ajman ded - introduction · web viewin terms of market orientation, 78% of the export oriented...

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Ajman’s Composite Business Confidence

Index

Ajman’s Composite Business Confidence

IndexThe First Half,

2018

January 2018

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Ajman’s Composite Business Confidence Index –

First Half 2018Copyrights ©Planning and Development – Department of Economic Development – Ajman Government – UAE – January 2018

P.O. Box 870 Ajman – United Arab Emirates.

Tel.: 7033888 6 971+ Fax.: 7033998 6 971+

E-mail: [email protected] Web: www.ajmanded.ae

Department Team work :1. Ms. Zahra Ali AlBanna – Director, Planning & Business

Development Department2. Dr. Abdalla Mohamed Hamid – Economic Expert

(Report Translation & Finalization)3. Dr. Hany Ibrahim Ata – Senior Economic Researcher

(Survey Execution & Follow-up)4. Mr. Muhammad Hussain – Specialist

(Survey Report Preparation)5. Mr. Abdullah Abdul Karim Azmi – Administrator

(Report Finalization & Coordination)

http://www.ajmanded.ae/

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H. H. Sheikh Humaid bin Rashid Al Nuaimi

Member of the Supreme Council - Ruler of Ajman

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H. H. Sheikh Ammar Bin Humaid Al Nuaimi

Crown Prince of Ajman

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H. H. Sheikh Ahmed Bin Humaid Al Nuaimi

Chairman of the Department

TABLE OF CONTENTSINTRODUCTION..............................................................................................7

ABSTRACT.....................................................................................................9

SECTION 1 OVERVIEW ON THE COMPOSITE BUSINESS CONFIDENCE INDEX.....121.1 BUSINESS CONFIDENCE INDEX BY COMPANY SIZE, FIRST HALF OF 2018...............121. 2 BUSINESS CONFIDENCE INDEX BY SECTOR, FIRST HALF OF 2018.........................131.3 AJMAN BUSINESS OUTLOOK – THE FIRST HALF, 2018.............................................141.4 EXPECTED BUSINESS SITUATION THROUGH THE FIRST HALF, 2018.......................161.5 IMPACT OF VALUE ADDED TAX (VAT) DURING THE FIRST HALF, 2018....................16

SECTION 2 SECTORIAL ANALYSIS FOR THE COMPOSITE BUSINESS CONFIDENCE INDEX.........................................................................................................17

2. 1 MANUFACTURING SECTOR.....................................................................................182. 2 CONSTRUCTION SECTOR.......................................................................................192. 3 WHOLESALE & RETAIL TRADE SECTOR..................................................................192. 5 TRANSPORT & STORAGE SECTOR..........................................................................212. 6 RESTAURANTS & HOTELS SECTOR........................................................................22

SECTION 3 EXPORTERS OUTLOOK................................................................243. 1 THE MOST IMPORTANT EXPORT MARKETS AND PRODUCTS...................................253. 2 THE MOST IMPORTANT CHALLENGES....................................................................26

SECTION 4 BUSINESS ENVIRONMENT OUTLOOK............................................28

SECTION 5 KEY BUSINESS CHALLENGES IN AJMAN THROUGH THE FIRST HALF, 2018...........................................................................................................31

5.1 THE MOST IMPORTANT CHALLENGES AFFECTING BUSINESS IN AJMAN:..................315.2 SECTORIAL MOST IMPORTANT CHALLENGES:.........................................................32

APPENDIX 1 STUDY SAMPLE CHARACTERISTICS.............................................34

APPENDIX 2 KEY BUSINESS CHALLENGES BY BUSINESS SECTOR.....................38

APPENDIX 3 STUDY METHODOLOGY..............................................................40

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Introduction

IntroductionAn Emiri Decree No. (1) of 2015 dated 07.01.2015 concerning the Department of Economic Development in Ajman has been issued for the Department to do its part in achieving the overall and sustainable economic development in the Emirate. The Emirate of Ajman has features that qualify it to be on the map of the most attractive areas for investment locally and regionally. The Department aims towards the achievement of a comprehensive and sustainable economic development in the Emirate by carrying out the following: The realization of sustainable economic development particularly the

adoption of policies to effect the transition towards a green economy. The organization of economic affairs and the stimulation of the business

sector in the emirate through the adoption of integrated policies and legislations and the best management practices in relation to economic activities and the use of the latest technical methods in economic data collection and the formulation of sound plans to ensure the optimum utilization of material and human resources available in the emirate.

