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Insight #4
INDUSTRY FOCUS:The retail sector and the impact of increasing technology
/ Global economy insight/ Middle East markets update/ Commodities price analysis
Welcome
Welcome to Insight #4. In our fourth edition of Insight we once again analyse the global economy and Middle East markets. Our focus this quarter is the retail sector and how technology is shaping its future.We also include our commodities price analysis to keep you up to date with the latest prices.
Page one / Global
Page six / United Arab Emirates
Page seven / Qatar
Page eight / Kingdom of Saudi Arabia
Page nine / Oman
Page ten / Commodities price analysis
Page twelve / Focus: Retail
Page nineteen / Currie & Brown offices
Currie & [email protected]
Insight #4
Insight / Page one
Global
Recent developments around the world have made the global economic outlook more concerning. The eurozone is on the brink of its third recession in just six years. Two of Europe’s powerhouses, Germany and France, only narrowly evaded a second consecutive quarterly retraction in GDP growth. The grey cloud of high unemployment and deflation are also posing longer systemic risks for the region. With conflicts in the Middle East and Ukraine and the continuing ebola epidemic, the outlook for much of the world is worrisome.
Oil prices have taken a nosedive due to unwinding quantitative easing (QE) in the US, slowing global demand and positive sentiments about North American future supplies through fracking. This has many wondering if this is good or bad news for most of us. The long-term repercussions of these developments cannot be understated. While many households will see a short-term rise in their disposable income, if oil output does not rise (particularly in the US) the resulting global slowdown could tip us into another global market crisis. Falling oil prices mean falling profitability for essential oil exploration and investment programmes. Debt defaults and interest payments for oil producing businesses and nations (particularly Venezuela and Nigeria) are expected to rise next year which could trigger another credit collapse in the long run. With a rising number of cuts in producer expenditure leading up to the new year, 2015 should clarify whether the world’s QE experiment and future oil output optimism will make or break us all. Ultimately, the cost of extracting oil is only rising as it is harder to reach, suggesting the market price is below equilibrium.
'It is increasingly clear that we have begun a new chapter in the history of the oil markets... barring any new supply disruption, downward price pressures could build further in the first half of 2015.' International Energy Agency (IEA)
15 SEPTEMBER
2014
15 OCTOBER
2014
15 DECEMBER
2014
$80 $76 $56
WTI CRUDE OIL PRICES/BARREL
Given our highly interconnected world, Insight is here to give you a snapshot of the important national developments and how we may all be affected.
With a booming stock market, melting budget deficit, record corporate profits and falling unemployment levels, the US, also the world’s largest economy, seems to be sailing in clear waters. It is also growing faster than any other mature economy with an annualised GDP growth rate for Q3 of 3.5%. The Gallup Economic Confidence Index recently reached its highest in the USA since records began in 2008. However, figures still show more Americans feel negative than positive about the state of their economy. This is not too surprising as average real wages have hardly risen over the last six years with many concerned about housing affordability in their city.
Overall the outlook for the US has remained relatively unchanged. While domestic fundamentals look positive for the capital of capitalism, overreliance on debt and QE pose risks to the sustainability of growth. With oil prices crashing largely due to the unconventional energy revolution in North America (eg from fracking and tar sand) geopolitics with the Middle East may be gradually shifting as the US could be energy self-sufficient by 2035 (IEA). For the first time in history, the
USA became the largest oil producer in 2013, overtaking Saudi Arabia (IEA). Following US airstrikes on IS and now talks of getting boots on the ground, this is sure to create uncertainty in markets over time if the situation continues to escalate. Such fears did play a role in the October glut in markets. Stock indices have since reached all-time highs. With the dollar appreciating and news in much of the developed and emerging markets looking sour, many investors are seeing Wall Street as a safe haven once again.
But is this necessarily a good thing? With record-low interest rates, forward guidance and public debt still at over 100% of GDP, there are many reasons to believe the world’s largest economy is being held up by twigs. The frequently cited Warren Buffet
Index (also known as the Total Market Cap to GDP Ratio) which correctly indicated the dotcom bubble of 2000 and the financial crisis of 2008 supports sceptics such as fund manager Marc Faber who believes that ‘we are in a gigantic financial asset bubble which could burst any day’.
The prosperity of the USA and much of the world will depend on how things shape up in the oil sector. On net, countries that are mostly reliant on oil exports can expect to lose, while all others should expect to gain through lower production costs and higher disposable incomes. Whether these low prices stay for good will depend on how the Organisation of Petroleum Exporting Countries (OPEC) reacts in the long-run and whether new supply pipelines will be profitable enough to be commercially viable.
