Gradual process to lift utility subsidies



Electricity rates in the UAE are among the lowest in world, petrol costs a fraction of what it does in most countries, and even water is heavily subsidised. There is no doubt that consumers enjoy these savings. There will be teething pains as subsidies are gradually lifted, but it is in the long-term interest of us all. The other side of the coin is that subsidies distort the market and consumer behaviour. If water or electricity is priced artificially low, there are no incentives towards conservation, which has consequences both for the environment and national development. This week, The National has carried stories about the possibility that electricity rates in Abu Dhabi will be raised and agricultural subsidies which encourage profligate water usage will be ended.

This will be a gradual process, but it is already well underway. Abu Dhabi's Executive Affairs Authority (EAA) has already committed to reducing the demand-side consumption of oil, power and water. In terms of water alone, an EAA study completed last year showed that over 10 years it would be possible to cut the growth rate of consumption by as much as 30 per cent. One example of unsustainable water use is related to Rhodes grass crops. Subsidies given to farmers amounted to Dh800 million ($217.8m) in 2006, as we report today. In turn, cultivation of the crops accounted for 60 per cent of agricultural water usage in the emirate - even though the crop does not make economic sense without subsidies.

As this subsidy is phased out in the Western Region this month, there has to be consideration for the welfare of farmers who have depended on it. To ensure their long-term economic welfare, farmers should instead be encouraged to grow crops that are better adapted to the region's environment. Equally, as the Abu Dhabi Executive Council decides on whether to raise electricity prices in line with market costs, there may be some economic pain. At present, Abu Dhabi's electricity rates of 15 fils per kilowatt-hour for expatriates and five fils for Emiratis are among the lowest in the world. Mohammed al Bowardi, the Council's Secretary General, has promised to "do everything to rationalise the electricity consumption".

In part, lifting subsidies will save the Government money that could be spent on other long-term projects. Even more important, this gradual process will build a more efficient economy - where power and water cost what they are worth. That is the road to long-term sustainable use of resources.

How to improve Arabic reading in early years

One 45-minute class per week in Standard Arabic is not sufficient

The goal should be for grade 1 and 2 students to become fluent readers

Subjects like technology, social studies, science can be taught in later grades

Grade 1 curricula should include oral instruction in Standard Arabic

First graders must regularly practice individual letters and combinations

Time should be slotted in class to read longer passages in early grades

Improve the appearance of textbooks

Revision of curriculum should be undertaken as per research findings

Conjugations of most common verb forms should be taught

Systematic learning of Standard Arabic grammar

Warlight,
Michael Ondaatje, Knopf 

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Install an air filter in your home.

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Shower or bath after being outside.

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Stay indoors when conditions are particularly poor.

If driving, turn your engine off when stationary.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Famous left-handers

- Marie Curie

- Jimi Hendrix

- Leonardo Di Vinci

- David Bowie

- Paul McCartney

- Albert Einstein

- Jack the Ripper

- Barack Obama

- Helen Keller

- Joan of Arc

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Rating: 4.5/5