The provision of the economic infrastructure to diversify the economic base and develop the economic sectors in the emirate.

The development of a suitable investment climate to attract national and foreign investment through the provision of sufficient data and information about the economic activities and investment opportunities in the emirate and the formulation of plans to promote and market the emirate and its products of goods and services.

The provision of trade protection and inspection for the economic entities and activities and ensuring fair competition in doing business in accordance with the prevailing national and local legislations.

In order to gauge the perceptions of the business community, the DED has launched Ajman’s half year Business Surveys with the key objective to provide a snapshot of Ajman’s outlook for the following period. These surveys will help to create a comprehensive index, which captures business expectations that will be tracked over a half year.In addition to the future expectations, the survey addresses key challenges affecting business growth and development, and assesses the investment outlook over the twelve-month horizon.

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ABSTRACT

Abstract The Composite Business Confidence Index for the first half of 2018

stands at 116 points, indicating a strong positive business forecast for the Emirate of Ajman. The BCI is 7 points higher than the index value in the first half of 2016, as businesses are hopeful of higher demand with increasing demand, rising construction opportunities, increase in exports and the on-going tourist season.

The Composite Business Confidence Index for SMEs stands at 114 in the first half of 2018, while large companies are more optimistic with the index at 125 points. Large companies are much more optimistic on all parameters as compared with SMEs for the first half of 2018. Across all parameters, SMEs are indicating stability with the majority of the respondents expecting no change in the parameters. On the other hand, a higher proportion of large companies are expecting an increase across key parameters in the first half of 2018.

Ajman’s companies are positive about the overall business environment; 35% of the respondents expect the overall business situation to improve in the first half of 2018 compared to 29% in the first half of 2016. The proportion of respondents expecting an improvement in business conditions in 2018 is also higher than those expecting the business environment to worsen (21%) in the first half of 2018.

Among the key sectors, companies in the manufacturing and real estate & business services sector are most optimistic about their business prospects in the first half of 2018 (BCI of 126 points each), bolstered by expectations of high demand. This is followed by the construction sector (BCI of 111 points).

Businesses in the Emirate of Ajman are optimistic of the business environment in the first half of 2018. The survey reveals that 40% of the respondents anticipate an increase in their sales revenues due to an anticipation of increased demand for products and services, increased orders, higher tourist footfalls (including recreational and MICE tourism), and a spurt in business activity during the festive season. Another 31% of the businesses expect to maintain their current level of revenues while remaining 29% expect a decline due to high competition, poor market conditions, and increase in cost of raw materials, problems in collection of payments, fewer customers and instability in the regional market.

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The survey included 93 export-oriented and 287 non-exporting firms in Ajman. The BCI for exporters stands at 131 points in the first half of 2018. The survey shows that exporters hold a much stronger outlook than non-exporters with respect to all parameters constituting the index. 58% of the exporters anticipate an increase in their revenues during the first half of 2018, versus 33% of non-exporters.

The overall business environment in Ajman continues to be positive, as 71% of the participants have indicated that they do not anticipate any obstacles to their business operations in the first half of 2018 compared with 52% of the respondents in the first half of 2016. Companies in the Transport and Wholesale & Retail Trade sector are most optimistic, with 100% and 98% of the respondents not expecting any hurdles during the first half of 2018, respectively.

The current survey also gauged the perception of businesses on the impact of VAT on their business operations in the first half of 2018. 37% of the respondents mentioned that VAT would have a negative impact on their business while 40% did not expect any negative repercussions. The remaining 23% of the businesses are not sure of the impact of VAT implementation, as they are awaiting for further details about VAT filing and processing from the Federal Tax Authority in the UAE.

