www.dubaided.gov.ae

DUBAIBUSINESSSURVEY

DUBAIBUSINESSSURVEY

Economic Studies & Policies Division

Q1 2012Q1 2012

INTRODUCTION

The Department of Economic Development (DED) was established in March 1992, with the objective

to organise, regulate and boost trade and industry within the Emirate of Dubai.

In October 2008, HH Sheikh Mohammed bin Rashid Al Maktoum, UAE Prime Minister and Vice-

President, and Ruler of Dubai, issued Decree no. 25 giving full responsibility to DED to plan and

regulate the overall economic performance of Dubai, supervise its functions and support the

economic development to ensure the objectives of the Dubai Strategic Plan are achieved.

DED is still responsible for its traditional activities of business registration, licensing and commercial

protection in Dubai. However with four new agencies now under the umbrella of DED, the mandate

has been extended to include:

1. Mohammed Bin Rashid Establishment for Small & Medium Enterprises

2. Dubai Export Development Corporation

3. Dubai Events & Promotions Agency

4. Foreign Investment Office (FDI)

to develop these areas as well. In line with DED’s new mandate, the Economic Studies & Policies

Division conducts a quarterly Business Survey, in coordination with DED Agencies (EDC & SME’s), and in collaboration with Dun & Bradstreet South Asia Middle East Ltd., in order to provide a timely

and objective assessment of business expectations and performance. This document summarizes

the main findings of the survey for the first quarter of 2012.

DED Business SurveyQ1-20122

DED Business Survey

Q1-2012 3

AT A GLANCE

• ThecompositeBusinessConfidenceIndexforDubaiforthefirstquarterof2012stoodat over 120 points, indicating an overall positive business outlook for the coming quarter (Q2, 2012).

• Theoutlookonsalesispositive,with86%ofbusinessesexpectingeitheranincreaseorno change in their sales for the next quarter. In terms of economic activity, expectations are the highest among manufacturing firms followed by services and trading firms.

• The severity of challenges, as perceived by businesses, has changed from theprevious quarter (Q4, 2011). In the current quarter (Q1, 2012), government fees have been reported as the most important challenge, up from the third position in the last quarter. Insufficient demand is the next most severe challenge - top challenge in last quarter - followed by frequent changes in government regulations - ranked number 5 in the previous quarter - and competition from local and international players, which was perceived as the second biggest challenge in the previous quarter.

• Comparedtothepreviousquarter,nochangeisreportedininvestmentplansoveratwelve-monthtimehorizon,with42%ofbusinessesplanningtoupgradetechnologyand54%intendingtoexpandcapacity.

METHODOLOGYThe quarterly business survey for Q1,

20121 was conducted on a total of 500

companies across the Emirate of Dubai. The

sample included a mix of small, medium

and large enterprises, ensuring adequate

representation from manufacturing, trading

and services, proportionately to their

respective contributions to Dubai’s GDP.

BUSINESS CONFIDENCE INDEX CALCULATIONSThe 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

For each indicator, ‘resulting scores’ are

calculated using the net balance method:

(% of positive responses - % of negative

responses) + 100

FortheCompositeBusinessConfidenceIndex,

the resulting scores are multiplied with their

corresponding weights to arrive at a weighted

average Index score2. This index is finally re

based so that Q2, 2011 = 100. Finally, taking

account of the economy’s composition by

firm size, the index is weighted by the relative

contributions of SMEs and large businesses to

Dubai’s GDP. The final result is the following

index:OverallIndex=60%*(Largeenterprise

Index)+40%*(SMEIndex).

1 For the purpose of the survey, each quarter is defined as follows: Q1 is the period between January and March, Q2 is the period between April and June, Q3 is the period between July and September, and Q4 is the period between October and December of each year.2 Weighted Average BCI = [(Net Balance on Selling Prices) x (Parameter Weight)] + [(Net Balance on Volumes Sold) x (Parameter Weight)] + [(Net Balance on No. of employees) x (Parameter Weight)] + [(Net Balance on Profits) x (Parameter Weight)]

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 Q1, 2012 survey has captured

the perceptions of companies across 30-35

sub-sectors.

