The National reports today that the Abu Dhabi Energy Company known as Taqa is on a roadshow while both mall-king Majid Al Futtaim and Al Hilal Bank are preparing for sukuk issues.

Avoiding euros

Debt issues in anything other than euros are popular because of the eurozone crisis and so interest rates on these bonds are low for the borrowers. Even Dubai bonds are still trading on pre-2008 yields and bonds denominated in UK pounds paid a lower yield than German bonds last week.

Deutsche Bank is said to be advising clients to take advantage of this window of opportunity to borrow at low costs with their own bond issues. Issuing sukuk is a route to debt raising only available to very large regional corporates and government related entitites.

The regional bond markets were effectively re-opened this month with a $3.75 billion bond sale by the Abu Dhabi-owned International Petroleum Investment Company. Abu Dhabi Islamic Bank and Abu Dhabi Commercial Bank also both raised $500 million in Islamic bonds or sukuk in Novemeber. Other issuers will use these successful sales as a benchmark.

However, the window of opportunity to raise cheap debt may close very quickly. European and US banks are being squeezed for credit and this situation could persist for several years not months.

Local bonds gain

Regional lenders will therefore be more in demand and be in a position to demand higher bond yields. It is a microcosm of the global shift towards higher interest rates as central bank manipulation breaks down.

But bond holders should take care. As interest rates surge the value of bonds will plummet. They are probably not a good buy at all.

If one side-effect is the creation of a dynamic regional market for both conventional and Islamic bonds then this is to some extent welcome as the region has long been deficient in this regard. And to a certain degree this augurs well for a partial decoupling of UAE companies from the chaos now starting to envelope global financial markets.

So long as oil prices also stay high in this maelstrom of deleveraging, money printing and inflation then the UAE will be a lot less affected than many countries.

Dubizzle.ae, the UAE listings website has 22,590 units available for rent and 17,482 for sale. There have apparently been around 2,000 new properties delivered so far this year, though talk of 20,000 units in 2011 looks very wide of the mark.

Stalled projects

Analysts often include the Nakheel projects Jumeirah Park and Al Furjan on the list of deliveries this year while even a cursory glance at these abandoned construction sites suggests this is just not going to happen. Many other projects remain either stalled or on a very go-slow construction schedule.

That just puts back the Day of Reckoning to some extent. The latest report on the UAE economic outlook from HSBC is not terribly optimistic (click here), and has trade and commercial life falling back with the global economic slowdown that is becoming painfully obvious from recent economic data.

It is true that local mortgage rates are now at their lowest ever levels but people will only take out large home loans if they are confident of remaining employed. Also the expectation of lower house prices is partly self-fulfilling if a lot of people decide to wait and see what happens.

Price falls

How much lower will prices fall in such an environment? Well, with prices down 50-60 per cent from the peak of the boom of 2008 the downside is somewhat limited as if they dropped by the same amount houses would be worth nothing.

The gloomier end of the property industry hazards a further 10-15 per cent average fall in Dubai house prices. ArabianMoney concurs but we do have more optimism about the future prospects thereafter with the UAE economy benefiting from the higher oil prices that will come with global money printing and a consequent local revival in trade and commercial life in advance of the industrialized economies.

How long this recovery will take depends on the severity of the world economic recession this time but for Dubai property this is a buying opportunity, not that many will see it that way.

Perhaps the IMF is trying to pour oil on troubled water, as if its forecasts can have some miraculous effect. But if they do have any sway with business and investors these misleading forecasts will simply misallocate capital and become yet another macroeconomic problem for the region.

Full disclosure?

Japan’s 15 per cent output slump in March is the worst on record but at least the government is being more upfront and transparent, or more so than the IMF dares in the Middle East and North Africa.

What is really happening to GDP in Egypt with tourism on the floor and trade badly disrupted and consumer demand hardly robust in these circumstances? Ditto Tunisia, Bahrain and Syria. Libya was conveniently dropped from the survey.

That is what business and investors want to know, not a forecast dressed up to impress whatever government remains. It is not actually that difficult to make reasonable forecasts in difficult times and looking only a matter of months into the future.