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Section 1 Overview on the Composite Business Confidence Index

Section 1 Overview on the Composite Business Confidence

Index

The Composite Business Confidence Index for the first half of 2018 stands at 116 points, suggesting a positive business forecast for the Emirate of Ajman. The BCI is 7 points higher than the index value in the first half of 2016, as businesses are hopeful of higher demand with the on-going tourist season, rising construction opportunities, increase in exports and the on-going shopping festival.

First Half, 2016 First Half, 2018104

106

108

110

112

114

116

109

116

Figure (1)Business Confidence Index for Ajman - H1, 2018

1.1 Business Confidence Index by company size, first half of 2018The Composite Business Confidence Index for SMEs stands at 114 in the first half of 2018, while large companies are more optimistic with the index at 125 points. Large companies are much more optimistic on all parameters as compared with SMEs for the first half of 2018. Across all parameters, SMEs are indicating stability with majority of the respondents expecting no change in the parameter. On the other hand, a higher proportion of large companies are expecting an increase across key parameters in the first half of 2018. While 37% of the SMEs are expecting an increase in their sales revenue in the first half of 2018, 53% of the large companies are optimistic about their revenue. This trend is observed across key parameters such as selling prices and sales volume. In

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comparison with the first half of 2016, both SMEs and large companies have posted positive business outlook for the first half of 2018 – BCI score of 114 points in 2018 vs. 108 in 2016 for SMEs; and a BCI score of 125 points in 2018 vs. 119 points in 2016 for large companies.

First Half, 2016 First Half, 201895

100

105

110

115

120

125

SMEs; 108

SMEs; 114

Large; 119

Large; 125

Figure (2)Business Confidence Index by Company Size - H1,

2018

1. 2 Business Confidence Index by Sector, first half of 2018Among the key sectors, companies in the manufacturing and real estate & business services sector are most optimistic about their business prospects in the first half of 2018 (BCI of 126 points each), bolstered by expectations of high demand. This is followed by the construction sector (BCI of 111 points). The BCI scores for manufacturing and real estate & business services sector companies have improved by 24 and 14 points respectively, as compared to the first half of 2016. The construction sector BCI, while maintaining a solid outlook, has declined by 11 points as compared with the BCI score in the first half of 2016.

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Manufacturing Construction Wholesale & Retail Trade

Real Estate & Business Services

Transport & Storage

Restaurants & Hotels

0

20

40

60

80

100

120

140 126

11198

126

95 100102

122

102112 111 115

Firgure (3)Business Confidence Index by Sector - H1, 2018

First Half 2018 First Half 2016

1.3 Ajman business outlook – the first half, 2018The survey reveals that 40% of the respondents anticipate an increase in their sales revenues due to an anticipation of increased demand for products and services, increased orders, higher tourist footfalls (including recreational and MICE tourism), and a spurt in business activity during the festive season. Another 31% of the businesses expect to maintain their current level of revenues while remaining 29% expect a decline due to high competition, poor market conditions, and increase in cost of raw materials, problems in collection of payments, fewer customers and instability in the regional market. Manufacturing sector is most confident about higher sales revenues during the first half of 2018 while the transport & storage sector is least optimistic.

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Level of Stock

No. of employees

Profits

Sales Volume

Selling Prices

Sales Revenue

17%

17%

31%

22%

38%

40%

4%

3%

27%

12%

3%

31%

79%

80%

42%

67%

58%

29%

Figure (4)Forecast Overall Business Performance - H1 2018

Increase Decrease No change

The favorable forecast for sales revenue is driven by a similar forecast of selling prices, 38% expect an increase and 58% expect prices to remain stable. On the other hand, expectations for sales volumes are muted, with majority expecting a stable outlook (67%). Businesses are expecting an increase in their selling prices primarily due to the implementation of VAT in the UAE leading to an increase in raw material costs, product diversification and higher demand. A strong outlook for revenues in conjunction with an increase in selling prices has resulted in a robust outlook for net profits; 31% of the firms anticipate higher net profits during the first half of 2018 and another 42% expect no change in the parameter.The employment outlook is stable: 17% of the companies hope to hire new employees during the first half of 2018, while 80% expect to maintain their current staff numbers. A modest 3% have indicated their intent to reduce their employee strength.The outlook for level of stock mirrors the outlook on employment; 17% of the participants expect to increase their stock levels while 79% of the businesses are planning to maintain the current level of inventory.