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

When expressed with reference to the

base quarter Q2-2011, the following

interpretations hold (t and t-1 referring to

two consecutive quarters):

BCI (t)< BCI(t-1): Business expectations are declining

BCI (t)= BCI(t-1): Business expectations are stable

BCI (t)> BCI(t-1): Business expectations are rising

Figure 1

The Department of Economic Development (DED) is a Dubai Government Department that has the mandate to help achieve the key strategic objectives of fostering ‘Sustainable Economic Development’ and strengthening the ‘Competitiveness ofDubai’. In order to gauge the perceptions of the business community, DED has launched Dubai’s Quarterly Business Surveys with the key objective to providing a snapshot of Dubai’s current economic activity and the outlook for the following quarter.

In addition to the current situation and future expectations, the survey reports on key challenges impacting business growth and development and assesses the investment outlook for the coming twelve-month horizon.

Sample Composition

Overall Sample

500

Trading (SME) - 160

Service (SME) - 255

Large - 25

Man

ufac

turin

g

(SM

E) 60

Large Companies

25Serv

ices

- 12

Manufacturing

- 4

Trad

ing

- 9

DED Business SurveyQ1-20124

DED Business Survey

Q1-2012 5

BUSINESS CONFIDENCE INDEX – Q1, 2012

The composite confidence index in Q1, 2012

stood at 120.5 points, indicating a positive

overall business outlook for the 2nd quarter,

2012. (A score of 100 indicates neutral

sentiments).

However, a quarter-on-quarter comparison

showsaseasonaldipinoveralloptimismof9%

compared to Q4, 2011, which is due mainly to the

combined effect of reduced tourism activity in

the upcoming summer months, and the onset

of family vacations and school holidays.

Although optimism is widely shared among

all the firms, expectations are more upbeat

among large businesses than among SMEs,

as shown in their respective index scores

of112and126(Figure3). Thehigher level

of confidence among large companies is

primarily due to a more optimistic outlook

on future selling prices and profits. This is

similar to the Q4-2011 finding according to

which large companies were relatively more

optimistic than SMEs on the account of

higher profit expectations.

140.0

120.0

100.0

80.0

60.0

40.0

20.0

0.0

100.0

Q2 2011

115.2

Q3 2011 Q4 2011 Q1 2012

133.2

120.5

SME Index Large Company Index Composite BCI

120.5126.0

112.2

140.0

100.0

60.0

20.0

Composite Business Confidence Index 2012 (Base Quarter, Q2, 2011)

Business Confidence Index (Large/small, Q1, 2012)

Forecast Business Performance Q2, 2012

Figure 2

Increase Decrease No Change Not Applicable

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Sales Revenue

Selling Prices

Volume Sold

No.of Employees

Profits

New Purchase Orders

49% 14% 37%

23% 74%3%

44% 19% 37%

45% 13% 40% 1%

83%9% 8%

50% 15% 35%

Figure 4

Figure 3

OVERALL BUSINESS OUTLOOK FOR Q2, 2012

Overall, the survey reveals a positive

outlookforthecomingquarter;with50%

of companies expecting an improvement

intheirsalesrevenueand35%foreseeing

no change in Q2 as compared to Q1 2012

(Figure 4).

Continuing the trends of the last few

quarters, optimistic sales expectations

are driven by increasing real business

activity (sales volumes) as prices will

continue to be largely stable. However, a

fewcompanies(9%)intendtoraisetheir

selling prices due to increasing prices of

raw materials which are determined on

global market prices (fuel, plastic resins,

metals, food & beverage ingredients and

building materials).

The overall optimistic business sentiments

are driven by upbeat expectations of the

manufacturing firms on all key parameters

(sales volume, selling prices, profits, em-

ployees), closely followed by firms of the

service sector. In contrast, respondents in

the trading sector have a comparative-

ly lower outlook for the coming quarter

(Figure 5).

Manufacturing Services Trading

60%

40%

20%

0%

42%35% 33%

Q2, 2012

Figure 5

39%

52%

42%

60%

40%

20%

0%

Q4, 2011 Q1, 2012 Q2, 2012

Figure 6

Sectoral Net Balances Quarterly Outlook

Quarterly Net Balance (Sales Volume) - Manufacturing Sector

DED Business SurveyQ1-20126

DED Business Survey

Q1-2012 7

Net Balances on Sales Volume for Key Service Sectors, Quarterly Outlook

Quarterly Net Balances (Sales Volume) - Trading Sector

Figure 7

Figure 8

10%

47%

55%

35%

80%

60%

40%

20%

0%

-20%

-40%

-60%

17%

36%

55%

33%

16%

34%38%

45%

-54%

63%66%

0%

Q3, 2011 Q4, 2011 Q1, 2012 Q2, 2012

Overall ServiceSector

Transportation &Logistics

ConstructionServices

Tourism &Hospitality

Although positive, the outlook for the trading

sector is lower than for manufacturing

and services. In addition, expectations are

strongly influenced by the optimism of retail

oriented businesses (Figure 8).

