Tag Archives: economy

Construction news: more than 390 billion USD projects ongoing in Dubai

The total value of projects under construction in Dubai equates to $53.6 billion, with a further $337.2 billion in the planning stage.  These are significant amounts of investment for most mature economies, but for an emerging market such as Dubai, they are extraordinary figures which provide evidence of Dubai’s ambition to diversify its economy away from oil-centered revenues. In this way we can summarize the new report “The Dubai Construction Pulse” published by Deloitte and MEED Projects, which analyses the construction market across a range of sectors.

Analyzing the data provided in the report, it is evident that the majority of the construction projects currently ongoing in the Emirate are related to residential and hospitality sectors with a 60% of the total value involved while 65% of the planned projects fall within the mixed use developments, most probably because of the EXPO 2020’s requirements.

Dubai Construction Projects Status

“Despite regional security concerns and wider macro-economic turbulence, Dubai continues at pace with significant project awards in Q1 2016, including the Palm Gateway Towers, Phase II of the Atlantis Resort and Dubai Creek Harbour to name but three”, said Ben Hughes, director at Deloitte Corporate Finance Limited, regulated by the Dubai International Financial Center.

Previously stalled projects have been resurrected, but new project awards have reduced since 2014-2015 as a result of regional economic uncertainty

The conclusions of the report are particularly interesting and are here below summirized.

“The current concerns relating to low oil prices and diminished market sentiment has clearly had a short term impact. Whilst the ongoing geo-political factors equally have profound effects, the fact that many Governments across the region, not least the Government of Dubai, are continuing to spend on infrastructure and other strategic developments suggests that they foresee the oil price issue and political turmoil as a temporary one.

[…] The mere action of building a project and expecting the demand to be there no longer applies, as the fundamental cost basis for these projects remains volatile and competitive. Focusing on factors such as affordability, differentiation and quality are going to be increasingly important factors, and it is hoped that such considerations will ultimately underpin the rationale for conceiving projects.

Simply constructing the tallest or most unique project no longer provides the impact it once did, so diversifying the offer by promoting a world class standard appears to be the mantra moving forwards.

[…] What is interesting is the connectedness of Dubai as an increasingly “smart city”, and […]  Dubai may even mature to the extent that it could surpass some of the more established cities across the world, such as London, Paris or New York, in terms of its level of sophistication and dedication to sustainability, smart city principles and ultimately success in delivering projects that are demand driven and profitable.”

Other than on “The Dubai Construction Pulse” website by Deloitte, the matter has been analyzed and reported by well done articles published on SaudiGazzette and Gulf Construction Online.

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Contractors face slowdown in Abu Dhabi unless new projects come to market

I particularly liked the article by  about the current status of the construction sector in Abu Dhabi published yesterday on the local newspaper The National, an extract of which is here under reported.

by Michael Fahy, The National, 20 February 2016

The feeling construction companies operating in Abu Dhabi have is that not enough projects are coming to market to replace those being completed.

BMI Research said Abu Dhabi’s GDP growth is set to slow to 2.8 per cent this year, down from 4.3 per cent last year. It said that construction would outperform the overall economy, with an average annual growth rate of 5.9 per cent predicted between 2016 and 2020 across the UAE.

Richard Marshall, a senior infrastructure analyst at BMI Research, said that there are US$103 billion worth of UAE projects under construction, with $45bn of that in Abu Dhabi alone – more than any other emirate.

The pipeline of projects due to come to market is just $62bn. Given that more than 70 per cent of the $103bn of live projects is due for completion in 2017, a potential slowdown in the sector awaits unless more tenders come to market.

Moreover, the biggest project in the pre-tender phase is phase two of the Dh40bn Etihad Rail project, which was suspended last month until a review for “the most appropriate options for the timing and delivery” of the project is undertaken.

“Other GCC markets have been slow to deliver on their sections of the planned [railway] network, which has lessened the pressure on the UAE to meet the 2018 deadline.” said Mr Marshall.

On Wednesday, the ratings agency Moody’s said that Abu Dhabi was facing an economic slowdown as a result of government cuts in response to lower oil revenues.

Moody’s senior vice president, Steven Hess, said that a prolonged period of low oil prices could gradually erode the emirate’s fiscal buffers if it did not maintain prudent budgeting, but that it has enough reserves to be able to finance fiscal deficits for five to 10 years if it liquidated some of its assets. “Overall, the [emirate’s] considerable foreign assets should mitigate the negative consequences of oil price volatility on Abu Dhabi’s fiscal and external accounts,” said Mr Hess.

Read the full and original article on The National.

1000 AED

Is the United Arab Emirates really going to implement Corporate Tax, VAT by the end of the year?

When I firstly moved in Dubai, in June 2009, I was positively surprised by the almost tax free environment offered by the Emirates.  I said “almost”, because a very limited taxation was implemented in the residential units market (every transaction was taxed at a 2% rate) and a 10% Municipality Fee I was (and still am) charged at restaurants other then little taxes on foreign companies and banks.

Very convenient if compared to Italy (or other European Countries), where gross income is taxed at a level of 43% max, VAT was at 20% (then raised to 22% with the 2011/2012 austerity package) and the overall “felt” taxation for an individual reached almost 55% as confirmed by some studies even though the tax revenues amount to 44,4% of the GDP  as reported in 2012/2013 statistics. Corporate Tax is set at 27.5% and many other taxes are foreseen as explained in an HSBC’s report.

