Wednesday, 26 May 2010
Fujairah has always been one of the more tranquil members of the United Arab Emirates, famed more for its scenery, its natural attractions and status as a holiday venue than the ambition and relentless development of some of its peers. But of late it has undergone something of a transformation.
The city centre is still less metropolitan than most other emirates, but a smattering of high-rise towers has shot up in recent years, and the streets are noticeably busier, residents say.
For many years, the emirate has been a leading provider of ground rock aggregate for cement – mined from the craggy Hatta mountains that surround and dominate the city – but the recent increase in its prominence is attributable to its strategic location on the coast of the Indian Ocean.
Thanks to the deep and relatively calm seas off its coastline, Fujairah has emerged as the world’s second-largest bunkering hub for refuelling tankers and ships, after Singapore. The emirate is also expanding into trading and storage, mostly based by the port and in three free zones.
Fujairah can also thank its location for being chosen as the site of a potentially transformative project. Abu Dhabi is building a 360km pipeline stretching from Habshan, south-west of the UAE capital, to the port which, on completion next year, will funnel up to 1.8m barrels of oil a day directly to the Indian Ocean.
This will shave time off the oil’s journey to world markets, and allow shippers to avoid the higher insurance premiums that come with traversing the risky Gulf waters close to Iran.
Perhaps more importantly, it should also allow the UAE to keep exporting a large part of its oil in the event that a conflict involving Iran closes the main Gulf trading artery.
Fujairah’s new crude oil terminal, and many of the fuel storage tanks, will be placed on reclaimed land immediately to the north of the port, costing about Dh900m ($245m), according to Salem Khalil, a government adviser. “We are doing it just to keep up with demand,” he says.
Other significant projects are also underway. A $2.3bn integrated water and power plant is expected to come online later this year, solving an electricity shortage. The federal government is building a 78km highway between Dubai and Fujairah to slash the travel time between the two cities.
Officials hope the road, due to open early next year, will bring even more visitors, and entice some Dubai residents to relocate to the calmer, more picturesque emirate.
“The highway will bring a lot of flow to Fujairah. It’s a lot cheaper here than in other emirates – schooling, housing, offices, everything costs less really,” says Khalid al-Jassim, director general of the Fujairah Chamber of Commerce and Industry.
Abu Dhabi’s International Petroleum Investment Company, which is behind the oil pipeline, also plans to construct a 200,000 barrel per day oil refinery in Fujairah, which is pencilled in for completion in 2014.
These investments and a relatively buoyant local economy caused Fujairah’s population to jump by more than 10,000 in both 2008 and 2009 to about 165,000.
Since many newly constructed buildings have no electricity due to power constraints, a housing shortage has caused property prices and rents to continue to climb in spite of the UAE’s recession, residents say.
However, the economic downturn has not left Fujairah entirely unscathed.
Demand for aggregate, the main export, has slumped, and Fujairah’s main selling point to business – its relative cheapness – has been blunted by Dubai’s falling office rents. Moreover, the quickening pace of development has also brought unwanted problems. Oil spills frequently wash up onshore, hurting the important tourism industry.
Some say the spills are no accident. It costs tankers time and money to moor and wash out their hulls properly, so many simply dump oil slops in the sea under cover of darkness, safe in the knowledge that the industry is too important for Fujairah to act, one resident claims.
“Hotels and tourism are important, but oil has clearly been the priority. Some of the natural beauty on land and marine life has been trashed so ongoing vigilance is essential,” the resident says.
Other locals say the government is too cautious, and lacks a long-term plan for the development of the emirate. The port and the quarries make some money, but Fujairah’s economy and industry remains relatively undeveloped, one claims.
Nonetheless, locals are enthused by the emirate’s recent progress and near-term prospects.
“Give us five years and the city will be transformed,” says Mohamed al-Afkham, general manager of the Fujairah municipality. “It will be gradual and we won’t get carried away, but the next five years will be exciting for Fujairah.”
Inside a trendy, purple-lit bar, a mixed gaggle of media executives is reclining on leather couches, alternating between their rare beef steaks and industry chatter.
Yet this is not Dubai Media City, nor more recent pretenders such as Abu Dhabi’s TwoFour54 media zone, but a bar in Fujairah, separated from the rest of the United Arab Emirates by the imposing Hatta mountain range.