Trading sub-sectors such as jewellery,

footwear, cosmetics, garments, pharmacy,

electronics and auto-parts foresee positive

performance in the next quarter owing to

rising exports:

• The fashion-oriented businesses (jewellery,

footwear & cosmetics trading) are bullish on

their expected sales volume due to higher

optimism on export sales as well as plans

for stock clearance through promotions &

discounts.

• Garment trading businesses also expect

higher sales in the next quarter, as the demand

for summer wear is likely to increase from

retailers who often tend to buy / procure

stock from wholesalers before the upcoming

shopping festival - Dubai Summer Surprises

(DSS) - and the festive Ramadan season.

• Sales of electronics & computer trading

businesses are expected to be higher on

account of new orders from institutional

buyers in local market as well as growth in

re-export business.

• Food & beverage trading businesses

engaged in re-exports, have higher optimism

on their sales performance.

In line with the positive outlook on sales, the

percentage of companies planning to increase

their purchase orders has remained largely

stable (45% inQ2),asmanycompaniesplan

to replenish stocks for the upcoming Dubai

Summer Surprises & Ramadan season. A

look at the different sectors reveals that

manufacturing firms (55% of firms) are the

keenest on raising their new purchase orders

inthenextquarter,followedbytrading(48%)

andservices(41%)firms.

As for employment, the outlook remains largely

stable with 74% of businesses expecting ‘no

change’ in their employee count in Q2, 2012.

However, manufacturing & service firms are

slightly more inclined to hire additional workers

in the coming quarter as compared to trading

firms.

Given the overall positive outlook on sales,

profits are generally expected to rise or at

leasttoremainstablewith44%ofrespondents

expecting higher profits in the next quarter

while less than 20% think their profits will

decline

According to firms’ overall assessment, the

business outlook for Q2, 2012 remains positive,

with87%oftherespondentsreportingeither

improvement or stability in comparison with

Q1 of this year (Figure 9).

Within manufacturing, sales expectations

are high for companies engaged in metal

fabrication, manufacturing of plastics and

furniture.

In contrast, companies in food & beverage

(F&B), cement, and glass manufacturing

are expecting declining sales in the coming

quarter.

The positive outlook for the Service Sector

is driven by sub-sectors like professional

services, transportation, IT & telecom; which

are expecting a significant increase in their

sales in the coming quarter (Figure 7).

Transportation companies are also having a

positive outlook for Q2 2012 with shipping,

cargo and logistics companies expecting a

seasonal rise in activity as traders tend to

stock goods prior to summer holidays and

Ramadan.

Companies in construction have pointed

to some recovery in the next quarter, with

48% of the respondents expecting an

increase in orders from existing projects

that were previously put on hold. This trend

is reaffirmed by the positive sentiments of

many architecture & engineering firms who

also expect some of the stalled projects to be

revived in the coming quarter.

Tourism & Hospitality firms foresee a decline in

business performance for the coming quarter.

With the advent of the summer season, inbound

tourism is likely to decline in the next quarter.

Hotels and hotel apartments are expecting,

as a consequence of lower occupancy rates, a

decline in sales volume in Q2, 2012. However,

companies in other activities, such as car

rental companies and travel agencies and tour

operators, have indicated a relatively stable

outlook for the next quarter, driven primarily

by existing service contracts.

35%

58%

33%

60%

40%

20%

0%

Q4, 2011 Q1, 2012 Q2, 2012

Stability - 42%Improvement - 45%

Deterioration - 13%

Figure 9

Expected Business Situation Q2, 2012

DED Business SurveyQ1-20128

DED Business Survey

Q1-2012 9

Given the dominant share of SMEs in

Dubai’stotalbusinesscomposition(95%of

the total number of firms), 475 of the 500

respondents who were interviewed as part

of the survey were SMEs. These included

micro, small and medium enterprises as

per Dubai’s SME definition.

• Overall, the results indicate positive

expectations for the upcoming quarter,

with49%oftherespondentsexpectingan

increaseand35%reportingnochangein

salesforQ2,2012(Figure10).Comparison

between large companies and SMEs

shows that the former are moderately

more optimistic about sales revenues than

the latter, with a positive net balance of

41%and33%,respectively.Althoughtheir

sales volumes are expected to be similar,

large companies intend to increase their

selling prices in the coming quarter. For

instance, some of the large transportation

companies are planning to increase their

prices in the next quarter due to rising fuel

costs and port handling charges.