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1.4 Expected business situation through the first half, 2018Ajman’s companies are positive about the overall business environment; 35% of the respondents expect the overall business situation to improve in the first half of 2018 compared to 29% in the first half of 2016. The proportion of respondents expecting an improvement in business conditions in 2018 is also higher than those expecting the business environment to worsen (21%) in the first half of 2018; due to competition and increasing number of the companies.

Improve Stable Worsen0%

10%

20%

30%

40%

50%

60%

35%

44%

21%

29%

51%

20%

Firgure (5)Expected Business Situation - H1, 2018

First Half 2018 First Half 2016

1.5 Impact of Value Added Tax (VAT) during the first half, 2018The current survey also gauged the perception of businesses on the impact of VAT on their business operations in the first half of 2018. 37% of the respondents mentioned that VAT would have a negative impact on their business while 40% did not expect any negative repercussions. The remaining 23% of the businesses are not sure of the impact of VAT implementation, as they are awaiting for further details about VAT filing and processing from the Federal Tax Authority in the UAE.

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37%

40%

23%

Figure (6)Will VAT have a negative impact on business?

Yes

No

Don’t Know

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Section 2Sectorial analysis for the Composite Business Confidence Index

Section 2 Sectorial analysis for the Composite Business Confidence Index

This Section deals with the analysis of the Ajman composite Business Confidence Index by sectors. The economic activities are divided into 6 sectors, as follow: Manufacturing Sector, Construction Sector, Wholesale & Retail Trade Sector, Real estate and Business Services Sector, Transport & Storage Sector and Restaurants & Hotels Sector.

2. 1 Manufacturing SectorThe composite BCI for the manufacturing sector stands at 126 points, demonstrating a strong growing outlook for the first half of 2018. 52% of the manufacturing sector firms expect to earn higher revenues in the first half of 2018 on the back of higher demand, new projects and new clients. 61% of the manufacturing sector firms expect an increase in selling prices primarily due to VAT on input costs as well as on the final price. Contrary to the revenues forecast, only 33% of manufacturers are confident of an increase in volumes, indicating the increase in revenues to be driven by an increase in prices. The employment outlook is stable as 84% expect to maintain their staff count. The forecast for net profits reflect the strong outlook; 44% of the manufacturers expect an increase in profits compared to 26% that foresee a decline.

Level of Stock

No. of employees

Profits

Sales Volume

Selling Prices

Sales Revenue

25%

13%

44%

33%

61%

52%

6%

3%

26%

17%

1%

24%

68%

84%

30%

50%

37%

24%

Figure (7)Forecast Overall Business Performance, Manufacturing Sector -

H1 2018


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2. 2 Construction Sector At 111 points, the composite BCI for the construction sector is indicative of a positive business forecast for the first half of 2018. 47% of the construction firms are confident of higher revenues, backed by an expected increase in demand and new orders/projects arising from developments in Ajman and other Emirates in the UAE. For volumes, 61% of the firms are expecting stability. The strong outlook of this sector is supported by good market conditions and rising construction requirements in Ajman. Selling price is expected to remain stable, with 61% of the firms expecting no change in the parameter. Other parameters, such as profits, employment and level of stock, are expected to remain stable as well in the first half of 2018. The profit forecast is in line with prices, with a similar proportion of firms expecting an increase in first half of 2018.

Level of Stock

No. of employees

Profits

Sales Volume

Selling Prices

Sales Revenue

16%

17%

28%

16%

25%

47%

0%

8%

16%

4%

13%

40%

84%

75%

56%

80%

61%

13%

Figure (8)Forecast Overall Business Performance, Construction Sector -

H1 2018


2. 3 Wholesale & Retail Trade SectorThe composite BCI of the wholesale & retail trade sector stands at 98 points for the first half of 2018, pointing towards a stable business outlook. Majority of the respondents have indicated stability across parameters including sales volume, selling prices, employment and level of stock. Sales revenue and profits are exhibiting a similar trend; 63% of the respondents expecting stability with 15% expecting an increase and the remaining 23% expecting a decline in the first half of 2018.