The media executives are in town to hear more about Fujairah’s “Creative City”, a 40,000 sq m free zone for media – where foreign news operations can set up without a local partner – slated for completion in stages this year and next. Officials hope a modest media industry will add another strand to its economy, currently based on tourism and rock aggregate export.
The recession has hammered many UAE media companies, triggering significant job losses and increased cost-consciousness. While there are empty offices in DMC, the region’s leading media hub, rents have remained high, and companies are not allowed to set up elsewhere.
Danish Farhan, chairman of Xische, a boutique design operation based at the DMC, estimates that even a hot desk in Dubai costs about Dh50,000 ($13,600) a year, while a small one-person office costs Dh70,000 or more. Service charges and registration fees add thousands more to the annual bill.
Meanwhile, a hot desk at one of Creative City’s outlets will cost about Dh15,000 a year, and a larger office about twice that, according to Fujairah Media, the free zone manager.
“I know companies that are moving over to Fujairah simply because of costs,” Mr Farhan says. “The DMC rents are astronomical for what you get, and a lot of smaller companies, especially start-ups, can’t afford it.”
Mohammed, general manager of the Fujairah Municipality, insists that Creative City will “complement, not compete” with Dubai and Abu Dhabi’s media zones, but the emirate is clearly targeting smaller operations in Dubai in particular, executives say.
Ras Al Khaimah, another mountainous emirate, has also set up a media free zone that has managed to attract smaller companies.
“The Leo Burnetts and Saatchis will continue to be based in Dubai, as it’s still more fashionable and a hub to service the entire region but, for cost-conscious companies, Ras Al Khaimah and Fujairah are becoming more interesting,” Mr Farhan says.
So far, 250 companies have registered with Creative City, according to Mekki Abdullah, chief executive of Fujairah Media. They range from medium-sized companies with about 70 employees to one-man shops, with the bulk being businesses employing three to eight people, he adds.
The first three buildings of Creative City are scheduled for completion by the end of the year, with the last four buildings set to be finished by the end of 2011. “It’s a typical green but simple business park, and not expensive, so if it ends up empty it won’t be a financial disaster,” Mr Abdullah says.
Fujairah officials hope the attraction of opening an office in Creative City will be enhanced when a federally-funded highway from Dubai to Fujairah is finished late next year, reducing the commute between the two emirates.
Dubai’s infrastructure, size, commercial vim and entrenched media industry still makes the DMC the place to be in the UAE and the wider Gulf, executives say.
However, in the future, its pre-eminence may be eroded by smaller companies moving to Fujairah and Ras Al Khaimah, and the emergence of Abu Dhabi’s TwoFour54. Experts also question the sustainability of so many competing media free zones in one country.
“At the end of the day, there’s one cake and everyone wants a piece of it. The big boys will still go to Abu Dhabi or Dubai to be close to their main markets, but we want to attract the people that serve those larger companies,” Mr Abdullah argues. “We will bend over backwards for people, which they appreciate these days.”
They may have limped back a little on Wednesday but there is no disguising that regional stock markets have had a bad year, and a bad May in particular. Nor is the outlook good, analysts say.
The MSCI Barra GCC countries index is down 3 per cent in the year to date, and has fallen a whopping 14.3 per cent in the month to date.
The only consolation is that the wider emerging markets pantheon has fared significantly worse this year.
“It’s been a bloodbath . . . May has been an extremely bad month through and through,” says Mandagolathur Raghu, head of research at Markaz, a Kuwait investment bank.
The culprit behind this week’s turmoil in local markets, analysts say, is the contagion effect of a flight to safety into US dollar assets by international investors concerned by the prospect of prolonged weakness in the eurozone. First it was Greece; now Spain finds itself at the centre of world attention.
As a result, yields on the benchmark 10-year US treasury bonds have tightened significantly and fell to a year-low on Tuesday.
The concern in the Gulf is that prolonged dollar strength in turn is bad for the price of oil. Oil also strengthened on Wednesday, to trade above $70 a barrel following Tuesday’s turmoil but it has fallen from highs of nearly $87 a barrel only last month.
Oil, of course, is the critical determinant of the performance of GCC stock markets and of the economies that underlie them.