The problem is that they are going to be negative and that will upset somebody who would rather stay in a state of denial. Business and investors who do that will be dead in the not so long term.

State of denial

The regional record of recent IMF forecasts is terrible. Take its denial of the recession in Dubai almost three years ago. That led to a totally misleading view of this downturn, and most inexcusably an inability to then report the recovery correctly (click here).

Business and investment in the Middle East and North Africa needs something better than this. The IMF has all the data and could clearly do a much better job. Anybody looking at its record knows that, and it ought to be above regional politicking.

Watch this interview to see what you make of this approach. It seems muddled and misleading and not ultimately very helpful to any party.

This is the problem for potential investors in DP World, the world’s third largest port operator assembled by Dubai Government from Jebel Ali and the acquisition of the port interests of the UK’s P&O a few years back.

Poor record

For when DP World was listed on the Nasdaq Dubai just before the financial crisis hit, only around a fifth of the company’s sold was sold in an IPO. Shareholders who paid $1.30 per share in November 2007 saw their stock plummet in value, and today it is 65 cents.

Now there is much excitement about a 20 for one reverse stock split, a technical move to boost the share price that brokers say is part of the preparation for a listing in London. This is reckoned to be crucial for attracting more foreign investors to the stock, although that was also said about the Nasdaq Dubai listing.

However, the bigger concern may still be the possibility of another government sell order for DP World. It is no secret that the $14.7 billion bank rescheduling for DP World’s parent group Dubai World allows for asset disposals to meet bank repayments that will very likely include DP World stock at some point and in unknown quantity.

Future prospects

ArabianMoney can see a great future for DP World as the global economy gets back on its feet, although that recovery could slip up again on debt banana skins. But as a stock market investment DP World has not been kind to shareholders so far, and it could be that there are better places to invest in the future of Dubai as a trading city.

The ArabianMoney newsletter this month highlights in some detail the relative merits of Emaar Properties, for example (click here) or the investment bank Shuaa Capital.

Sure DP World might well get a boost if it makes it into the FTSE 100 and institutions are forced to buy. But then Emaar could also go down that route too and the government stake is only 32 per cent.

The host city nonetheless stole the show with a phalanx of UAE ministers led by none other than High Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President, Prime Minister and Ruler of Dubai.

Port connections

The UAE has been developing its links with the Dark Continent with major port infrastructure investments by Dubai World and Jebel Ali Free Zone, and agricultural land purchases in places as far flung as Sudan and Kenya by Abu Dhabi.

Around 1,800 turned out for the COMESA Investment Forum in Dubai, a notable increase on the 800 who made it to Sharm el Sheikh in Egypt last year. Emirates Airline was widely praised for its excellent connections, as was Dubai hospitality.

Indeed, the strengths of Dubai as a regional business hub figured high on the agenda. Trade with the 19 member states is up from $2.9 billion five years ago to almost $13 billion. African GDP growth rates have been up alongside China and India, and the internal rate of return on projects is said to be 29 per cent as opposed to 10 per cent for the European Union.

The possibilities for expanded investment are enormous, from tourism and hotel development to food, healthcare, IT and mobile phones as well as the more obvious oil exploration and refining. Africa’s natural resources are mind blowing with all types of commodities from metal ores to agriculture.

Many speakers emphasized the logistical challenges. It is one thing to produce a product in Africa, it is quite another to get that product out of this massive landmass. But infrastructure is improving in many countries with the Chinese in particular leading the way with huge road and railway projects.

Human capital

However, the most interesting part of the conference was meeting and talking to African managers and officials. This was not the old fashioned aid-brigade looking for handouts. Most were impressive technocrats boasting considerable education and international experience. Apparently in the Chinese ports and Dubai’s Jebel Ali you will find many Africans learning on the job these days.

Of course a free trade zone of 430 million people that includes Egypt, Libya and Zimbabwe is not without its problems. But there was a can-do attitude and a willingness to give up past mis-practices. One official related how it used to take five hours to get through the airport in Angola but now it is no different to Dubai.

