Improving business climate and growing demand drives confidence across Dubai economy
Improvements in the business environment along with faster recovery in the real estate and construction sectors and an expected surge across tourism and retail have seen business sentiments rising remarkably in Dubai during the third quarter of 2013.
The composite Business Confidence Index (BCI) stood at 141.6 points in Q3 2013, compared to 122.7 points in Q2 2012, in the quarterly business confidence survey conducted by the Department of Economic Development (DED) in Dubai. A quarter-on-quarter comparison shows that the Q3 index is 17.3 per cent up from the Q2 index due to rising demand and improved economic activity expected during the next quarter (Q4) owing to the festival season and seasonal tourist inflows.
The overall business outlook for the final quarter of 2013 has also improved remarkably compared to the previous quarter with 58 percent of respondents expecting an improvement in business conditions as against 40 per cent in Q3, 2013.
Anticipating increase across sales volumes, revenues, profits and hires many businesses are planning to invest in new capacity upgrades over the next 12 months as well. Moreover plans to upgrade technology have intensified as 60 per cent of firms revealed such intentions over Q3 compared to 53 per cent only in the previous quarter.
“A highlight of the observations and outlook gathered in the third quarter survey is the impact generated by the overall business atmosphere. Over and above seasonal upswings in economic activity there is a high level of confidence resulting from the steady improvements in the ease of doing business in Dubai,” commented His Excellency Sami Al Qamzi, Director General of DED.
“Apparently, businesses are willing to spend on growth and expansion, with economic activity across traditional non-oil sectors such as tourism and logistics bound to rise and recovery across other critical sectors such as construction gaining pace. This optimism and upward momentum will further create opportunities and new demand,” added Al Qamzi.
Real estate and construction companies are expecting new projects or contracts in local and regional markets, which would boost overall business activity. Driven by higher demand from all major sectors, 57 per cent of the transportation companies also expect better business in Q4 2013.
Almost 95 per cent of businesses expect either an increase or no change in sales volume during the next quarter (as against 83% in Q3 2013 and 90% in Q4 2012). Those who expect higher sales in Q4 have also grown in strength from 44 per cent to 61 per cent between the last two quarters.
The positive outlook is underlined by strong sales revenue expectations, with 64 per cent companies expecting better revenues in Q4 and another 32 per cent confident of stable sales, driven largely by real estate activity and rising prices. Selling prices are expected to remain stable with 73 per cent expecting no change in their prices while 22 per cent expect higher prices in Q4.
Exporters are more optimistic compared to the overall business community on sales volume, but relatively less optimistic on selling prices. Profitability expectations are also in line with the overall sales expectations, with 58 per cent expecting better profits based on higher volumes, new contracts with better margins and strong demand.
Consistent with the positive expectations on sales, 57 per cent of trading businesses are also planning to increase their new purchase orders in Q4 hopeful of acquiring new projects and in some cases to back their plans of launching new products over the coming quarter.
Continuing the trend from the previous quarter, larger firms are more confident compared to small and medium enterprises (SMEs) mainly due to relatively high expectations of volumes, hiring and profits. Businesses in the services (58%) and manufacturing (59%) sectors are more optimistic on sales volume, profitability and hiring, with service firms comparatively more optimistic on prices.
The outlook for employment also appears stronger with 26 per cent planning to increase their workforce in Q4 2013 compared to a 16 per cent in the last quarter and six per cent in Q4 2012. Reaffirming a brighter outlook, 72 per cent respondents stated their intention to invest in capacity expansion during the next 12 months and the percentage was higher (82%) amongst large firms.
Growing competition remains the key challenge for 34 per cent of the respondents while 66 per cent cited no such challenge, as against 22 per cent in the previous quarter, thus underlining an improving sentiment. Slowing demand, rising rental & leasing costs and the adverse impact of government fees and regulations on margins and cash flows are among other major concerns.
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.
A total of 508 companies in Dubai were covered in the survey. The companies were asked to indicate if they anticipated an ‘increase,’ ‘decrease,’ or ‘no change’ in key indicators such as sales revenues, selling prices, volumes sold, profits and number of employees.
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.
For further information on the surveys, contact Laila Buabdulla, Head of Economic Information at DED, on +971 4 4455884.