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+2.2%
-1.5%
-1.9%
+1.4%
+2.6%
LATIN AMERICA2%
BRICS21%
SSA2%
GCC2%
AUSTRALIA2%
N. AMERICA25%
EU24%
JAPAN6%
WORLD GROWTH RATE FOR 84% OF WORLD GDP2015 = 3.3%
-0.1%
-0.2%
-0.4%
In the UK, the Bank of England forecast that the UK economy will grow an impressive 3.5% this year, remaining resistant in the face of subdued world demand. However, due to rising concerns over global risks particularly in Europe, the Office for Budget Responsibility downgraded forecasts for growth in the UK to 0.6% for the next quarter following 0.9% growth experienced last quarter. The British Chamber of Commerce has already noted falling activity in the export and manufacturing sectors in the UK as the situation in much of the eurozone has worsened. Nevertheless, the International Monetary Fund (IMF) forecasts that it will be the fastest growing of the G7 countries in 2015, at a nominal GDP growth rate of 3.4% with the USA in second place at 2.2%. Growing tensions between
the UK and the EU have surfaced as David Cameron refused to pay an extra £1.7 billion to the EU fund by 1 December because of upgraded estimates of Britain’s economic wellbeing relative to the rest of the EU. Although no penalties have been placed yet, a black hole in the EU budget has Brussels seeking an extra £34 billion from the UK. How this dispute is settled may have significant implications both economically and politically for the EU and UK, particularly with Euro sceptics winning popularity in the lead up to the March 2015 general election.
The eurozone's two largest economies, Germany and France, narrowly avoided slipping into a triple-dip recession with Q3 growth rates of just 0.1% and 0.3% respectively. Italy,
however, did not escape this fate, shrinking 0.1% and marking a 13th quarter without growth. The currency zone is plagued by the threat of deflation, leaving many wanting further stimulus. With unemployment in the monetary union at near record highs, only growing 0.3% in Q3, many will be eagerly listening to the outcome of the European Central Bank's (ECB) upcoming meetings. Some expect that further monetary expansion may be premature as the effects of the ECB’s previous actions (eg negative deposit rates) have not yet been fully realised.
So who has been performing the best in Q3? Believe it or not – Greece. This comes as much welcomed news following almost six years of near-continuous economic and social decline. Nevertheless, Greece and the eurozone still remain off their 2008 peaks (-26% and -3%) while skilled-labour unemployment lingers at near record highs. However, for the year as a whole, Greece was outperformed by other EU members such as the UK, Denmark, Sweden and Poland.
The recent sustained nosedive in oil prices has created some uncertainty and substantial losses to major oil-producing companies and countries. However, in the medium and long term, when questions over North American and OPEC supplies have been
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1990
1995
2000
2005
2010
2015
40%
60%
80%
100%
120%
140%136.5% DOTCOM
BUBBLE BURST
72.6%
56.8%
104.9%
119.2%
CREDITCRUNCH
WARREN BUFFET INDEX
NEXT CRASH?
answered, consumers and corporations in the predominantly non-oil production continent of Europe should reap the benefits of the changing times we are observing in the hydrocarbon sector.
Japan fell into recession following a second quarterly shrink in their economy with Q3 growth figures at an annualised rate of -1.6%. Most pundits are pointing the finger at April’s sales tax hike from 5% to 8% causing consumer spending to decline. With a second hike scheduled to bring this number to 10%, it is no surprise that Prime Minister Abe is looking to put this on hold. The radically pro-stimulus leader who came into office just two years ago called for a snap election in December to secure support for longer term structural reforms to help save Japan's economy. His party won a new two-third majority in parliament
and Mr Abe will serve four further years as PM. How has this been received? With record low voter turnout and no real positive move in Japan's market indices upon his re-election, it seems that many are disillusioned. No one knows how the nation of the rising sun can possibly escape a 20-year era of deflation. Japan remains in the largest sovereign debt trap in the developed world (134% of GDP) which is causing approximately 15% of tax revenue to leak through interest payments annually. Fiscal stimulus would only make the debt worse. The nation has already been printing money rapidly to help exporters and to encourage bond investors into the stock market. Interest rates are at record lows. Where is 'Abenomics' to turn to?
However, there is some hope for Japan. On 31 October the Bank of Japan announced that it will substantially increase its
already enormous monetary expansion, while the US$1.2 trillion Government Pension and Investment Fund will more than double its allocation to equities and foreign bonds. Corporation tax cuts will hopefully come in next year to foster foreign direct investment (FDI) and job creation.
The fate of the third largest economy affects all nations. We at Insight will certainly be keeping a close eye on the large developed economies for you in 2015.
Emerging markets' trends matter just as much. So let’s now turn our attention to the, still, most significant group of developing economies.