Africa is still a troubled continent, yet many nations do seem to have bounced off the bottom early in the last decade and for many high growth rates give much hope for the future. For the others we can only offer our prayers.

The statement from the embassy was petty cool, saying: ‘It seems reasonable to advise those who don’t have a specific reason to stay in the Tokyo area to get away … for a few days.’ The UAE, UK  and US governments are advising against non-essential travel to Tokyo for the timebeing.

Citizens staying

Those citizens living within one of the world’s most highly populated city have nowhere to go and are staying put. But the risks are real. Officials have admitted that a second reactor at Fukushima could explode and have declared a state of emergency at another at Onagawa, and problems with a third at Tokai.

Any release of radioactive material into the atmosphere would reach Tokyo within hours given the right wind conditions. Then there is the risk of a very large aftershock. This is a typical occurence after a major earthquake, hence the 70 per cent risk weighting, hardly good gambling odds.

The Big One

Earthquakes are extremely unpredictable phenomena and Tokyo has been bracing itself for ‘the big one’ for decades. This would come on top of the humanitarian and power crisis already evident from the 9.0 earthquake that struck last Friday.

Some 600,000 people are now living in temporary accommodation and 210,000 have been evacuated from a 20 kilometre radius around the stricken Fukushima reactor; 1.4 million are without water supplies and 2.6 million without electricity.

Prime Minister Naoto Kan said the country was experiencing its worst crisis since the Second World War. This is clearly a different class of emergency to the Kobe earthquake in 1995, and the financial implications are therefore going to be greater by extension.

Is this the black swan financial markets have feared since the global financial market two years ago? It pretty obviously has to be just that.

The Zain sale has been nothing if not controversial in Kuwait. Some shareholders think Zain’s African empire is being over-valued as a risky emerging market enterprise. Others reckon this is the last great emerging market and selling now is stupid.

UAE bullish

Etisalat is clearly with the bulls on Africa, although Zain does also have profitable operations in Bahrain, Iraq, Jordan, Kuwait and Lebanon. For Etisalat buying Zain is a sensible diversification away from a saturated local market with its duopoly competitor du now gaining market share.

Whether the price is right or the timing is less clear than the strategic argument. Emerging market stock markets have been trending lower and do show many signs of losing their appeal as the flavor of the month. Food and energy price inflation are more damaging to emerging markets than the developed world.

Then again buying key positions in growing markets is a long tried formula for success, and overpaying in a rising market can quickly turn out not to have been such a bad thing to do. Only when the underlying business turns out to be disappointing is this not going to work, and any visitor to Arabia quickly learns that mobile phones rule in this part of the world.

Indeed, Etisalat should surely take heart from the vehment opposition from some Zain shareholders. If they were all delighted to be selling out then you would have to wonder if buying an emerging markets telecoms company at this time was the right thing to do. That they do not want to sell must make Zain a good deal for Etisalat.

Those who have read Branson’s books can see a repeat of one of the keys to his business success. He knows how to protect his downside by selling an asset for cash in anticipation of bad times to come. The Virgin Megastores went ages ago to prepare for another recession.

The question then is surely knowing that Branson only sells when the market is about to tank, why would any airline be foolish enough to give him a good price now? Strategic positioning and market share, perhaps, but business is actually mostly about profit.

From the Gulf States the airlines Etihad and Emirates are mentioned in The Daily Telegraph article but Qatar Airways might be the more likely choice. The cost mentioned of $500 million to $1 billion would not be a problem for the gas-rich state that recently bought Harrods, and wants to be seen to have made the big time.

Then again Lufthansa would clearly love to bolt Virgin into its growing network of European airlines that includes Swiss, Austrian and BMI. Could Branson be setting up an auction to the highest bidder?

The Federal Open Market Committee yesterday said it would buy up treasury debt at a rate of some $75 billion a month. This represents money printing on a scale not seen since the depths of the economic crisis, and a failure to put the economy back on a sustainable growth track.