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Level of Stock

No. of employees

Profits

Sales Volume

Selling Prices

Sales Revenue

2%

15%

15%

98%

100%

63%

100%

100%

63%

23%

23%

Figure (9)Forecast Overall Business Performance, Wholesale & Retail Trade

Sector - H1 2018


2. 4 Real Estate and Business Services SectorThe composite BCI for the Real Estate and Business Services sector1 stands at 126 points, providing a strong boost to the Emirate in the first half of 2018. Expectations for sales revenues are positive with 40% of the firms forecasting an increase and an additional 54% anticipating no change. This robust forecast is buoyed by the positive optimism for volumes with 29% of the firms expecting to sell higher volumes in the first half of 2018 versus a minimal 3% expecting a decline due to difficult market conditions, reduced real estate activity and lower demand for services. Selling prices are expected to remain stable as indicated by 80% of the respondents in the sector. Profitability and hiring outlook are consistent with the forecast for sales revenue and volumes; while level of stock is expected to remain stable (86%) in the first half of 2018.

1 Real Estate and Business Services Sector includes companies in the finance & insurance, personal services and real estate & business services sub-sectors.

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Level of Stock

No. of employees

Profits

Sales Volume

Selling Prices

Sales Revenue

14%

29%

34%

29%

20%

40%

0%

0%

6%

3%

0%

6%

86%

71%

60%

69%

80%

54%

Figure (10)Forecast Overall Business Performance, Real Estate & Business

Services Sector - H1 2018


2. 5 Transport & Storage SectorAt 95 points, the composite BCI for the transport & storage companies is the weakest amongst all sectors and indicates a marginally negative economic outlook for the first half of 2018. Sales revenue is expected to remain decrease, with 100% of the respondents pointing towards a decrease in revenue. Selling prices are expected to increase slightly primarily due to the implementation of VAT in the UAE. On the other hand, respondents expect a decline in the sales volumes, owing to competition and poor market conditions. The forecast for profits is negative, with all respondents expecting a decline in the first half of 2018 due to decline in volumes. The hiring outlook is positive (78% of the firms expect to hire); level of stock is expected to remain stable.

Level of Stock

No. of employees

Profits

Sales Volume

Selling Prices

Sales Revenue

100%

22%

78%

78%

78%

22%

100%

22%

100%

Figure (11)Forecast Overall Business Performance, Transport & Storage

Sector - H1 2018


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2. 6 Restaurants & Hotels SectorThe outlook for Ajman’s restaurants & hotels sector indicates stability in the first half of 2018, with a composite BCI score of 100 points in the first half of 2018. Majority of the firms (64%) have indicated a decline in their sales revenue with only 27% expecting an increase. A similar trend is observed in volumes; 55% expecting a decline compared to 27% expecting an increase. Revenue and volumes of hotels are affected largely by unregulated online aggregrators (such as AirBnB) which provide a platform for tourists to access rooms at very low prices thereby affecting the revenues of hotels. 64% of the firms expect prices to increase, however, this increase is not enough to offset the decline in revenue and volumes. Profits are expected to decline as anticipated by 55% of the respondents. The hiring outlook is stable, with 82% of the firms intending to maintain the same workforce in the first half of 2018.

Level of Stock

No. of employees

Profits

Sales Volume

Selling Prices

Sales Revenue

27%

18%

9%

27%

64%

27%

36%

55%

55%

9%

64%

36%

82%

36%

18%

27%

9%

Figure (12)Forecast Overall Business Performance, Restaurants & Hotels

Sector - H1 2018


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Section 3Exporters Outlook

Section 3 Exporters Outlook

The survey included 93 export-oriented and 287 non-exporting firms in Ajman. The BCI for exporters stands at 131 points in the first half of 2018. The survey shows that exporters hold a much stronger outlook than non-exporters with respect to all parameters constituting the index. 58% of the exporters anticipate an increase in their revenues during the first half of 2018, versus 33% of non-exporters.

