CGI Gulf Insights of the Week

  • ByCGI Gulf Insights of the Week
  • Monday, 04 March 2019
  • Published inMarch 2019
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Country Risk Update
United Arab Emirates

Risk Indicator  - DB3b
Risk Level       - Slight
Ratings Trend - Stable

The IMF commends the government’s policy initiatives but stresses the need for further reforms, which will boost the country’s long-term economic potential.  The UAE continues to strengthen its position as a regional safe-haven and business hub.
Market Overview
DIFC regulator to strengthen corporate oversight in wake of Abraaj collapse
The collapse of embattled private equity firm Abraaj may lead the Dubai Financial Services Authority (DFSA) - the DIFC's independent financial regulatory agency - to change its oversight procedures and will “influence thinking” on corporate governance, chief executive Bryan Stirewalt said in a report. Abraaj was once one of the most influential emerging-market investors in the world until it collapsed last year, months after investors began an investigation into mismanagement of money in its healthcare fund. In a report outlining the DFSA’s plans for 2019 and 2020, Stirewalt said its investigations into the Abraaj case will lead the entity to “take steps to strengthen our supervisory oversight going forward.” “We will also be reviewing our risk-based approach to supervision to ensure that it properly captures some of the features of the particular case,” Stirewalt wrote in the report. While the DFSA licensed Abraaj Capital Limited (ACL) to carry on regulated activities within the Dubai International Financial Centre (DIFC), it did not regulate Abraaj Holdings, Abraaj Investment Management Limited or license the firms' private equity firms, which were all registered in the Cayman Islands. “We will examine whether our regime addresses correctly the situation where firms locate legal entities providing services to each other in different locations, which can complicate supervision,” Stirewalt added in the report.
Dubai government vows to pay SMEs earlier
Dubai plans to expedite government payments to small and medium-sized companies in an effort to revive economic growth in the Middle East’s trade and business hub. The government will pay SMEs within 30 days instead of 90 days, according to the state-run WAM news agency. Dubai government will set a classification of the SMEs entitled to receive their dues within 30 days. The measure is expected to result in 1.6 billion dirhams ($435 million) of additional liquidity to the companies, the news agency said without elaborating.  The plan also includes a reduction in insurance costs for SMEs (to the range of 1-3 percent instead of 2-5 percent) that will not affect their eligibility for government tenders. The measures also include plans to allocate 1 billion dirhams ($270m) worth of projects to joint ventures between the public and private sectors. In addition, the Dubai government will allocate five percent of its capital projects to SMEs allows them to get projects worth up to AED400 million ($109m).  One of the most diversified economies in the Middle East, Dubai is grappling with the impact of low hydrocarbon prices on its oil-rich neighbors as well as the introduction of new fees and taxes in the Gulf. Property prices have declined and the emirate’s main stock index dropped 25 percent in 2018. Authorities last year announced a raft of measures to reduce the cost of doing business in the emirate. The federal government has loosened restrictions on visas to attract more tourists and investors.
UAE banks to pay $5.1 billion Dividends for FY 2018
A total of $5.1 billion of dividends have been proposed by 18 listed UAE national banks for 2018—12.2% up from $4.5 billion in 2017. The growth in dividend distribution reflects the robust solvency position of the UAE banking sector, reckoned to be among MENA's most resilient, with an estimated $790 billion of assets by the end of 2018. Increased profits in the banking sector and increased distribution of profits were the main reasons for the increased dividends. The combined profits for the banks stood at $11.4 billion, and the banks gave 44% of those profits back to their shareholders. FAB, the country’s biggest bank that earned $3.3 billion in profits, gave its shareholders 66% of profits or $2.2 billion in dividends. FAB was by far the largest dividend payer among banks in the UAE, single-handedly accounting for 65% of the dividends distributed by banks in the country. Abu Dhabi Commercial Bank, Dubai Islamic Bank, and Emirates NBD bank, which distributed $653 million $626 million and $596 million in dividends respectively, came in second, third and fourth. In a related development, the Average Annual Return for Investment in the country’s banking sector amounted to 5.07%, with free-flowing share dividends valued at around $2.72, which accounts for 53.7% of the total dividends proposed by all the national banks.
Growth in the UAE economy to outshine those of other Gulf countries, thanks to the non-oil sector
The UAE’s economic growth in 2019 is projected to top overall growth across the Gulf Cooperation Council (GCC) region, largely driven by non-oil growth supported by a pick up in government spending, according to latest forecasts from the Institute of International Finance (IIF). “We expect growth to pick up from 2.9 percent in 2018 to 3.2 percent in 2018, supported by the stimulus package of $13.6 billion [Dh49.9 billion] (3.1 percent of GDP) introduced in June 2018 for a period of three years,” said Garbis Iradian, chief economist of IIF Middle East and North Africa (Mena) . While the UAE’s Purchasing Managers’ Index (PMI) has increased in recent months, and year-on-year growth in deposits and credit is accelerated to 8.2 percent and 4.7 percent, respectively, in January 2019, the highest among GCC countries. A continuing decline in residential prices both in Dubai and Abu Dhabi is seen as a risk to both non-oil growth and banking sector asset quality. “Rents have fallen by about 20 percent in the past three years, and we expect the declines to continue in 2019, albeit at a slower pace, as job growth remains low and new housing becomes available,” said Iradian. With relatively high concentration of loans (about Dh300 billion) to the real estate sector in the UAE, that accounts for approximately 20 per cent of total loans and about Dh100 billion worth of mortgages (about 7 per cent of total loans), further decline in real estate prices are expected to have asset quality and credit quality implications for the banking sector. 
Standard Chartered aiming for $700 million in cost cuts by 2021
Standard Chartered Plc chief executive officer Bill Winters announced plans to reduce costs and indicated he’ll restructure operations in markets including India and South Korea as part of a long-awaited plan to turn around the lender. The bank, whose operations span Asia, Middle East, and Africa, is aiming to cut $700 million (Dh2.57 billion) in costs as part of a new three-year plan that the emerging markets focused-lender hopes will soothe investor concerns over its lackluster returns. The 26 February 2019, announcement didn’t say whether the cuts would come from reduced headcount. Winters has been seeking to convince investors he can revive longer-term earnings growth and generate an acceptable level of profitability while cutting costs. He’s spent much of his tenure cleaning up the balance sheet and culture of the London-based firm, which had been saddled with bad loans. Among the targets announced by the bank: Earlier, Standard Chartered said underlying pretax profit in 2018 was $3.86 billion, compared with a $3.98 billion consensus forecast compiled by the bank. Full-year underlying operating income was $14.97 billion, said the bank, compared with forecasts of $15.02 billion.
Commodity Tracker
Business Events this Week In UAE
SME Beyond Borders - 10X 
@ JW Marriott Marquis Hotel Dubai, Sheikh Zayed Road
Date: 6 March 2019
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