The National's business reporters look ahead to what 2017 has in store
Aside from higher oil prices, the prospect of higher US government spending by incoming president Donald Trump has led to rosy predictions for global growth in 2017 by the OECD and others, which should benefit stock markets in the Arabian Gulf countries.
Emirates NBD is forecasting gains of up to 10 per cent for regional shares, excluding dividend gains, with blue chip names like Emaar Properties and Sabic set to attract foreign investors. Still, plenty of clouds remain on the horizon: oil production cuts may not be all they’re cracked up to be; local government spending cuts may yet stifle local economic recovery. And then there’s the ever-present prospect of a left-field 3am tweet from the leader of the free world that should stop investors getting too comfortable.
The Gulf’s stock markets were once again no place for the faint-hearted in 2016. Plunging oil prices and slowing government spending sent regional equities tumbling, hitting a four-year low in the early part of the year. Equities gradually stabilised throughout the year before enjoying a stellar December in the wake of an agreement by Opec and non-Opec members to cut production in order to shore up government revenues. Bloomberg’s GCC 200 Index, which shed 17 per cent in the first three weeks of the year, finished 4.2 per cent higher for the year.
The merger of NBAD and FGB may give the industry a shot in the arm this year as other lenders could be forced to combine and become nimbler.
A recovery in the oil price after some of the world’s biggest energy producers agreed to cut production following a glut that has lasted several years, may also give the local economy a reprieve that will be passed on to lenders, which are a pillar of the country’s non-oil economy.
A faster pace of interest hikes expected by the US Federal Reserve, the monetary policy of which the UAE and other Arabian Gulf nations follow, will boost the profitability of loans for banks. But it’s possible that demand for debt may not rebound quickly, analysts say.
Oil and gas
There is a great deal of smoke and mirrors to the oil market as the year begins. The deal by Opec and other producers to cut output sent North Sea Brent futures up 23 per cent in December to end the year at a high of US$56.82. But evidence will not be in for months as to whether Opec will achieve its target ceiling of 32.5 million barrels per day, or if Russia will indeed lower its production by 300,000 bpd. What about demand? Will US import demand slip as output creeps back up? How will China’s refinery export quotas affect demand? Will India’s surging demand – growing at more than 9 per cent a year – be curbed by the government’s currency crackdown? Truth is nobody knows. Two dozen banks and commodities houses have a median forecast of $56.50/barrel for this year, but with a $30 gap from high to low.
Petrochemical producers suffered from anaemic profits in 2016 and are expected at best to retain the same level.
At the same time, Gulf countries are not sitting still. They will increase petrochemicals production, with projects such as Sadara, Saudi Aramco’s $20 billion joint venture with Dow Chemical, boosting output.
Aramco and Abu Dhabi National Oil Company have independently announced plans to nearly triple output over the next decade, strategies that could include partnerships with international players. Aramco and petrochemical giant Sabic are also working on a study to set up in the kingdom an oil-to-chemicals complex, their first collaboration. Protectionist measures in the US, the growth outlook in the key market of China, and gas shortages in several Gulf countries will also be on the mind of producers, who will rely more on oil byproduct naphtha as feedstock.
We have heard a great deal about projects being tendered and price records being broken, but 2017 will separate the region’s talkers from doers. Early on, Dubai will receive 200 megawatts of solar energy being fed into its grid while Masdar and its partners work to break ground on another 800MW.
We will find out the developer of Abu Dhabi’s 350MW Sweihan solar photovoltaic (PV) project at prices which are likely to set another world record.
Saudi Arabia’s commitment to renewables and a more diversified economy, outlined in the National Transformation Plan, will be solidified as wind and solar projects are awarded.
The keyin these projects is meeting the first-stage financial obligations. Across the Middle East and North Africa, that will be the deciding factor between wishes and achievements.
Dubai has been the region’s most active construction market – a situation that should continue this year as private sector investors push ahead with projects to ensure delivery before Expo 2020.
