Category Archives: Finance

Q1 results in the UAE mask less than stellar fundamentals

May 2, 2017 By in Finance, Corporate Governance Tags: , 1 Comment

We have recently seen a flurry of reports regarding the financials for the first quarter of this year.

Despite happy headlines, the fundamentals are not good. I will use some examples to show how to dig under the rosy announcements to get a better idea of the situation.

Let’s start with the banking sector, the blood flow of the economy. In their publicly presented financials there is a wealth of information from the two largest domestic banks in the UAE, First Abu Dhabi Bank (FAB), the merged FGB-NBAD, and from Emirates NBD.

Consolidated FAB net interest and financing income was year-on-year (y-o-y) for Q1 4.9 per cent lower – ie, Q1 2017 showed a decline of 4.9 per cent over Q1 2016. This is the income predominantly generated from the core business of a bank – lending and borrowing.

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Do US Airlines compete? ADIA becomes active. Does Arabtec make sense?

March 31, 2017 By in Finance Tags: , 2 Comments

When the “no laptop” ban on flights was announced by the US government there was a lot of discussion as to whether there was a commercial driver to that decision. I decided to investigate and with the help of the staff of The National, I was surprised to find that we could not identify any American airlines operating planes out of the UAE, only codeshares with other airlines.
So why was I surprised? Well, as people in the region are well aware, some of the largest American airlines have been complaining about Etihad, Emirates and Qatar and in particular they have accused them of unfair competition. Now, for there to be unfair competition there needs to first be competition. For there to be competition the airlines have to be doing the same thing. The three Gulf airlines focus on super long-haul routes, that is they don’t fly between American cities. I therefore assumed that since the American airlines were accusing the Gulf carriers of unfair competition then they must also be flying the non-stop long haul routes that Etihad, Emirates and Qatar are famous for.

It turns out that the Americans don’t in actual fact fly these routes. So the accusations are dishonest as presented. Why are the American airlines engaging in this subterfuge?
One thought that occurs is that they don’t have any airplanes cap­able of super long-haul flights. These airlines are so old that their fleets have short ranges, while the newer airlines bought Boeing 777 ER and Airbus A380 super long range airplanes.

If this analysis is correct then basically the American airlines failed to plan for technological advancements, saddled themselves with an obsolete fleet and are now trying to legislate their customers into using their inferior products and services. The UAE’s Telecommunications Regulatory Authority must be relieved that they are not the only ones using this tactic, as in their banning of Skype.
As an aside I am unhappy that American Airlines is the name of an airline as it means I’ve been wrestling with my autocorrect to type “American airlines”.
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Nike's CSR, Shuaa's acquisitions, and the Fed's impact on our economy.

March 21, 2017 By in Economy, Finance, Corporate Governance Tags: ,

I am once again in New York. The energy of this city is phenomenal. No show, no PR, just execution. One interesting experience is the discussion that people are having with me regarding Nike’s What will they say about you? campaign, which shows a video montage of Muslim women in hijab playing sport. The effect on Americans that I have met with is clear: Nike, a global American merchandising group, has unequivocally stated that wearing a hijab is neither a bad thing nor does it imply that women are inferior. Talk about corporate social responsibility (CSR)!

The genius of Nike is that their CSR is not limited to charitable work, important as such contributions are. Nike used their global brand to reverse an unfortunate wave of prejudice. While mayors in France are banning the hijab, Nike is celebrating the hijab in the most powerful way possible. Nike’s genius is thinking out of the box and blending CSR with commercial acumen that led to the announcement of a Nike hijab. You don’t have to be a brand expert to understand the power of a Muslim hijab emblazoned with one of the most powerful western commercial symbols on earth, a symbol not of consumption and excess but one of strength and power. There are, as usual, people offended on all sides. But that doesn’t change the effect, it just proves Nike’s strength of character in doing the right thing.

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Book Review: Manufacturing Consent

March 17, 2017 By in Finance, Book Review

Manufacturing Consent: The Political Economy of the Mass MediaManufacturing Consent: The Political Economy of the Mass Media by Noam Chomsky

My rating: 1 of 5 stars

Authors manufacture their own consent.

This is not a book on media, it is a book pushing the political agenda of the authors and is guilty of the very crime it purports to uncover.

I could not finish this book, but thought that I would write a review on what I read as I feel that the authors and the description were deceptive in terms of the book which falsely led to my wasting time trying to read it.