• In line with the overall business

outlook, manufacturing SMEs are the

most optimistic about sales volumes in

Q2, 2012, followed by services and then

tradingSMEs(positivenetbalanceof42%

formanufacturingSMEs,35%forservices

and13%fortrading).

The survey included 128 export-oriented

manufacturing, trading & services firms

located in Dubai. For the purpose of this

report, an exporter is defined as an entity

that earns 20%ormoreof its consolidated

revenues through exports.

• Exporters foresee marginally higher

business performance than domestic oriented

firms,with55%of the former expectingan

increaseinrevenuesagainst46%forthelatter.

Other key outlook indicators are summarized

below.

• Manufacturing and services firms are

reported to be more optimistic about export

sales in the next quarter as compared to trading

companies. Key sub-sectors expecting a rise

in export sales are manufacturing (chemicals,

food & beverage, glass and plastics); and

services (transportation, IT & telecom and oil

& gas).

• Trading firms reporting a decline in the

upcoming quarter are those involved in

building & construction, and textiles. Key

reasons that are mentioned for this downturn

include the economic sanctions against Iran

and the general political uncertainty in the

region.

• In termsof sellingprices,mostSMEs -84%-

intend to keep the same prices as in Q1, a finding

that is similar to the previous quarter (Q4, 2011)

where 75% of SME respondents expected price

stability for Q1, 2012.

• In terms of employment, SMEs plan to maintain

the current workforce levels for Q2, 2012 (cited by

76%oftherespondents).However,theproportion

of SMEs planning to increase their workforce has

marginally declined from 28% in Q1 to 21% in

Q2, 2012. Large companies are relatively more

optimistic than SMEs on hiring new employees

with 31% of them planning to hire additional

workers in Q2, 2012.

• SMEs have positive expectations on new

purchaseorderswith40%expectingnochange

and another 45% planning to increase their

purchase orders in Q2, 2012.

• With respect to capacity utilization, SMEs in

manufacturing and services are more optimistic

for the next quarter than large companies, with

47%expectinghighercapacityutilizationagainst

38%onlyforlargecompanies.

• Finally, the Q1 survey reveals a seasonal dip in

the number of SMEs that foresee an improvement

inprofitsforQ2,2012,44%expectinganincrease

forQ2,2012against57% forQ1, 2012.However,

large companies are more optimistic than SMEs

about Q2 profits, with a net positive balance of

31%fortheformeragainst24%forthelatter.

• For a majority of exporting businesses,

export sales are forecasted to grow or remain

stable in the coming quarter due to sustained

demandfromotherGCCcountries,Africaand

Asia Pacific countries such as China, Hong

Kong, Japan, and Philippines.

• With regard to prospects for export

diversification, and similarly to Q4 results,

approximately 42% of exporters plan to sell

to new markets in the coming quarter, with a

particularfocusonAfrican&GCCmarkets.

• Employment is projected to remain stable,

as73%ofexportersareplanningtomaintain

the same workforce in the upcoming quarter

as in Q1, 2012.

• Procurement levels are expected to

increase in line with export sales, with 52%

of respondents expecting an increase in their

new purchase orders.

• Finally,theoutlookonprofitispositive,54%

of the respondents expect an increase while

28%reportnochangeforQ2,2012(Figure11).

Figure 10

Figure 11

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Sales Revenue

Selling Prices

Volume Sold

No.of Employees

Profits

New Purchase Orders

44% 20% 36%

45% 13% 40% 1%

49% 16% 35%

8% 8% 84%

76%21% 3%

14%49% 37%

Increase

Decrease

No Change

Not Applicable

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Sales Revenue

Selling Prices

Volume Sold

Export Sales

No.of Employees

Profits

New Purchase Orders

81%11% 8%

54% 18% 28%

24% 3% 73%

55% 13% 32%

58% 13% 30%

52% 13% 35%

59% 16% 25%

Increase

Decrease

No Change

DUBAI SME OUTLOOK FOR Q2, 2012SMEs Business Forecast Q2, 2012

DUBAI EXPORTERS’ OUTLOOK FOR Q2, 2012

Exporters Business Forecast For Q2, 2012

DED Business SurveyQ1-201210

DED Business Survey

Q1-2012 11

Although the main purpose of the survey is

to gauge business expectations for future

activity, it also sheds light on the actual

changes in performance from one quarter to

another, as reported by responding firms. The

following is a summary of the main findings:

Figure 12, Net Balance = % of respondents citing an increase - % of respondents citing a decrease

Net Balance on Sales Volume for Key Sectors, Quarterly Output - Q1, 2012

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

10%

-23%

-14%

-25%

-14%

42%

Manufacturing Trading Construction TransportationTourism & Hospitality Other Services

Compared with the previous quarter (Q4,

2011), business was overall relatively slower in

Q1, 2012, as a higher number of respondents

reported a decrease rather than an increase

in sales. However, there are a few exceptions

such as tourism and manufacturing firms

which reported an improvement in Q1, 2012

in comparison with the preceding quarter, Q4

2011 (Figure 12).

• Echoing last quarter trends, manufacturing

performed better than services and trading.

The positive performance of manufacturing

seems to be driven by plastics, chemicals and

food & beverages. However, firms producing

or dealing in cement and metals faced

challenges due to the continuing slowdown

in construction activity. This is also reflected

in their capacity utilization which averaged

35to50%against70%forplastics,chemicals

and food & beverages.

• The main factor accounting for the

negative net balance for trading is the decline

in sales for textiles due to high competition

from local & international players, furniture

due to reduced local demand, groceries &

foodstuff because of high competition from

supermarkets & hypermarkets, auto parts due

tohighcompetitionfromChineseplayers,and

finally building & construction for lack of new

projects.

• The performance of services was pulled

down by the slowdown of transportation,

contracting, architectural and professional

services firms even though a few contracting

companies reported increased sales, driven

by price discounts offered to win new

work contracts on existing construction

projects. In contrast, businesses related

to tourism & hospitality (car rental, hotels,

restaurants, travel agencies & tour operators)

outperformed other types of services, driven

by high demand in the peak tourist season of

the first quarter of this year which resulted

in high hotel occupancy rates reaching between

80and90%.

• Companiesoperating inthe IT&telecom

services sector also obtained new contracts

from Government & multinational companies.

In contrast, the transportation sector continued

to suffer in Q1, 2012, owing to lower orders

from Europe, reduced cargo movements to

Iran due to recent trade restrictions, reduced

movements of construction material due to

low local demand, and further reduction in

the value of orders from existing customers.

• Hiring remained roughly stable in Q1,

2012, although a proportion of businesses

reported new hiring as reflected in a positive

net balance of 10%. A majority of firms

(67%) reported indeed ‘no change’ in their

employee count for this quarter. Hiring was

more prevalent in the services sector with

a positive net balance of 14%, followed by

manufacturing(positivenetbalanceof10%)

andtrading(positivenetbalanceof6%).The

majority of companies that reported a decline

in employment were from the contracting

services and transportation sector.

• Mirroring the overall performance of the

business community on sales volumes, new

purchase orders also declined in this quarter,

as reflected by a negative net balance of

3%. Around 47% of respondents in trading

reported a decline in new purchase orders

against30%inmanufacturing&services.

• Following last quarter behaviour, the cost

of labour remained relatively stable in Q1, 2012

with70%ofbusinessesreportingnochange

inunitlabourcostsandonly26%anincrease

imputed to annual increments & bonuses

provided to employees at the beginning of

the year (January).

• The cost of raw materials, a growing cause

of concern for most businesses, increased

for 49% of the respondents in Q1, 2012,

11 percentage points higher than in Q4,

2011 findings. Rising costs related to fuel

(diesel) had, as expected, a strong impact

on transportation activity while the cost of

clinker, food ingredients & flavours, plastic &

petrochemical products, metals (aluminium

& steel), wood and chemicals adversely

affected manufacturing. In addition, rising

prices of tiles, marble, cement, electrical

items and paints are reported to be the main

cause of concern for construction related

businesses.

Rental costs remained stable in Q1, 2012 for

76%oftherespondents,resonatingfindings

from the last quarter which showed that for

78% of respondents rents didn’t change.

However, for a few respondents (14%),

rents increased in the last quarter following

the annual renewal of contracts, with an

approximateincreasefrom5%to10%.

• The current quarter survey also revealed

thataround32%of respondentsusedbank

financeoutofwhich81%reportednochange

and19%anincreaseinthecostoffinance.In

terms of sectors, manufacturing firms made

moreuseofbankfinance(40%)thantrading

(35%)andservicesfirms(29%).