Expect shovels to hit the sands at various projects both at the Dubai Creek Tower district being developed by Emaar and Dubai Properties, as well as by the banks of the extended Dubai Canal under the watchful eye of a Meydan/Meraas joint venture. The opening of the canal to the Arabian Gulf should also revive interest in canalside plots running through Business Bay and, further back along the creek, in The Lagoons – a project first unveiled in 2006 and then re-announced in 2013 under an Emaar/Dubai Holding joint venture.
Dubai Holding will also be understandably keen not to lose the momentum it built following the Jumeirah Central launch on its most prestigious site opposite Mall of the Emirates.
The question bothering most of those involved in the Dubai property market is: when will the market recover?
Optimists such as Core Savills point to an expected increase in government infrastructure spending in 2017 ahead of Expo 2020 and expectations that the global oil price will recover which it says are already boosting prices in some areas of the city. JLL and Knight Frank say prices will start to recover in 2017.
However, pessimists point to the continuing strength of the US dollar – to which the UAE dirham is linked – which makes it more expensive for many overseas buyers to invest. They also say that most new jobs created in Dubai in 2017 will be for lower paid positions.
Cluttons says that it does not expect a recovery in Dubai’s property market until the end of 2017. And Phidar Advisory predicts that prices in Dubai will continue to fall throughout 2017 as a trend towards automation leads financial institutions in Dubai continue to shed jobs.
The conditions that made 2016 a challenge for the country’s bricks and mortar retailers – low oil prices, a softening local economy, redundancies at many employers – are not expected to change much in 2017.
According to the Dubai F&B consultancy Glee Hospitality Solutions, this year is forecast to be the first since 2009 in which the sector reports flat growth or a fall of up to a 5 per cent.
This month Mohamed Alabbar’s online platform Noon.com launches, offering 20 million products.
So while 2017 is likely to remain a challenge for retailers, consumers in the UAE are likely to benefit.
Many new hotels will open in the UAE this year, with Marriott brands prominent.
In Dubai, major openings on the agenda include Marriott’s 298-room Residence Inn Dubai Business Bay and 160-room St Regis Dubai Al Habtoor Polo Resort and Club in the first quarter. The Viceroy Palm Jumeirah Dubai, with 477 rooms and 221 Viceroy Residences, is expected in March, and the 200-room Bulgari Dubai and Residences in the fourth quarter. Rotana plans to open a 280-room property at Dubai Creek in the third quarter.
In Abu Dhabi, Marriott is to open the 400-room Marriott Hotel Al Forsan Abu Dhabi and the 172-room Aloft Al Ain in the first quarter, and the 257-room Edition Abu Dhabi in the fourth quarter. Rotana expects to add a 315-room property at Adnec in the third quarter, and the 354-room Saadiyat Rotana Resort and Villas in the fourth quarter.
AccorHotels’ Fairmont Hotels and Resorts expects to open the Fairmont Fujairah Beach Resort in January with 182 rooms.
In Ras Al Khaimah, Marriott plans to open the rebranded 32-villa Ritz-Carlton Al Hamra Beach in the fourth quarter.
And in Ajman, the 179-room Wyndham Garden is set to open on the corniche in the fourth quarter.
There are 26,889 hotel rooms across 97 properties under construction in the UAE, according to the data provider STR.
In India, as the new year begins, everyone’s focus continues to be on the fallout of prime minister Narendra’s Modi’s demonetisation of the highest value banknotes, a change which kicked off in November when he suddenly announced that 500 (Dh26) and 1,000 rupee notes were being banned to clamp down on the country’s widespread problem of black money. With restrictions on cash withdrawals expected to continue in 2017, the impact on the country’s economic growth, consumer spending and the poor will be closely watched. Many will be wondering if Mr Modi will have any similar surprises up his sleeve in 2017.
The Union Budget will also be a key area of interest. This year the budget, which is normally delivered at the end of February, will be presented on February 1, in a move away from what was a colonial-era tradition. There are expectations that the government will make changes to corporate taxes and income taxes to provide some relief in the wake of demonetisation.
Follow The National’s Business section on Twitter