x Abu Dhabi, UAEWednesday 17 January 2018

New set of tyres will get economy back on the road

A relatively simple fix can start things moving again.

I was driving down Sheikh Zayed Road the other evening when I heard clattering noises coming from the rear of my car. I ignored it for a couple of kilometres, attributing the sounds to an errant bird hitting the window, perhaps, or some clutter in the boot shifting in an odd way. But soon enough I was on the side of the road, looking bemusedly at a flat right-rear tyre as the ghostly shapes of trucks whizzed by in the night, their headlights casting moving shadows over the unfortunate scene.

After some rummaging around, I found the jack and stuck it under the spot the owner's manual called the "jack point". I pumped on the handle a few times before realising it wasn't working. My mobile phone, coincidentally, had run out of battery power earlier in the day. So I waited, and waited. Eventually Shakeel, a Pakistani man driving a Toyota Hilux plastered with a blue Al-Futtaim Carillion logo on its side, came to my aid. He didn't speak much English but he had a jack. We changed the tyre and an hour later - and Dh200 (US$54.45) lighter - I was back on my way.

The story may be a typical one for regular users of the motorway between Dubai and Abu Dhabi. But it also illustrates, in microcosm, how a complex system like a car - or a financial machine - can be hampered by a seemingly incidental problem. Simple tools were there to fix the broken tyre but they didn't work. Authorities in the UAE appear to recognise that a similar but far more complicated challenge lies before them in repositioning the country's financial and economic framework for a return to stability, growth and prosperity.

Despite Dubai's well publicised attempts to reduce its debt and restructure some financial obligations, the country has not suffered as much as many others. At the same time, the Central Bank, the Ministry of Finance and the governments of individual emirates have made decisive and important moves to help put things on a sounder footing. The Central Bank and the Abu Dhabi Government last year lined up $20 billion in financing for the Dubai Financial Support Fund, which is overseeing the distribution of assistance to state-owned enterprises. And the Ministry of Finance injected Dh120bn into the banking system last year.

With the country's financial engines in much better repair, the focus now is on the details of the system. And there the Government is also playing an active role in getting things moving. Analysts say jump-starting Amlak and Tamweel, the UAE's two major Islamic mortgage providers, may be an important part of the country's economic tyre-changing. The companies, both of them publicly listed, were very successful in Dubai's property boom, helping extend financing for apartments and villas to eager investors.

They were a crucial lubricant in the boom times, facilitating property purchases that would not have been possible without them and strengthening demand for property. Amlak and Tamweel have about Dh20bn of Islamic mortgages on their books, according to annual financial statements for last year, comprising about a third of the UAE's estimated Dh60bn mortgage market. But they have been in stasis for more than a year, after trading was halted and talks began about a merger in late 2008. Both have stopped making loans.

Continuing efforts to stimulate the property sector "will only bear fruit if funding is injected into Tamweel and Amlak, regardless whether as a merged entity or on a standalone basis", says Ghida Obeid, an analyst at Shuaa Capital in Dubai. "Funding is key to Amlak and Tamweel to be able to tap into the mortgage lending again, which will have a ripple effect on the property market." As the merger talks continue, led by a committee set up within the Ministry of Finance, Tamweel's chairman has said completing the transaction and re-starting the two companies was "vital for the economy".

"From our side we see some progress," Sheikh Khaled bin Zayed Al Nahyan, the chairman, said in January. The drawn-out merger talks have been frustrating for investors who haven't been able to buy or sell shares for about 16 months. Yet discussions appear to be nearing a resolution, thanks to some generous plans to inject more money into the merged entity - possibly up to Dh2bn, according to Sheikh Khaled.

As Amlak and Tamweel are merged, the Government of Abu Dhabi has already stepped in to help fill the gap they left, creating Abu Dhabi Finance last year to offer mortgages on numerous projects in the capital. Low interest rates have helped to stimulate the property sector there and, once Amlak and Tamweel get back to business, the UAE will have a strong pair of home finance companies to bolster the market.

Meanwhile, despite their struggles, there are some bright spots for Amlak and Tamweel. Amlak may not be making loans any more and defaults may be increasing but the company, astoundingly, is still making money on loans to consumers. Last year it reported Dh89 million in profits on retail loans despite large write-downs to account for defaults. "From a core business perspective, Amlak is still being able to generate reasonable margins on its existing loan book even though we are seeing more pressure in terms of quality," Ms Obeid says.

"Going forward, Amlak's mortgage portfolio is expected to continue tightening yet will continue to generate positive operating income." That's a rare ray of sunshine for a company that has reported losses for the past few quarters. It is likely to be a rough journey ahead, to be sure, but with the right tools, a quick tyre change could soon help get the companies - and the local property market - back on the road.