The term 'BRICS' was coined by Jim O’Neill in 2001 to distinguish the large, fast-growing and resource-rich economies which many believed would be the catalyst for rising global prosperity
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FRANCEGERMANYDENMARKPOLANDAUSTRIA
CYPRUS LOSERS:PAYMENTS DUE TO EU
WINNERS:PAYMENTS FROM EU
GREECEITALY
NETHERLANDSUK
-€1,500-€2,000(MILLION) -€1,000 -€500 €0 €500 €1,000 €1,500 €2,000 €2,500
WINNERS AND LOSERS FROM EU ADJUSTMENTNET PAYMENTS DUE TO EU BUDGET IN DECEMBER FOLLOWING GNI ADJUSTMENTS
for decades to come. The recent experiences of Brazil, Russia, India, China and South Africa would suggest that questions should be raised about these pillars of world growth. Our diagram shows that many key macroeconomic indicators for the BRICS have adversely shifted since 2001, bar India.
Brazil’s stagnant economy is suffering from moderate household consumption and low levels of investment. Inflation in Q3 is well above target at an annualised rate of 6.5% and the budget deficit is getting so bad that another credit downgrade is looming.
With tensions between Putin and other world leaders visible to the world at the G20 summit, fears of a new Cold War combined with nosediving oil prices have led the rouble to crash. The Central Bank of Russia was forced to drop its 15-year mandate of sustaining a semi-fixed exchange rate. EU sanctions and a prolonged period of falling hydrocarbon prices have put Russia on the verge of a recession. Inflation (8%), particularly for food, is very high, which is exacerbating the alarming level of capital flight which had not been seen since the 2008 financial crisis. In a desperate effort to halt inflation and a free-falling currency (roublefalling over 40% against the dollar this quarter), the CBR raised the
interest rate from 9.5% to 17% in mid-December. Not only has this failed to restore any investor confidence in Russia, but key European markets such as the UK have also seen sell-offs. With Russia's political stance not likely to change anytime soon, some are forecasting a major crash in their economy in 2015.
The Organisation for Economic Co-operation and Development (OECD) has forecast India to be in touching distance of China’s growth rate by 2016. Over the last four years, China has seen its forecast slip from about 9% to 7%, while India has moved from around 4% to 6% (IMF). Successful implementations of trade agreements and pro-business reforms have helped to explain much of India’s recent success.
China is currently experiencing a ‘period of pain’ as authorities are dampening the nation’s growth trajectory to one that is slower and more sustainable, according to Vice Finance Minister Zhu Guangyao. The IMF expects China’s growth to be at a 24-year low of 7.4% this year. With Japan and Europe’s slowdown, China faces headwind coming into 2015. On 21 November, China’s Central Bank revealed the extent of its worries about the slowing economy when it unexpectedly slashed its base interest rate for the first time in over two years.
In a recent publication the Conference Board China Center forecast that growth would fall to 4% by 2020. Though structural reforms and a slowdown in global demand may be the key factors decelerating their economy in the medium term, we could see regional disillusionment in China’s politics undermining their long-term prosperity too. Hong Kong’s 'umbrella revolution' continues and the recent local election in
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BRICS21.5%
REST OF THE WORLD78.5%
S. AFRICA 0.5%
CHINA 13%
BRAZIL 3%
RUSSIA 3%
INDIA 2%
SHARE OF WORLD GDP2014
Taiwan showed that the majority of citizens want to be more distant from the communist mainlanders.
South Africa’s government is struggling from a stubbornly high unemployment rate of 25% and an over-reliance on foreign trade and investment. Widespread power cuts (not seen since 2008)and diminishing revenues from manufacturing and commodity exports from Europe and China have been the prime reasons for the IMF’s downgraded forecasts of South Africa GDP growth this year (a mere 1.4%). Though the government's multibillion-dollar 20-year National Development Plan is expected to boost infrastructure and development in
the nation, rising costs, increased labour unrest and fragile business confidence are dragging down prosperity in one of the world’s most liquid emerging markets.
The big buzzwords in the GCC are ‘infrastructure investment’ with approximately US$4.3 trillion of planned projects throughout the region up to 2020 (MEED). Spending for the future is clearly a priority as all member states continue to focus on diversifying their output. These efforts are more imperative than ever given oil sector developments this quarter with many speculating that OPEC’s power is diminishing. Between the start of November and middle of December, 'about
US$150 billion has been wiped off the GCC markets' due to tumbling oil prices (Gulf News). The GCC is expected to grow at 4.7% for 2014 with Qatar (6.5%), KSA (4.6%) and UAE (4.3%) leading the charge according to the IMF’s latest October forecasts. With financial market liberalisation and positive market forecasts, there has been a surge of exciting IPO activity, giving the region a valuable boost in Q3.