1000 AED

1000 AED note, its real value might be reduced by the tax introduction – photo from Google Image

The wise leadership that has characterized (and still is characterizing) the Emirates, with the construction of numerous astonishing Projects (see Dubai Mega Projects) together with the ‘tax-free’ environment that companies have benefited until now and has been the driving force behind them coming to setup a business in the UAE, led to a considerable diversification of UAE Economy that saw in 2014 its strongest growth,

I have heard before that the GCC Countries were thinking about the possibility to introduce a light corporate tax and maybe VAT to helps the government budgets to reduce their dependence from oil revenues. Negotiations failed in the past years because the taxation shall be implemented by all the involved country simultaneously in order to avoid distortions in the market and some countries objected the nature and applicability of tax.

With the dramatic slump of the oil prices, the budgets of many GCC countries turned negative and most of them will be facing a fiscal deficit of 2-3% in the present year from a surplus of 5% registered in the past year. With this ongoing, the need to find other source of income seems to have given the final green light to the Tax project.

Khaleej Times, indeed, reported that “However, the sharp reduction in oil prices recently could lend a further push to introduce the levy, given that most Gulf states are expected to record budget deficits in the coming fiscal year and are reluctant to pare back spending on infrastructure and social spending aimed at developing their economies and improving the lives of citizens.”

A senior official working at the UAE Ministry of Finance, recently confirmed to Reuters that in May 2015 the Financial council of the GCC has preliminary agreed on the taxation system and that the single countries have to provide Law drafts by the end of the year 2015. There are rumors about the level of taxation that will be proposed and what is going to be affected by it. I am not going to list all the speculations since there are not sure sources for them.

UAE MOF

UAE Ministry of Finance – photo from Google Image

The question that residents are asking themselves and the leaders are carefully studying since years is: what could be the short and long terms effects of this change in the fiscal policy of the UAE?

I have collected different opinions from people living here, the most reasonable of which was provided by a businessman I met some days ago.

He told me: “many people will be definitely upset for this tax introduction. They will see their available amount of money reducing sensibly and will be complaining for a long time. However, they will hang around since in Europe and in the rest of the world the economy is not strong enough to assure them to find a job with a reasonably good salary, in a place that offers high living standards like Dubai and where the taxation is, in any case, much higher”

Others, as reported by Al Arabiya for instance, affirmed that businesses may limit their investment and expansion in Dubai. Overheads would be so high that fewer people would be hired. Inflation would soar through the roof. Hence, there will be a long period of adaptation before the economy and social fabric stabilize in the new configuration.

Last but not least, let’s mention what happen in Japan after the recent hike in VAT that was raised from 5% to 8%. The economy suddenly shrunk because of the drastic reduction in internal consumption from the citizens. Is it going to happen also in Dubai? 

The law draft is going to be released in the Q3 of this year. We shall wait and see the details to be able to estimate its impact.

Traders: why do we tend to get the wrong decision?

It is not only the economic crisis or the market uncertainty that affects our modern time to complicate the decisional process of each and every one of us, but real ‘psychological traps’ that affect our judgement ability. Here below there is a list of the most common traps that affects the majority of the traders (either they are expert or newbie) including myself.

The first and most common trap is the so called “snake bite effect” that affects the 51% of the “normal” investors. The concept at the base of this effect is very easy to understand: if you get bitten by a snake while you are looking for mushrooms in the forest, the next time you do it you would most probably be deadly scared about the possibility of having it happen again. Therefore, if you lose a great amount of money invested in something, the next time you would like to invest in the market you will remember the bad occurrence and most probably change your mind.

This aversion to the risk can also manifest immediately by feeling the need to reduce exposure to the asset class that see a loss or abandon it all together. A simple example to better understand: a young investor decide to invest some money by buying shares of an Automotive company at 10 € per share. After a while the stock fell to 7 € owing to some cyclical effects. The young investor most probably would panic and sell the stock and even though the share’s price start increasing significantly reaching 25 € per share he/she is too afraid to get back in the market.

Another common trap, quite in contrast with the previous one, is the so called “disposition effect” that is the result of the fact that pain of an investment loss hurts much more than the pleasure of a gain. For this reason the 41% of the traders are always fearing regret and seeking pride more than any other thing. As consequence the investor tend to sell stocks too early to seek ‘easy and immediate’ pride while the fear to fell the painful regret associated with taking losses can keep them from selling bad assets to buy new, better positioned, ones.

Then there is the “Home bias” that consists in the perception of the domestic market as more familiar and therefore less risky than a foreign market. For this reason an Italian is more likely to invest in Italians equities than to buy an American one even though diversifying the portfolio is the best way to minimize the risks. Origin of this block could be the fluctuation in the foreign currency value, law restriction and thinking that since the stock you have just bought is domestic, you know its dynamic much better and therefore you can manipulate it more effectively.

If you have been so lucky to have earned some monies during your trading, you could experience the “overconfidence”. You will start unconsciously thinking that you are smarter than the average trader and that you are so prepared and know the markets at such an extent that it is really unlikely for you to commit a mistake. And that is the moment when you will buy huge quantities of a financial product underestimating the potential risks and ending up losing a lot of money. While it is one of the most common mistakes that a Financial Promoter could do, it is also affecting normal traders.

There are many other mental traps that can affect your ability to profitably trade and if you would like to investigate a bit further, you could find interesting www.investopedia.com and other similar websites.