 6.7 per cent year-on-year in July, which is nearly half the 14 per cent annual increase recorded between 2012 and last year, Iata said on Tuesday.

The lower figure is attributed to slower cargo growth between the region and Asia. Cargo capacity in July increased by 11 per cent, the organisation said.

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The property arm of GFH Financial Group is considering using real estate investment trusts (Reits) to pump funds into its projects in Bahrain and Dubai, as the Islamic investment group forays into the emirate’s property sector for the first time.

The Bahrain-listed firm, which launched its property division this year, is working on developing three projects in its home base and one in Dubai, with a combined value of about US$380 million.

GFH Real Estate is trying to come up with creative ways to fund its projects. It will consider other financing options that include partnerships, tapping the parent company’s capital and investor base, and loans, said Majed Al Khan, the chief executive of the property arm.

“We are even considering issuing financial instruments backed by real estate, or securitising some of the assets that we have,” Mr Al Khan said. “Reits are an option for GFH Real Estate.”

Reits are entities that own and manage income-producing property and are later publicly listed.

The Reits could be listed in Dubai or Bahrain, which said in March it was establishing a market for them. Reits licensed by Bahrain’s central bank can be listed on the stock exchange and traded by investors in the secondary market, Bahrain’s stock exchange said in March. Emirates Reit is the first in the region and is listed on Nasdaq Dubai.

“Dubai continues to be a good option [for Reits], given the liquidity in the market and the flexibility of creating certain instruments,” Mr Al Khan said.

The GFH Financial Group has assets worth about $5 billion under management, out of which $3bn worth is in the form of property assets, which could be used to help launch Reits, Mr Al Khan said.

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New property projects at Cityscape Global 2016 in Dubai – in pictures

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In Dubai, where the company plans to develop a residential project on land it owns in Dubailand, the company is banking on partnerships to chip in with finance. The $180 million project, which includes 254 villas and 150 apartments, is GFH Real Estate’s first project outside Bahrain.

“In Dubai, we are in talks with strategic partners and strategic alliances to come with us,” Mr Al Khan said. “Of course it will help us in a lot of things, not just with the financial element. It will help us with the know-how, and with the market access.”

GFH Real Estate, which is mainly seeking developers as partners, expects to conclude talks soon to start the project.

It is not discouraged by the softening property market in Dubai, which is being battered by an overall economic slowdown in the country and region, the strength of the US dollar to which the dirham is pegged, and other factors.

The region still has liquidity and wealth to help finance projects, Mr Al Khan said.

“Dubai has demonstrated to us that it always comes back stronger at the end of the day,” he said. “We believe in the security that the regional markets give. With all these challenges – commercially, financially and politically – we believe the market is very promising in the GCC.”

The company is targeting families for its Dubai project because it believes the high-end market is the first segment to suffer during a slowdown.

GFH Real Estate’s current projects in Bahrain include the $150m Harbour Row, a mixed-use project at Bahrain Financial Harbour that features 450 high-end apartments, a retail area and 4,000 square metres of commercial space.

The second project is a $50m island within Bahrain Financial Harbour that has leisure and food and beverage retail areas comparable to The Walk in Dubai.

A third project is in the planning stages.

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Emaar partners with Dubai South for new development near Al Maktoum airport

Emaar Properties and Dubai South are partnering to build Emaar South, a new 7-square-kilometre development near Al Maktoum International Airport, which will be financed by a mix of equity, debt and pre-sales, officials said.

Mohamed Alabbar, the chairman of Emaar Properties, and Khalifa Al Zaffin, the executive chairman of Dubai Aviation City Corporation and Dubai South, declined to give a timeline or cost for the project, which will be split 50-50.

The first phase of the project will take about four years to complete, they said, without giving further details.

The project will feature six districts for more than 15,000 homes that include villas, town houses and apartments, an 18-hole championship golf course, community parks, retail facilities, schools, and three and four-star hotels.

The new project will be marketed at a “reasonable” price level, Mr Alabbar said.

“We would like to have a reasonable margin,” said Mr Alabbar. “Affordability is there while keeping our margins, and shareholders and partners, happy,” he said.

While developers would like to woo both local and international buyers, the project is a gated community and developers would like to attract residents who also work in the area, said Mr Al Zaffin.

Al Maktoum International Airport, which is being expanded to eventually handle 220 million passengers a year, is the main catalyst for the project, he added.

Emaar wants to award some building contracts for the project in the next quarter, said Fadi El Borno, the general manager of joint ventures at Emaar.

Emaar Properties plans to adopt a conservative debt policy as it undertakes big projects such as Emaar South.

“We want to be conservative when it comes to debt because you do not know the future anymore,” said Mr Alabbar. “You really have to do business on your toes and be cautious because the environment is changing all the time.”

The property developer is faring well considering current market conditions, he added.

“We are surprised we are doing better than last year, and I understand that people are not feeling what we feel.”

Dubai South is already planning to build a Dh25 billion middle-income residential project near Al Maktoum International Airport called The Villages, the company said last year. The first village, which will encompass 6,000 units including apartments, villas and town houses, is to be completed in 2019.

Dubai South plans to use a mixture of pre-sales, loans from banks and partnerships with developers to finance The Villages project, Mr Al Zaffin said. The timeline for the project will also depend on market conditions.

“If you have big demand you build, if you have low demand you slow down,” he said. “The market is up and down.”

Dubai South was launched in 2006 as the world’s first purpose-built “aerotropolis”, with Al Maktoum International Airport at its core, stretching over 145 square kilometres.

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