UAE
According to Dr Seetharaman, CEO of Doha Bank Group, loan growth in the UAE is set to grow by at least 8% in 2014 as banks 'have been the prime
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60 5035
5530 26
4025
9585
90 4665
95
33 68
90
92
70
70 7545
75 45
KUWAIT KSA NIGERIA QATAR OMAN VENEZUELA UAE RUSSIA
% OF GOVERNMENT REVENUE
% OF EXPORTS
% OF GDP
KUWAITKSA
NIGERIA
QATAR
OMAN
VENEZUELA UAE
RUSSIA
OIL AND GAS DEPENDENCE
beneficiaries of a revival in which the economy grew by more than 4% as interest rates reached new lows'. The Morgan Stanley Capital International (MSCI) upgrade of UAE’s market indices from 'frontier' to 'emerging' on 30 May is doing a lot to entice foreign capital. For example, the Dubai Financial Market General Index has gained 50% so far this year making it the second best performer among more than 90 market indices globally (according to Bloomberg). This had encouraged Emaar Malls Group and Marka to issue International Public Offerings (IPO). Both IPOs were massively oversubscribed resulting in their share prices leaping 11% and 59% respectively. This will give a substantial US$1.7 billion boost to the retail and tourism sectors in the UAE. However, towards the end of the year, UAE markets have been particularly volatile with the Dubai Financial Market General Index sliding 7.4% on 11 December, its biggest one-day drop since 2008.
This injection is eclipsed by the Q3 announcement of a 25% expansion of Dubai’s Al Maktoum International Airport, set to make it the largest in the world. Although the second busiest airport in the world is running with spare capacity, this upgrade may well allow it to overtake London Heathrow for annual traffic of international passengers. The
latest Oxford Economics Report forecasts that aviation and tourism related activities will double between now and 2020 from US$26.7 billion (27% of Dubai’s GDP) to US$53.1 billion (37.5% of Dubai’s GDP). This is expected to create over 300,000 additional jobs making this project a significant step towards economic diversification. According to HSBC Global Research, over US$60 billion has been pledged for infrastructure investment with approximately half of that dedicated for Dubai’s airport expansion.
Although the UAE, particularly Abu Dhabi, has taken a knock with plummeting oil prices, there seems to be relatively little concern here when compared with other OPEC member countries. However, falling oil prices have resulted in an appreciation of the dollar and the dollar-pegged dirham. The net impact of this on the UAE is debatable. While this is making imports cheaper, tourism and export ought to be adversely affected. Higher salaries will be needed to continue attracting new foreign workers while those already working in the UAE may feel more incentivised to stay.
Such large infrastructure mega-projects are not without their risks. The IMF warns that these could 'weaken Dubai’s still substantial indebted GREs' (government-related entities). Although GRE
debt is estimated to be 141% of Dubai’s GDP, this is expected to fall approximately 65% before Expo 2020. With implicit backing from Abu Dhabi and the Dubai government’s reputation of resolving debt problems, such woes are not of great concern at present. Dubai seems to be growing in importance in the UAE with SMEs and larger organisations in almost every sector of the economy expected to grow substantially in the coming years. Transport, real estate, construction, aviation, hospitality, retail, telecom and financial services are just some of these noteworthy industries.
Qatar
Qatar is anticipated by many experts to be the fastest growing economy in the MENA region next year. However, the expected continued slump in oil prices should create more doubters. Qatar’s development is heavily reliant on state spending funded by oil and gas exports. The emir reassured the public that Qatar’s budget plan is ‘based on a very conservative estimate of the price of fuel’ averaging at US$62 a barrel. This was said when oil price was teetering around US$80 in early November. Less than one month later Brent crude oil closed at US$66. Although gas prices have remained relatively steady (Qatar remains the largest gas exporter in the Gulf), the half
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of Qatar’s economy reliant on the oil and gas sector may be in much more danger than officials predicted.
In early November, Qatar was cleared to host the 2022 World Cup as the FIFA ethics judge ruled that there was minimal contact between the country’s bid committee and ex-football boss Mohamed bin Hammam who is serving a lifetime ban for bribery and corruption. Though the games do matter for all football lovers and patriots, Qatar’s economic chief describes it as simply a ‘means to an end’ for the nation to reach its 2030 vision of being a diversified economy. US$195 billion is the target expenditure to achieve this vision. Although investment in stadiums will contribute to boosting tourism and sports, it will be the transport infrastructure spending that is expected to make the most sustainable contribution to their economy. For example, US$23 billion has been earmarked for road and rail systems and US$8.4 billion for the Doha New Port project.
Qatar is also continuing to use domestic financial markets and foreign investments to generate wealth. Their sovereign wealth fund (QIA) announced commitments to invest up to £10 billion in infrastructure projects in the UK such as HS2 and the Thames ‘super-sewer’. Qatar’s
market index upgrade in Q3 is attracting more foreign investors. The IMF stated in their recent October report that they expect Qatar to take a 1% share of the GCC GDP from the UAE and KSA within the next five years.
Kingdom of Saudi Arabia
With oil prices in freefall, many expect OPEC’s largest oil producer to cut supply to prop up prices. The members of this cartel, which controls 39% of global oil output, are all suffering due to the deceleration in global demand (particularly from China) and unconventional new sources of supply from North America. The Kingdom has taken a clear
stance in not cutting output to the outrage of some major oil producers such as Iran and Venezuela. With approximately 90% of KSA’s revenue coming from oil, many oil traders see this as a wise long-term strategy to choke out suppliers as production won’t be profitable for many if the price of a barrel lingers below US$80. Big questions remain about the future of the hydrocarbon industry. Will prices continue to fall in 2015? Are the days of OPEC’s dominance coming to an end with cracks emerging in this 54-year old cartel? The world will be keeping a close eye on KSA for the answers to these globally significant questions.
