- Increase in proportion of firms expecting improvement in business situation
- Optimism largely driven by export prospects and tourist arrivals
Improving domestic market conditions and strong prospects for international reach have seen businesses in Dubai welcoming 2020 with optimism. The quarterly survey of Dubai Economy showed that the proportion of firms anticipating improvement in business situation in the first quarter of 2020 has increased to 60%, from 58% for the previous quarter, with the Expo 2020 and tourist arrivals expected to energise commercial activity.
Softer demand, lower margins and less projects have had an impact in the last quarter of 2019 when 19% businesses rated their performance as below par, but Q1 2020 is expected to bring in new purchase orders, increased volumes and more jobs.
Firms in Dubai also count on the Expo to improve their credibility and relations with international companies, thus opening up opportunities for growth and exports. Exporters are slightly more optimistic than the overall business community with composite Business Confidence Index (BCI) scores of 128.8 points and 125.6 points, respectively.
Among 70% of the respondents who stated that they have expectations about Expo 2020, 56% expect rise in commercial activity, 20% expect improvement in business/market conditions, 14% expect increase in visitor activity and 7% foresee increase in construction activity.
Ali Ibrahim, Deputy Director General of Dubai Economy, remarked that the prevailing sentiment showed businesses in Dubai continue to go past challenges and make the best use of opportunities available to target new customers and markets.
“Initiatives to reinforce Dubai as a gateway and enhance ease of doing business have had a significant impact on overall economic activity in the emirate and particularly on trade and tourism. While the Dubai Industrial Strategy 2030 has energised the domestic manufacturing sector and diversified exports out of Dubai, local firms see an unprecedented opportunity for international exposure in the Expo 2020. Exporters targeting new markets and SMEs enhancing their competitiveness are particularly significant in the context of the external orientation and innovation focus of Dubai’s economy.”
Projection for volumes has displayed a year-on-year (y-o-y) increase, with net balance increasing from 47% for Q1, 2019 to 53% for Q1, 2020, as businesses expected improvement in economic & business conditions and seasonal demand. A stronger forecast for volumes has resulted in a more optimistic outlook for profits, with 62% of firms expecting net profits to increase in Q1, 2020 as compared to 54% for Q1, 2019.
Despite competitive pressure, firms are optimistic about the level of selling prices for the upcoming quarter. 63% of firms plan to keep selling prices unchanged, while 29% intend to increase prices amid expectations of improvement in business/market conditions.
Hiring intentions have improved on a quarter-on-quarter (q-o-q) basis to meet the expected rise in demand, with net balance increasing from 14% for Q4, 2019 to 16% for Q1, 2020. The net balance for wage levels has also increased correspondingly, from 7% for Q4, 2019 to 18% for Q1, 2020.
Manufacturing sector is more confident about its business prospects for parameters like wage levels, sales revenue, volumes, profits and hiring as compared to services and trading sectors. Within manufacturing, the metal segment is most optimistic about volumes for Q1, 2020, registering a net balance of 75%, supported by expected improvement in business conditions and demand, ahead of Expo 2020. In the trading sector, food & beverages and textile segments are most optimistic about volumes for the upcoming quarter.
Within services sector, tourism & hospitality (hotels & restaurants, travel and car rentals) and transportation segments are optimistic about volumes and expect better market conditions in the upcoming quarter.
Composite BCI for exporters has displayed a y-o-y and q-o-q increase of 3.7 points and 10 points to 128.8 points in Q4, 2019 as compared to 125.1 points in Q4, 2018 and 118.8 points in Q3, 2019, respectively. Outlook has strengthened on an annual and quarterly basis for the parameters – sales revenue, selling price, sales volume, hiring and profits.
Most exporters are upbeat about rise in demand, additional customers and new projects ahead of Expo 2020, while others mentioned that they have plans to export to new markets in the near future. 8% of firms have indicated plans to export new products/services and 20% intend to export to new markets in Q1, 2020. Leading new markets for export diversification are Africa and GCC.
According to the survey, competition remains the primary challenge, as cited by 42% of firms, followed by delayed payments (39%) and insufficient demand (24%). 10% of firms did not face any hurdles in their business operations in Q4, 2019.
SMEs have displayed stronger projections as compared to large companies, with Composite BCI scores of 127.0 and 124.8 points, respectively. This shows that SMEs are more confident about their business prospects for parameters like wage levels, selling price, sales volume, profits, new purchase orders, production volume and hiring as compared to large firms.
In the coming 12 months, 30% of firms plan to expand their current headquarters by way of upgrading technology, adding new products/services and opening new branches within/outside the Emirate. Manufacturing firms are more optimistic about their capacity expansion plans, followed by services and trading firms.