Unsuccessful strategy

For that to be achieved the US economy needs to deliver more than three per cent GDP growth compared with two per cent in the last quarter. Without it unemployment will stay high.

Thus far the main impact of the inflated US money supply has been felt in rising commodity prices. This actually inhibits an economic recovery and does not help.

Indeed, it is far from certain that printing money so that public spending can counter the contraction of the private sector is anymore viable than communism. The spreading power of the state is generally acknowledged as a downer for efficiency in any economy.

General Motors as a state company is not necessarily a more efficient company, nor Citigroup a better bank. And both these giant corporations were taken into government ownership as a result of the crisis.

So does continuing a policy like QE that has not worked so far make sense? It has slowed progress of the disease but does not appear a cure for the depression afflicting the US economy.

Perhaps this is just the managed decline of a great power, and to expect a central bank to magic a recovery is expecting too much. Since when did a central bank create economic growth? This is a function of business activity.

Oil price implications

Where does that leave the Gulf States? Actually things are not so bad. Global credit remains tight so that leaves real estate in trouble. But the Fed’s commitment to stoking up commodity price inflation is good for the longer term, as oil is the lifeblood of regional commerce.

Short-term, however, there is a strong risk of a correction in financial markets to the downside, and that would also bring lower oil prices. Therefore the next six to twelve months might not look so good, but the inflation that the Fed is putting into the global financial system will ultimately pay dividends for commodity producers.

Those Arabian investors who can navigate the next year carefully will then be well placed to profit from future years. The latest ArabianMoney investment newsletter is out now. Subscribe and start planning for a better future (click here). You will want to buy investments before the upturn, not afterwards.

But then this is a conservative estimate. Over the past decade the GCC economy has more than tripled its GDP to around $1 trillion this year. The hot spot Dubai was the fastest growing city in the world from 2003-8, with 16 per cent annual growth ahead of anything in China. Doha was not far behind.

EIU report author Jane Kinninmont told The National: ‘The flip side is that oil dependency will continue and non-oil growth will still be dependent on the Government’. Well, sadly even with massive oil wealth you cannot magic a vibrant private sector into existence, or perhaps you can.

Private lessons

One of the lessons that might be learned from the 2003-8 boom years is that government getting into every sector of the economy does not work, particularly when it decides to take a direct management role rather than acting as a passive investor.

Greater openness to foreign inward investment goes hand-in-glove with a new friendliness to private enterprise. For future entrepreneurs are more likely to be found amongst globally savvy expatriates than locals with knowledge only of their own markets, although the two can work together.

Let them come and the private sector will really take off. Some are already in the Gulf, and many more are thinking of coming because the GDP growth rates at home look lousy for the next decade and business opportunities are very limited. Penal tax rates on the entrepreneurially gifted are also a factor.

Could Dubai, for example, lever its traditional strength as the free zone and trading hub for the region to become a new centre for global entrepreneurs? It should happen but the government would need to wind down some of its own business activities to give the private sector room to grow.

Privatization and MBOs

It could do that by privatizing state enterprises or arranging management buy-outs with new management sold an actual stake in an existing business. These are controversial ideas but in the wake of the worst economic slump since the 1930s a radical rethink is appropriate.

Usually what is needed to re-start a cycle of economic growth is a catalyst. In the early 2000s in Dubai that was the freehold ownership revolution. Changes to make foreign investment and residence more attractive could do the same thing now.

The EIU report said that the region should focus on industries where it has a competitive advantage such as the energy-intensive manufacturing of petrochemicals, plastics and aviation as well as mining and minerals-based industries. Then of course came tourism, hospitality, trade and logistics and aviation.

Looking at this long list, and considering the supply and demand picture for oil prices, and it is not hard to see the GCC doubling its GDP in a decade. But to treble it again would be a better achievement and finding a bigger role for private enterprise and foreign investment is the key to making that happen.

(Peter Cooper is the author of ‘Opportunity Dubai: Making a Fortune in the Middle East’ click here to buy a copy from Amazon.com or visit Spinneys or Magrudys in Dubai.)