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35%REST OFWORLD
26%REST OF
OPEC
14%USA
13%KSA
(OPEC)
12%RUSSIA
GLOBAL OIL PRODUCTION 2014
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>>The IMF has not downgraded their forecasts for growth in KSA predominantly due to the ample state spending and private credit expansion supporting a huge pipeline of infrastructure projects. The construction, transport, manufacturing, finance and retail sectors are expected to benefit substantially from projects such as the Sudair Industrial City (US$40 billion), Riyadh Metro (US$22 billion) and eleven new stadiums (awarded to Aramco on 18 November 2014). However, labour constraints connected to residency visas and barriers to the 'Saudization’ of construction workers is said to be holding back the sector.
Following the announcement of stock market reform plans in July allowing greater foreign investment, Tadawul continues to see an influx of capital with IPOs such as the National Commercial Bank (raising US$6 billion) and Alhokair (expected to raise US$2 billion eclipsing rival Emaar Malls Group). This will help KSA to diversify its economy in the long run and be more internationally competitive.
Oman
Oman (like KSA) saw a downgrade in economic outlook from stable to negative by Standard & Poor’s (S&P’s) rating services in early December. A spokesperson at S&P
substantiated this move by stating that ‘high fiscal, external and economic dependence on volatile hydrocarbons receipts will persist, and that monetary policy flexibility is limited by the pegged exchange rate’.
Oman is likely to increase its fiscal deficit rather than adjusting its budget as a substantial share of government expenditure is going towards a more supportive welfare system. State spending cuts are also expected to trickle through in 2015 with some potentially important implications. Households expect to see higher utility bills, telephone tariffs and petrol prices. Key industries are also likely to feel the pinch. For example, gas subsidy cuts taking effect from 1 January are expected to cause cement prices to double in the new year. Costs will fall on contractors who will ultimately pass these onto the public and private sector investors who are so important to the sustainability of the Omani economy. With more than US$500 billion earmarked for infrastructure projects over the next 15 years, important projects such as Oman’s inaugural 2,235km rail project, Duqm Refinery (petrochemical) and the 265km Al Batinah Expressway may be delayed or under threat.
Commodities price analysis
■ Non-ferrous metal prices derived from London Metal Exchange, whereas steel prices derived from Middle East steel price indications; all based on average prices for the month.
■ The price of rubber derived from International Rubber Board, based on average prices for the month.■ All prices for commodities are based on bulk quantities, cash trade, US dollar.■ Where ranges have been provided, an average price has been assumed for the purpose of comparison.■ The rate for beams - channels has been derived from Far East/Europe/India market.■ Cement prices derived from UAE local supplier.■ Crude oil derived from light crude Brent, US market.■ Diesel rates are from Eppco.■ Concrete rates AED/m3 based on the average price of concrete 45/27 from four UAE suppliers.■ Reinforcement bars are taken from four UAE suppliers.
■ Cement rates AED/tonne based on the Dubai Government cap imposed in 2008.
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2014Commodities Unit Q1 Q2 Q3 Q4Non-ferrous metals Aluminium alloy US$/tonne 1,845.00 1,936.73 2,051.67 2,036.67 Aluminium US$/tonne 1,730.83 1,810.67 1,967.33 2,043.67 Copper US$/tonne 6,927.50 6,929.33 6,854.17 6,662.33 Lead US$/tonne 2,080.67 2,103.83 2,103.00 2,021.33 Nickel US$/tonne 15,281.67 18,863.33 17,375.00 16,095.00 Tin US$/tonne 22,870.00 23,035.00 20,986.67 20,193.33 Zinc US$/tonne 2,043.83 2,110.83 2,281.17 2,278.17 Steel Reinforcing bars US$/tonne 574.17 578.33 578.33 578.75 Reinforcing bars (Dubai local) AED/tonne 2,556.33 2,350.33 2,312.67 2,321.00 Steel beams - channel US$/tonne 654.17 633.33 678.33 654.23 Hot rolled plates US$/tonne 568.33 575.00 561.67 522.50 Cold rolled coils US$/tonne 701.67 650.00 650.00 611.00 Prepainted galvanised steel, 0.35 US$/tonne 907.50 880.00 825.00 800.00 Stainless steel HR coils 304 base US$/tonne 2,408.33 2,825.00 2,775.00 2,791.18 Energy Crude oil US$/barrel 103.62 105.52 97.45 74.17 Diesel (Dubai only) AED/gallon 13.75 14.01 14.01 13.25 Cement Cement AED/bag 3.50 3.44 3.50 3.59 Concrete (local supplier) AED/m3 12.94 12.72 12.94 13.28 Cement (government cap) AED/m3 360.00 360.00 360.00 360.00 Rubber Rubber US$/kg 241.36 251.19 220.50 196.45
Commodities price analysis
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-
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00
35,000.00
40,000.00
45,000.00