Level of Stock

No. of employees

Profits

Sales Volume

Selling Prices

Sales Revenue

31%

24%

46%

40%

61%

58%

5%

3%

26%

15%

2%

24%

63%

73%

28%

45%

37%

18%

Figure (13)Exporter BCI - H1 2018


The survey shows that exporters are more optimistic than non-export oriented firms on all parameters. While 58% of exporters expect an increase in their sales revenue in the first half of 2018, only 34% of non-exporters expect an increase in their revenues. Expectations on sales volumes are similar; 40% of exporters expecting an increase compared with only 16% of non-exporters. With respect to selling prices, 61% of the exporters have forecast an increase, compared to 37% that expect stability and 2% that expect a decline. 46% of exporters are hopeful of higher profits in the first half of 2018 against 28% that have forecast a decline. A majority 73% expect to maintain their employee numbers in the first half of 2018; however, 24% will increase their staff strength to fulfil the requirements of a growing business.In terms of export revenues, only 11% of the firms have indicated that more than 20% of their total sales come from exports.

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13%6%

5%

76%

Figure (14)Share of Exports in Total Sales

Less than 20% of sales 21-50% sales More than 50% of sales No Exports

3. 1 The most important export markets and products In terms of market orientation, 78% of the export oriented firms in Ajman export to the GCC region. 18% and 11% of the firms sell their products/services to Africa and other Emirates in the UAE.

GCCAfri

ca

Other

Emira

tes*

Other

Asia-Pacifi

c Countri

...

Middle Eas

t & North

Africa

Euro

peIndia

North Ameri

ca China

78%

18%11% 8% 6% 5% 4% 4% 1%

Figure (15)Key Export Markets

* Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah, Umm Al Quwain, Fujairah**Sri Lanka, Bangladesh, Phillipines, Mayanmar

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The top products/services of exporters (as gauged from the survey) of the various sectors include: lubricants and readymade garments (manufacturing); and paints & tiles (construction sector).

3. 2 The most important challengesA majority of the export-oriented firms (66%) do not expect to face any business challenges while exporting. For the remaining, delays in payments and receivables (9%) is the main obstacle, followed by legal & regulatory issues related to work permits and visas (8%), competition (6%), political instability in the region (5%), and exchange rate fluctuations (3%).

Availabilty of stock

Lack of market knowledge / intelligence

Price instability in GCC market

Exchange rate fluctuation

Political instability in the region

Competition

Legal and regulatory issues

Dealys in payment/receivables

No Negative Factors

1%

1%

1%

3%

5%

6%

8%

9%

66%

Figure (16)Key Business Challenges - Exports

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Section 4Business Environment Outlook

Section 4 Business Environment Outlook

Given the current business conditions in the local and global markets, a larger proportion of firms have indicated their plans to focus on existing business operations and minimize additional investment (71%); with a minimal number of respondents (8%) willing to undertake additional business investment. The restaurant & hotel segment is most optimistic with regard to the investment outlook in the first half of 2018. On the contrary, none of the firms in the transport & storage do not plan to invest in their business operations in the near future.

Restaurants & Hotels

Transport & Storage

Real Estate & Business services

Wholesale & Retail Trade

Construction

Manufacturing

Overall

18%

9%

7%

11%

8%

82%

100%

89%

66%

15%

89%

71%

3%

34%

79%

21%

Figure (17)The expansion of investment over the next 12 months

Yes No Not Sure

From a business size perspective, both large companies and SMEs hold a similar outlook with respect to investment plans. Only 19% of the large companies and 6% of SMEs intend to incur investments in their businesses in the first half of 2018. Additionally, exporters are more confident about their investment plans, with 18% of them expecting to undertake such expenditure compared to 5% of non-exporters.In the next 12 months, out of the 8% of the firms that plan to undertake investment activities, 33% of them intend to set up new branches in the UAE as part of their investment plans, while a similar proportion of respondents plan to invest in fixed assets such as land, property, warehouse(s) and machinery/equipment. 17% plan to upgrade technology to improve their capacity & efficiency and 7% of the businesses are

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planning to introduce new products/services within their existing line of business in order to capture a higher share of the market.

