What would a dirham buy you in 1973?

Fifty years ago the UAE introduced a new currency for a new country. Out went the old dinar and riyal, and in came the dirham, and its subdivision, the fils.

The value of the dirham, though, was very different in 1973. Allowing for inflation, the purchasing power of a single dirham back then would be the same as around Dh7 in 2023.

Today, you won't get much change out of Dh20 for a Starbucks or Costa cappuccino. Fifty years ago that same hot drink would cost only Dh2 – the equivalent of spending Dh140 today.

Not that there were any fancy coffee shops in 1970s Dubai or Abu Dhabi. Even colour TV would not be available for another year. Which was probably just as well. A 21 inch set – top of the range at the time – would have set you back the equivalent of about Dh7,500 today when colour broadcasting arrived in Dubai in 1974.

A new 1973 model Mercedes might seem like a bargain at Dh36,000, but you would need the equivalent of Dh250,000 today.

From the beginning, the dirham has matched the dollar exchange rate, a peg of about one dollar to Dh3.67. The reason was simple. Oil, by far the UAE’s most important export, was also priced in US dollars, and the peg gave the currency a degree of stability.

Not all products were subjected to price increases. Back in 1973, a pocket electronic calculator, newly arrived on the market, cost about US$100 or Dh396. But 50 years ago you would have needed the earning power of Dh2,700 to afford what today is merely a free feature on a computer browser.

Other products have also withstood inflation. When Coca-Cola increased the price of a can by 50 fils to Dh1.50 in January 2011, it was the first increase for two decades.

The year 1973 also featured a steep rise in global food prices, with inflation reaching 20 per cent in some countries. Despite this, the UAE was importing record amounts of food, with the US Department of Agriculture reporting many products nearly doubling in the year ending 1974.

Total imports rose from US$780 to almost $2 billion in a year, the report noted, with products most in demand from US companies including canned sausages, macaroni and canned peaches.

The UAE, it noted, was a “rich new nation” thanks to oil, with “the world’s highest capita GNP [Gross National Product] exceeding $10,000” – the equivalent of US$68,000 today or Dh250,000.

The year 1973 was memorable not only for the launch of the dirham, but for the wealth of the country. The October War saw an oil embargo imposed by Opec against countries that had supported Israel. By the end of the embargo, the following year, oil had risen in price by 300 per cent in dollars – and in dirhams.

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Tips on buying property during a pandemic

Islay Robinson, group chief executive of mortgage broker Enness Global, offers his advice on buying property in today's market.

While many have been quick to call a market collapse, this simply isn’t what we’re seeing on the ground. Many pockets of the global property market, including London and the UAE, continue to be compelling locations to invest in real estate.

While an air of uncertainty remains, the outlook is far better than anyone could have predicted. However, it is still important to consider the wider threat posed by Covid-19 when buying bricks and mortar.

Anything with outside space, gardens and private entrances is a must and these property features will see your investment keep its value should the pandemic drag on. In contrast, flats and particularly high-rise developments are falling in popularity and investors should avoid them at all costs.

Attractive investment property can be hard to find amid strong demand and heightened buyer activity. When you do find one, be prepared to move hard and fast to secure it. If you have your finances in order, this shouldn’t be an issue.

Lenders continue to lend and rates remain at an all-time low, so utilise this. There is no point in tying up cash when you can keep this liquidity to maximise other opportunities.

Keep your head and, as always when investing, take the long-term view. External factors such as coronavirus or Brexit will present challenges in the short-term, but the long-term outlook remains strong.

Finally, keep an eye on your currency. Whenever currency fluctuations favour foreign buyers, you can bet that demand will increase, as they act to secure what is essentially a discounted property.

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Director: Athale

Rating: 4/5

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7.40pm: Conditions Dh240,000 1,600m - Winner: Walking Thunder, Connor Beasley, Ahmed bin Harmash

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10pm: Handicap Dh190,000 1,400m - Winner: Rodaini, Connor Beasley, Ahmed bin Harmash

UAE currency: the story behind the money in your pockets

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.”