50,000.00
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012 2013 2014
Copper
Nickel
Tin
Non-ferrous metals(2006 - 2014)
US
$/to
nne
-
15.00
30.00
45.00
60.00
75.00
90.00
105.00
120.00
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2006 2007 2008 2009 2010 2011 2012 2013 2014
Crude oil (2006 - 2014)
US
$/ba
rrel
-
5.00
10.00
15.00
20.00
25.00
30.00
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2006 2007 2008 2009 2010 2011 2012 2013 2014
Cement (2006 - 2014)
AE
D/b
ag
-
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2006 2007 2008 2009 2010 2011 2012 2013 2014
Reinforcing bars
Steel beams - channel
Hot Rolled Plates
Cold Rolled Coils
Prepainted Galvanised Steel, 0.35
Stainless Steel HR Coils 304 Base
Steel (2006- 2014)
US
$/to
nne
-
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012 2013 2014
Lead
Aluminium Alloy
Aluminium
Zinc
Low non-ferrous metals(2006 - 2014)
US
$/to
nne
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2009 2010 2011 2012 2013 2014
AE
D/g
allo
n
Diesel (Dubai only)(2009 - 2014)
FOCUS: Retail
Introduction
With ‘Black Friday’ providing a much-needed boost to retailers, and shopping festivals soon to be upon us, the retail environment is entering its peak season. The sector is enjoying a boom in the Middle East, with a number of retail developments either being refurbished, extended or being constructed. As the economic environment improves and consumption increases, landlords and tenants are seeking new and exciting ways to entice shoppers into their stores, to have them stay longer and spend more. As other mature markets see the continued expansion of online shopping, the ease and convenience of ‘click and buy’ or e-tailing is disrupting the conventional brick-and-mortar trading environments.
The Middle East is seeing continued growth in tourism and destination retailing combined with increased levels of disposable income and personal wealth. Alpen Capital reported that on the demand side, the GCC’s retail sales are expected to grow by a compound annual growth rate (CAGR) of 7.7%, reaching US$270.3 billion by the end of 2016. The majority of GCC states are predicted to realise growth of 5-7% whilst the Kingdom of Saudi Arabia is expected to see 9.5% growth.
Retail is not only about luxury. In line with population growth within the GCC, food retail sales are anticipated to grow by 8.8%, according to Alpen Capital, with non-food retail expected to grow by 6.6%. And as palates and lifestyles assume a more healthy, fresh and organic focus the development and refinement
of supermarkets and hypermarkets will continue to match these demands.Linked to the growth in tourism and the GCC as a transportation hub, duty free and travel related sales in the Middle East are forecast to reach US$5.6 billion in 2016, according to Alpen Capital. Indeed, as Dubai Airports passes the 70 million passenger movements per annum mark, Dubai Duty Free (the largest single airport duty free retailer in the world) is anticipating continued growth in sales to US$1.9 billion in 2014. This represents approximately 5.19% of global market share or 45.73% of regional market share, according to sales analysis by Generation Research. Verdict Research, part of the Informa Group, estimates that the global airport retail market will reach US$59.2 billion in sales by 2019, a rise of 72.9% from 2013. Combined with growth in emerging market affluence, the development and mobility within the Asia Pacific region will be a key contributor to this significant growth.
As a key contributor to non-hydrocarbon economic diversification, occupied gross leasable area (GLA) in the retail sector is projected to reach 15.8 million m2 in 2016. Recent development and refurbishment projects including the Mall of the World in Dubai, Dubai Mall
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Artist’s impression of the Mall of the World, the world’s first temperature-controlled city, which will be built along Sheikh Zayed Road in Dubai. The mall will be capable of receiving 180 million visitors a year. Source: Gulf News (Image credit: WAM)
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extension, Mall of the Emirates extension and Yas Mall in Abu Dhabi underline the growth and investment taking place across the GCC. But how does the region compare globally?
A.T. Kearney’s latest 2014 Global Retail Development Index ranks the UAE in 4th place with Kuwait 8th, KSA 16th and Oman 17th in terms of attractiveness. With current geopolitical instability in surrounding countries, the UAE has reinforced its position regionally while South American countries (Chile 1st) populate the majority of the top ten locations alongside China (2nd). With major global events such as Expo 2020 in Dubai and Qatar hosting the FIFA World Cup in 2022, the construction and infrastructure investment programme will also fuel growth in retail development.