Set u

p new bran

ch / b

ranches

in Ajman

Invest

in fixed asse

ts su

ch as p

roperty

, plan

t, equipmen

t

Upgrade t

echnology

to im

prove c

apac

ity an

d efficie

ncy

Introduce

new pro

ducts/se

rvice

s with

in the e

xisting l

ine of busin

ess.

Expan

d to in

ternati

onal Mark

et

33% 33%

17%

7%3%

Figure (18)Key Investment Plans

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Section 5Key Business Challenges in Ajman through the second half, 2016

Section 5 Key Business Challenges in Ajman through the first half,

2018

The section deals with the most important challenges perceived by firms as affecting their business in the first half, 2018. The overall business environment in Ajman continues to be positive, as 71% of the participants have indicated that they do not anticipate any obstacles to their business operations in the first half of 2018 compared with 51% of the respondents in the first half of 2016. Companies in the Transport and Wholesale & Retail Trade sector are most optimistic, with 100% and 98% of the respondents not expecting any hurdles during the first half of 2018, respectively.

Cost of Finance

Demand for products / services

Fluctuations in oil prices

High overhead expenses

Availability of skilled labor

Availability of bank finance

Delay in payments / receivables

Cost of utilities

Government fees / regulations

Cost of rental / leasing

Competition

No Negative Factors

1%

1%

1%

1%

3%

3%

3%

4%

6%

8%

16%

52%

Figure (19)Business Challenges in Ajman - H1 2016



Competition

Cost of utilities

Lack of infrastructure


Demand for products/services



No Negative Factors

1%

1%

2%

2%

2%

3%

3%

8%

13%

71%

Figure (20)Business Challenges in Ajman - H1 2018

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5.1 The most important challenges affecting business in Ajman:

1. Government fees/regulations: With 13% of the respondents citing this issues, high government fees and changing business regulations is a key challenge for businesses operating in the Emirate. Key issues include high cost business licensing and visa issuance, lengthy customs procedures, frequent unannounced inspections, etc. Compared to the first half of 2016, this has become the foremost business challenge in the first half of 2018. Manufacturing companies are the most impacted by this business hurdle.

2. Cost of rental/leasing: 8% of the companies expect that cost of rental/leasing will impact their operations. Manufacturing firms are most impacted by this challenge.

3. Demand for products/services: Companies, primarily SMEs, operating in the local market are facing issues due to low demand for their products and services, thereby negatively impacting business revenues. Firms in the restaurants & hotels segment are the most impacted by low demand for products and services.

4. Delays in payments/receivables: This is also an important challenge as indicated by 3% of the firms. Companies in the Real Estate & Business Services sector are most impacted by this challenge.

A comparison between SMEs and large firms show that 75% of SMEs do not anticipate any business challenges in the first half of 2018 compared to 53% of large companies. The most important challenge faced by large companies and SMEs is government fees/regulations.

5.2 Sectorial most important challenges1: Manufacturing Sector: 52% of the manufacturing firms do not expect

any negative factors to affect their business operations in the first half of 2018. While high government fees and changing business regulations negatively affect 14% of the firms, 12% of the respondents are impacted by the high cost of rental and leasing.

Construction Sector: 88% of the construction firms do not expect to face any obstacles or negative factors during the first half of 2018. Key business challenges include demand for products and services, availability of finance and skilled labor.

Wholesale & Retail Trade Sector: 98% of the respondents in this sector have indicated that no negative factors will affect their operations in the first half of 2018. For the remaining, competition will be the key challenge.

1 See Appendix (2) to identify in details the Sectorial challenges.

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Real estate and business services Sector: 77% of the real estate and business services firms do not anticipate any negative factors to affect their operations during the first half of 2018. For the remaining firms, delays in payments / receivables remains a key business challenge (cited by 11% of the firms).

Transport & Storage Sector: No business challenge has been indicated by any respondent in this sector.

Restaurants & Hotels Sector: 36% of the restaurants & hotels in Ajman do not expect any hindrances to affect their business activity in the first half of 2018. 27% expect unclear business regulations to be an obstacle to their operations.

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Appendix 1Study Sample Characteristics

APPENDIX 1Study Sample Characteristics

The business survey for the first half, 2018 was conducted with inputs from 380 companies across the Emirate of Ajman. The sample included a mix of small, medium and large enterprises, ensuring adequate representation from various sectors of the economy proportionately to their respective contributions to Ajman’s GDP. In the current survey, large companies constituted 16% of the sample size.

