Dubai Business Confidence Index Reaches 120.7 Points in Q2 of 2013

Ease of business and improving market conditions boost business confidence in Dubai

Manufacturing sector leads in profit estimates, service sector foresees new jobs while trading firms are more optimistic on sales volumes

A stable business outlook and improvements in the business environment have pushed the composite Business Confidence Index (BCI) for the second quarter of this year to 120.7 points in Dubai, a 14.6 points increase over the same period in 2012. BCI has also grown by 6.7 points between the first two quarters of 2013 as seen in the quarterly business confidence survey conducted by the Department of Economic Development (DED) in Dubai.

Over 83 per cent of the businesses in Dubai expect an increase or no change in sales volumes during the third quarter of 2013 while many plan to invest in hiring or technology upgrades. Export firms and larger enterprises in general are more confident on sales volumes, profitability and prices compared to small and medium enterprises (SMEs).

“Dubai has placed considerable emphasis on aligning its business environment with the best in the world and such efforts are translated into growing confidence among businesses. As per current estimates, Dubai’s real GDP grew by 4.1 per cent in the first quarter of 2013, followed by 4.7% in Q2 as trade and other non-oil sectors flourished and the prevailing trends confirm that such growth is here to stay,” commented His Excellency Sami Al Qamzi, Director General of DED.

The overall business outlook for Q3 2013 remains steady with 93 per cent respondents reporting either an improvement or stability in business conditions. Businesses in the manufacturing sector are more optimistic with respect to profits; service firms have indicated higher optimism for hiring, while trading firms are most optimistic on volumes sold, especially food traders who expect higher demand in Ramadan.

The survey shows that 43 per cent businesses expect an improvement in their sales revenue in Q3 2013 while another 40 per cent see stable outcomes. The increase in sales revenues will continue to be driven by an increase in real business activity (volumes) as prices are expected to remain largely stable, with 79 per cent businesses expecting no change in their product prices.

Profitability expectations are in line with the overall sales expectations, with 43% expecting an increase based on the expectation of winning new contracts with better profit margins.

With respect to volumes sold, 44 per cent of the respondents expect an increase during Q3 2013. It has also led to 40 per cent businesses looking to increase purchase orders in the next quarter in anticipation of new projects and the usual rise in demand after the end of Ramadan.

New purchase orders are expected by 40 per cent of the respondents while a 43 per cent that plan no such changes stated they have sufficient stocks

Sector-wise comparisons of sales volume expectations show that 47 per cent of the manufacturing firms, 45 per cent in trading and 43 per cent in services as upbeat on Q3 2013.

Within the services sector, projected sales volumes are relatively higher for real estate and ICT firms as strengthening market conditions drive expectations on new projects/contracts in the local as well as regional markets. Driven by increased demand from all major sectors during this period, 45 per cent of the transport companies also expect more projects/contracts in Q3 2013.

Hotels and restaurants are less optimistic on the next quarter due to families leaving on summer holidays and the seasonal nature of tourism. Around 20 per cent businesses in the sector expect an increase in volumes while a slightly higher proportion (25%) expect a corresponding decrease in their sales volumes.

While 21 per cent of the respondents cited no challenges impacting their businesses in Q2 2012, their strength grew to 22 per cent in Q2 2013. For the remaining, the topmost challenge in Q2 2013 was competition, much like the previous quarter. Other challenges mentioned include slowing demand and government fees adversely impacting profit margins. Larger firms pointed to availability of skilled labour as their second biggest challenge after competition.

Improvements in the ease of doing business in Dubai are bringing growth into focus as 74 per cent of the respondents said they would invest in expansion compared to 30 per cent in Q2, 2012. Technology upgrades are in the agenda for 53 per cent compared to 31 per cent last year.

Optimism among businesses is lending stability to jobs too as 82 per cent of the businesses expect ‘no change’ in their workforce while another 16 per cent to increase their headcount in the next quarter, compared to 11 per cent in Q2 2012. Service firms are more optimistic with respect to hiring compared to their manufacturing and trading counterparts.

DED conducts the quarterly surveys to measure the perceptions of the business community and capture the business outlook for the future. The survey serves as an effective tool to measure the pulse of the business community and allow the government and the private sector to track and analyse major trends and issues that have a bearing on economic activity in Dubai.

Conducted in collaboration with the global consultancy firm Dun & Bradstreet (D&B), the quarterly survey uses a rigorous sampling approach that ensures adequate representation of small, medium, and large enterprises across the manufacturing, trading, and services sectors, while giving due attention to the perceptions of the exporting firms in Dubai.