When reviewing global retailer footprint and exposure to the GCC markets, Abu Dhabi is seeing significant growth with The Galleria, a 33,000m2 high-end shopping and dining destination on Al Maryah Island. The new 'super regional' mall on Yas Island, Aldar’s Yas Mall, also added 232,000m2 of ‘experiential retail’ to coincide with the conclusion of the 2014 FIA F1 Grand Prix linked to Ferrari World. With such development, according to CBRE, Abu Dhabi was ranked 4th in a global top target markets for retail in 2014. Paris (1st), Tokyo
(2nd) and Hong Kong (3rd) led the table with Dubai (19th) as the only other GCC location included in the top 20. In overall retailing terms, the UK leads the percentage of retailers present in a country (57.5%) with the UAE in 2nd place (54.5%), according to CBRE. Likewise, London represents the leader at city level with 57.0% of retailers represented whilst Dubai takes 2nd place with 54.7% of retailers represented. Across the region, Kuwait ranks in 12th position with Qatar 26th and Oman in 59th place, in the same analysis.
So with an increasing population, local and expatriate personal wealth growth and increased consumption, the environment within the Middle East retail market is primed for growth. As consumers become more sophisticated in their demands, retail offerings become less exclusive and the convenience of e-tailing and technology integration drives customer preference and experience, what global retail trends will be seen here in the Middle East market to maintain attractiveness and growth?
1 CHILE
CHINA
URUGUAY
UAE
BRAZIL
ARMENIA
GEORGIA
KUWAIT
MALAYSIA
KAZAKHSTAN
TURKEY
RUSSIA
PERU
PANAMA
INDONESIA
KSA
OMAN
SRI LANKA
NIGERIA
INDIA
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
TOP 30 DEVELOPING COUNTRIES FOR RETAIL INVESTMENT (A.T. KERNEY)
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Retail technology trends
Research conducted by Blackstock (Retail’s Digital Future) has highlighted the growing trend for integration between physical and virtual environments. As smart technology and personal digital devices become more prevalent, connectivity and data/information exchange between customer and retailer is moving from a ‘should have’ to a ‘must have’. Blackstock indicates that ‘customers are shopping and browsing and informing themselves on the go and they expect the same from retailers’.
Big data and smart analytics
Leveraging data collected and mined from the internet habits of consumers combined with mobile technology and apps, suppliers, inventory information and competitors.
From an owner/tenant perspective, big data and smart analytics can also be used in the operation and maintenance of real estate portfolios. With efficient use and operation of both landlord and tenant areas, utility consumption (cooling, power, communications, light, etc) can be managed and controlled remotely. Combined with digital building models (BIM), assets can be managed, modified and adapted more efficiently enabling reduced tenant/customer disruption.
Augmented reality (AR)
The ability to superimpose digital graphical representation or information on top of physical elements via digital devices.
Home furnishing, apparel or personal service retailers such as IKEA are now able to provide AR to enable customers to view their products or services digitally within their physical environment. Intel’s ‘magic mirror’ allows customers to virtually try on an outfit without the inconvenience of a traditional changing room. From a real estate perspective, again combined with Building Information Models (BIM), new or refurbishment projects can be viewed on location to visualise their impact. Facilities management providers can use AR to see through walls, floors and ceilings to view components that may require servicing or replacement, reducing downtime and increasing system performance.
SO WHAT ARE THE CHALLENGES (AND OPPORTUNITIES) FOR SMART TECHNOLOGIES?
>>
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Beacons and location technology
Using digital transmitters to bounce tailored messages to mobile devices, gather data and determine people’s precise location within a given area.
Retailers use beacons to target specific offers or promotions, for example, when customers are located in specific areas of their stores. From a real estate perspective, designing in smart networks, wi-fi, etc. enable beacons to be installed by landlord and tenant. Consumer behaviour analysis can be digitised and modelled for retail environment design improvement, enhancing the customer experience.
Mapping
Using global positioning technologies to produce precise, layered digital maps containing 'real-time' information.
Apps are now being developed and deployed that provide ease of direction finding for customers in large retail environments. The system becomes a virtual personal shopping assistant that will learn and direct the customer to what they are looking for. From a real estate perspective, deploying BIM in the build phase combined with laser scanning in operation, will enable both customers and FM services to create actual layout, systems and retail environments enabling improved reconfiguration work, system upgrades and so on.
3D printing
Turning a computer-based design into a physical 3D object by using a special printer, which builds it layer by layer, using single composites or substances.
With new technological innovations, early adopters are already enjoying the novelty of 3D printers. However, as scale and volume increase, so does the ability for customers to tailor their needs and for retailers and suppliers to enable the product to be printed. Indeed, the leading technology institution Carnegie Mellon University and Disney Research have created a 3D printer capable of printing a customised teddy bear in a few hours (www.disneyresearch.com/project/printed-teddy-bears/). From a real estate perspective, the future may provide reduced floor area as products are printed rather than stored. The international contractor Skanska is developing a 3D printer using concrete that, combined with robots, will both fabricate and construct concrete structures and panels.