The sample includes companies from the following sectors:

Manufacturing (174) Construction (75) Wholesale & Retail Trade (62) Real estate & Business services 1 (35) Transportation & Storage (23) Restaurants & Hotels (11)

In order to tap ‘business outlook’ or expectations, the survey focused on key indicators, such as sales, selling prices, volumes sold, profits and number of employees. Respondents were asked to indicate if they expected an ‘increase’, ‘decrease’ or ‘no change’ in these indicators. The survey was administered to senior executives in companies with the following designations: CEO, Owner, Partner, Managing Director, General Manager, Finance Director and Finance Manager.

The following section presents the key characteristics of the sample of companies interviewed for the first half, 2018 BCI of the Emirate of Ajman:

Majority (65%) of the companies interviewed had an annual sales

1 Real Estate and Business Services Sector includes companies in the finance & insurance, personal services and real estate & business services sub-sectors.

36

revenue less than AED 5 Mn; with 35% reporting revenue between AED 1 – 5 Mn and 30% reporting annual revenues of less than AED 1 Mn. Annual revenue was found to be more than AED 100 Mn for only 1% of the surveyed respondents.

In terms of net profits of the companies, a significant proportion (71%) of the firms have reported their net profits to be less than AED 1 Mn. Net profit for 21% of the respondents is between AED 1 – 5 Mn. Less than 1% of the firms have reported their net profit to be higher than AED 50 Mn per annum.

71%

21%

6% 2% 0% 1%

Net Profits Range of Survey Sample

<=1Mn 1 – 5 Mn 5 – 10 Mn 10 - 50Mn 50 - 100Mn >= 100 Mn

In terms of number of employees, 84% of the respondents have reported their staff strength to be less than 50, reaffirming that most of the companies interviewed are SMEs.

26%

58%

10%6%

Employee Range of Survey Sample

1 – 9 10 – 49 50 – 99 >=100

85% of the survey respondents have reportedly invested less

37

than AED 5 Mn in their business. This may be because most SMEs use their own funds for their business operations. Only 2% of the survey respondents have invested more than AED 50 Mn in their business operations.

35%

50%

8%5% 1% 1%

Range of Total Capital Invested

<=1Mn 1 – 5 Mn 5 – 10 Mn 10 - 50Mn 50 -100 Mn >=100Mn

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Appendix 2Key business challenges by Business Sector

APPENDIX 2Key business challenges by Business Sector


Competition

Cost of utilities






No Negative Factors

1%

2%

2%

2%

3%

4%

12%

15%

52%

Challenges faced by Manufacturing sector - H1 2018






No Negative Factors

1%

3%

3%

3%

3%

88%

Challenges faced by Construction sector - H1 2018

Competition

No Negative Factors

2%

98%

Challenges faced by Wholesale & Retail Trade sector - H1 2018





No Negative Factors

3%

3%

6%

11%

77%

Challenges faced by Real Estate & Business Services sector - H1 2018

Others


Competition


No Negative Factors

9%

9%

18%

27%

36%

Challenges faced by Restaurants & Hotels sector - H1 2018

No Negative Factors 100%

Challenges faced by Transport & Storage sector - H1 2018

39

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Appendix 3STUDY METHODOLOGY

APPENDIX 3STUDY METHODOLOGY

The Composite Business Confidence Index (BCI) is calculated as a weighted average score of the following “business outlook” indicators,

Selling Prices Volumes Sold Number of Employees Profits

The purpose of the Composite Business Confidence Index is to capture the aggregate weighted behavior of the business outlook indicators in the non-hydrocarbon sector. For each indicator, ‘resulting scores’ are calculated using the net balance method:

(% of positive responses - % of negative responses) + 100

For the Composite Business Confidence Index, the resulting scores are multiplied with their corresponding weights to arrive at a weighted average Index score.

BCI scores are classified in the following three groups:

BCI < 100, business expectations are negative BCI = 100, business expectations are stable BCI > 100, business expectations are positive

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