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Trust but verify: a deeper dive into the UAE’s latest business news

March 14, 2017 By in Corporate Governance, Economy, Oil, Finance Tags: , , , 1 Comment

Etisalat’s preliminary 2016 financial statements are available at the Abu Dhabi Securities Exchange. Earnings per share for 2016 operations? Dh0.97. Proposed dividends per share? Dh0.80. This gives a payout ratio of 82 per cent. Rationally, your payout ratio is high when you do not believe that there are any opportunities to invest in and so return cash generated to the shareholders.

Etisalat’s dividend policy would suggest that it does not see growth opportunities and therefore expects to simply be a yield play. This refers to business operations and not market price movements. Whether Etisalat is being rational in expecting the economy to stagnate, or worse, and is therefore taking a defensive cash position, or on the other hand is in denial and simply continuing to pay a historical dividend even though the payout ratio is high will be revealed by its stated strategy that it presents at the shareholders’ meeting.

If the strategy is defensive, closing certain operations or at least remaining steady, then the stated strategy will be consistent with the dividend strategy. If, on the other hand, Etisalat presents a transformation strategy or even an expansionary strategy, then this will be inconsistent with its dividend policy.

The suspense is unbearable.

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Venture Capital Lessons from India, Lebanon and Ireland

January 31, 2017 By in Investments, Finance, Government Tags: , , , 1 Comment

In a recent article I pointed out the failure points in the UAE’s venture capital ecosystem, in particular the lack of support for entrepreneurs and start-ups. In this article I’d like to review some of the initiatives other countries have launched that could be useful in upgrading our ecosystem.

Given the recent visit to India of Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, let us start with that government’s efforts, and in particular the Startup India initiative. This initiative is comprehensive, starting with a streamlined registration process. Importantly, it has a streamlined bankruptcy process that seems to be fair – no extra-judicial imprisonment if an entrepreneur cannot financially meet a liability. There are also tax breaks for the company as well as investors in the company.

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Kick-start the UAE’s venture capital ecosystem to boost the economy

January 10, 2017 By in Economy, Finance Tags: , , , 7 Comments

So why, if everyone is telling us that the oil price is going up, are rental taxes, sorry fees, being applied? Don’t get me wrong, fiscal reform is necessary, but if oil is going back up, let us give the common man a breather. Here’s an idea – let’s start with taxing everyone who has a monopoly agency. You know, the rich.

Speaking of announcements, I would like to introduce a new statistic, similar in importance to GDP, CPI (inflation), the unemployment rate, etc. I call this statistic the Reality Based Ratio. It is the ratio of the number of projects announced to the number of projects completed. Of course this needs to be adjusted for size of project and time needed to complete, but you get the idea. The higher the ratio, the lower the reality basis of the economy. People need to stop applauding projects announced and start applauding projects completed. Well, they don’t need to, they just should if they want any sort of economy in the future.

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A challenge we can meet

January 2, 2017 By in Economy, Finance Tags:

A vision for what the coming year will bring should include scenarios and actionable ideas. My vision will focus on what might affect the UAE and the wider GCC the most. These are forward-looking statements that can be wrong.

The factor that affects our economy the most is the price of oil and our level of production. The change in our level of production is unlikely to be material, even if one considers the agreed Opec cut decisions of late November. The question is the price of oil.

The main influence in 2017 on the price of oil is unlikely to be demand, which anyway will probably soften if America turns inward, but supply. In late November Opec and non-Opec countries agreed to oil production cuts that are unprecedented in breadth, depth and cooperation. It is that last bit that is the problem. If Russia breaks from the agreement, a likely scenario signalled by Rosneft and its chief executive, Igor Sechin, or if Saudi-Iran tensions flare up and cause a rift then we will see oil drop to between US$30 and $45. Shale oil will never allow the oil price to go over $65, probably lower. That means that our economic contraction will at best slow down in terms of the effect from oil.

Our economy will continue to show cracks in its ability to function without massive government spending.

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Saudi Vision 2030 must tap rich parts of the private economy

December 27, 2016 By in Economy, Finance Tags: ,

Using Saudi Vision 2030 as an example, in a previous article I pointed out that economic reform is difficult to get perfectly right on your first try, but I also pointed out that complaining about it without trying to provide solutions is usually an ineffective strategy for providing feedback to the decision makers. Especially since Thursday, when the Saudi government unveiled its budget in a manner providing a large increase in transparency and comprehensibility. The state continues to improve its part in achieving Vision 2030.

The Arab Spring, Brexit and the probable demise of EU 1.0, and Donald Trump’s plans are a product of the mismanagement of economic reform. This is not an article about politics and I take no sides here. This is an article about economic reform and how it has the power to change history. The idea here is to provide different ways of looking at economic reform to create tools that might be useful to all stakeholders.

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