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Wearables and fashion technology
Devices which seamlessly integrate into garments and worn accessories, perfectly combining form and function.
With Apple set to start retailing their new Apple Watch, proximity payment devices at Points of Sale (POS) smooth the process of transaction and introduce the potential for alerts and vouchers to be provided to enhance the customer experience. The current challenge remains combining technology in fashionable and attractive devices or garments. From a real estate perspective, in construction Google Glass, for example, can enable BIM models at the workface to be viewed, enhancing productivity and problem solving while also providing enhanced health and safety provisions for operatives. In the operational phase, wearable technology will further enhance the ability to detect, maintain and replace components of the building fabric and systems in a more efficient and pre-planned manner.
Biometrics
Data harvested from our actual bodies, combining other emerging technology trends to create real-time, bespoke functions.
From laser scanning for best-fit apparel selection to reducing the risk of e-tailing purchases being incorrect, reducing rates of return, inventory, etc, biometrics are already in place for mobile devices and can be easily translated for enabling secure transactions using fingerprint payment systems.
Digital wallets
Money that only exists as computer code and has no physical counterpart including loyalty cards, cinema tickets, etc.
An extension of Apple’s Passbook combined with Apple Pay, for example, allows payment methods to be digitised and 'tokenised'. The key benefit is transaction cost saving for the retailer and convenience for the customer.
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SUPERREGIONAL
MALL
REGIONAL MALL
COMMUNITYMALL
NEIGHBOUR-HOOD MALL
CONVENIENCE MALL
CONCEPT Similar to a regional mall but offering more variety
General merchandise or fashion-oriented offerings.Typically enclosed with inward facing stores connected by a common walkway. Parking positioned on the external perimeter.
General merchandise or fashion-oriented offerings.Wider range of apparel and other soft goods offerings than neighbourhood malls.
Convenience-oriented
Attached row of stores or service outlets managed as a coherent retail entity
TYPICAL GLA (m2)
>90,000 30,000-90,000 10,000-30,000 3,000-10,000 <3,000
TYPICAL ANCHORS
Full-line or junior department stores, mass merchant and/or fashion apparel stores
Full-line or junior department stores, mass merchant, discount department and/or fashion apparel stores
Discount store, supermarket, pharmacy and large speciality discount stores (toys, books, sporting goods, etc)
Supermarket Convenience stores
TYPICAL NO. OF TENANTS
N/A 40-80 15-40 5-20 N/A
CLASSIFICATION OF RETAIL CENTRES
BASED UPON THE URBAN LAND INSTITUTE (ULI) AND INTERNATIONAL COUNCIL OF SHOPPING CENTRES (ICSC)DEFINITION AND CHARACTERISTICS OF RETAIL CENTRES
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Reproduction of the contents of this publication is prohibited without the express written permission of Currie & Brown. The contents of this publication are sourced from data which we believe to be reliable in the context thereto. This is for information purposes only and should not be treated as a substitute for professional advice. Currie & Brown does not accept liability in respect of any claim which may arise from errors or omissions contained herein.
Abu Dhabi trading conditions
In the UAE’s capital Abu Dhabi, available retail space increased by 400,000m2 to 2.6 million m2 with the addition of Yas Mall and Capital Mall in Mohammed Bin Zayed City. Further super regional malls have been announced in and around the city including Al Maryah Central, Saadiyat Mall and Reem Mall, along with the extension of the existing Marina Mall leading to a significant surge in supply in 2017/18. Macy’s, following its fellow brand Bloomingdale's in Dubai Mall, is planning to enter the Abu Dhabi market along with a Bloomingdale’s offer taking over 48,000m2 in the Al Maryah Central development, connecting with The Galleria.
The addition of Yas Mall to Abu Dhabi’s retail landscape is the story of the year with the Chalhoub Group creating the region’s largest luxury department store at Yas Mall.
According to JLL, vacancy rates in the capital remain low at 2% with Abu Dhabi Island rents up 3.4% from 2013 to AED 3,000/m2 per annum and down 2.2% in locations off island, to AED 1,860/m2 per annum.
Dubai trading conditions
Dubai currently has approximately 2.9 million m2 (GLA) of retail space available. This is an increase of 7% from 2011 with a projected 13.7% growth in retail space supply by 2016, according to JLL’s latest market review. With vacancy rates reducing from 13% to 8% in the last year, prime rents in super regional malls have increased by AED 2,700/m2 per annum (54% increase on 2013 levels).
The other big news in Dubai this year saw Emaar Properties spinning off its malls portfolio through an initial public offering (IPO) creating Emaar Malls Group and raising US$1.6 billion.
With Dubai Holding announcing in July 2014 the development of the Mall of the World, other developers are shifting focus to community and neighbourhood centres, servicing the increased levels of residential development in and around the city. Likewise, Meraas has completed The Beach development in Jumeirah Beach Residence (JBR) with continued development of a similar design concept at City Walk.
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