“A lot of bearish calls have been made about oil,” says Mr Raghu. “When the dollar continues to strengthen you have this inverse relationship between the dollar and commodities. There is no logic behind this relationship but the dollar moves in the opposite direction to commodities.”
Mr Raghu points to gold, another traditional haven for those caught in a storm, as also indicating that the outlook for commodities generally is not good. Gold prices have risen markedly this year, but they have not picked up as much as anticipated.
Giyas Gokkent, chief economist at National Bank of Abu Dhabi, agrees that there is a portfolio shift going on as investors move out of euro assets and into the dollar and that this impacts on the GCC markets. He says Gulf investors have also been spooked by news emanating from China.
Since mid-April, Beijing has introduced a series of policies designed to cool an overheating property market and to dampen speculation. The fear is that these policies will hit demand for oil.
“China had been the first in terms of recovery – they are very important in terms of incremental demand for oil,” Mr Gokkent says. “Anything that indicates that China might slow down is bad for the oil price.”
Mr Gokkent says local markets may have got ahead of themselves and that the falls seen earlier this week were also a function of over-priced assets.
“I think we are not out of the woods yet. We’ll have to see how this eurozone crisis pans out. I think the key to watch is the euro-dollar relationship,” Mr Gokkent says.
Qatar may be about to head off on another high-profile shopping spree.
As the FT reported this morning, the Qatar Investment Authority has expressed interest in buying part of the US Treasury’s stake in Citi, which was bailed out in 2008 after it lost $50bn during the credit crunch.
If concluded, the deal would signal a return to a steady rhythm of overseas investments for the gas-rich Gulf state, which has made no secret of its desire to invest its abundant energy revenues into global assets as the government seeks to secure wealth for future generations with its roughly $75bn fund.Financial assets have long been at the top of the target list drawn up by the emirate’s powerful prime minister, who directs the strategy behind the QIA and its direct investment arm, Qatar Holding.
India’s luxury real estate developer Lodha set a new record in the country’s coveted battle for land when It paid more than twice the asking price in an open auction for a plot in the centre of Mumbai, India’s financial hub.
The Rs40.5bn ($850m) transaction is the biggest in India’s history for a plot of land and several analysts have dubbed risky and too expensive. But, is it really a ‘ridiculous’ buy, as one to Mumbai banker claimed? Perhaps not, when you look into the details.
The amount Lodha plans to pay , Rs81,818 ($1,729) per square metre for 25,000 sqm, clearly takes the cost of land in Mumbai into a new territory. But then, a glance at the other bids shows they weren’t much below the winning offer.
When Kuwait investors received anonymous text messages in the dead of night urging them to buy shares in telecoms operator Zain, they did something not many people in developed markets do. They paid attention.
Their demand helped the company's stock soar 23 percent in five February trading days, before the firm announced it would sell African assets in a $9 billion deal.
It's just one example of the risks an investor expects in any "frontier" market, but particularly the Middle East.
Qatar Investment Authority has expressed interest in buying some of the shares held by the U.S. government in Citigroup Inc., the Financial Times reported, citing people familiar with the matter.
A deal would depend on price, market conditions and the government’s willingness to sell its shares to a sovereign wealth fund at a discount, the newspaper said.
The first portion of shares to be sold by the government may be completed within days, the FT said.
Drydocks World LLC, Dubai World’s ship-repair unit, has sued Singaporean tycoon Tan Boy Tee for breaching an agreement tied to a S$2.4 billion ($1.7 billion) takeover deal.
Tan agreed not to compete with Drydocks in ship repair and related industries when he sold Labroy Marine Ltd., a Singapore- based shipyard operator he founded, to the unit of the Dubai state holding company in January 2008, according to filings with the Singapore High Court this month.
Tan bought a stake in Singapore shipbuilder Otto Marine Ltd. earlier this year, according to a Feb. 4 statement from the company. The shares were bought in the name of Tan’s son, and were sold by March 10, according to the court documents.
Dubai Financial Market PJSC paid two thirds of its acquisition of Nasdaq Dubai and transferred 80 million of its shares to NASDAQ OMX Group Inc.
The company will pay the remaining third to Borse Dubai Ltd. concurrently with the completion of the consolidation between Dubai Financial Market and Nasdaq Dubai in due course, it said in a statement on its website.