• The combination of the slowdown in sales

and rising costs (mainly of raw materials)

led to lowerprofitswith57%ofbusinesses

reporting a decline in Q1, 2012 as compared

to Q4, 2011.

OVERALL BUSINESS PERFORMANCE – Q1, 2012

DED Business SurveyQ1-201212

DED Business Survey

Q1-2012 13

• Relatively low demand for products and

services(citedby22%oftherespondents):

Insufficient demand constrained businesses

in the construction sector (including cement,

glass and metal manufacturing companies),

due to the slow recovery of the real estate

sector and the scarcity of new projects. The

transportation industry also experienced

a dip in demand due to the unfavourable

economic climate in the US and Europe,

economic and trade sanctions against

Iran and stiff competition from local and

international companies.

The survey also addressed the key challenges,

as perceived by firms at the end of Q1, 2012. It

is interesting to note that almost a quarter of

the sample reported no business challenges

which is a significant change compared to

Q4,2011findings(11%).

The following are found to be the major challenges impacting the business in Dubai (Figure 13)

• Governmentfees-citedbyalmost30%of

respondents - have been reported as the most

serious challenge. Main reasons cited are the

high cost of trade license renewal and the

increase in employee visa fees (on account of

reduction in tenure of visa from 3 to 2 years,

mandatory Emirates ID requirement etc).

Transportation firms also reported rising port

handling charges and municipality fees.

• Sectorally, manufacturing exporters

performed better on sales volumes and

profits as compared to services and trading

exporters.

• With respect to employment, a majority

of exporting firms (70%) maintained the

same levels as in Q4, 2011. However, unlike

manufacturing and trade, a third of service

exporters reported new hiring in Q1, 2012.

Finally, following Q4-2011 trends, a majority

of exporters (54%) reported rising costsof

raw materials in the current quarter i.e. Q1, 2012.

• Comparison between export-oriented

and domestic market-oriented firms points

to similar sales performances, with almost

equalproportions(30%forexporters&33%

for domestic firms) reporting a rise in sales.

• However, a marginally higher number of

export oriented companies (as compared

to domestic market-oriented firms) have

reported an increase in selling prices and

profits.

35%

30%

25%

20%

15%

10%

5%

0%

29.6%

21.7%

16.6%

12.6%11.0% 10.5%

8.5%7.5% 6.9%

5.7%

3.0% 2.4% 2.2%

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SMEs performance in Q1, 2012 mirrors

the performance of the overall business

community, since they account for 95% of

the whole sample. Thus, as for the latter, the

sales performance of SMEs was lower in the

last quarter when compared with Q4, 2011.

Key findings are summarized as follows:

• Most SME respondents (67%) reported

no change in the size of their workforce. A

large proportion (48%) reported increases

in the cost of raw materials & other inputs

in the last quarter. This may have negatively

impacted their profits as 57% of surveyed

SMEs reported a decline in Q1, 2012.

• Large companies performed better than

SMEs in terms of sales volumes, with 50%

of the former reporting an increase in sales

volume in Q1, 2012. As a result, their profit

outcome was better than for SMEs. Figure 13

Key Business Challenges Q1, 2012

DUBAI SMES PERFORMANCE – Q1, 2012

EXPORTERS’ PERFORMANCE – Q4, 2011

KEY BUSINESS CHALLENGES IN DUBAI

DED Business SurveyQ1-201214

DED Business Survey

Q1-2012 15

Yes No

0% 20% 40% 60% 80% 100%

Q1, 2012

Q4, 2011

42% 58%

38% 62%

• The third most important business

challenge is government regulations (cited

by 17% of the respondents). Frequent

changes in business regulations (relating

to business licensing procedures, import-

export procedures, municipality and traffic

rules), coupled with a lack of communication

of such changes, are perceived as the third

most serious challenge.

• Competition(citedby~13%ofrespondents):

Competition from local and international

players is the fourth most serious challenge.

Firms in transportation, manufacturing

(cement, plastics and food & beverage) and

trading (construction material) seem to be the

most affected by this challenge. For instance,

food & beverage manufacturing companies

cited intense competition from companies

in Saudi Arabia supplying to the UAE with

strong support from the Saudi government.

• High cost of rentals & leasing was reported

as an important challenge by businesses that

had to renew their leases at higher rentals.

These respondents stated that in spite of

the business slowdown, rents increased by

5-10%. This challenge was felt to be more

pronounced among Free Zone companies.

• Businesses have also been adversely

affected by fluctuating and increasing costs

of key raw materials and some other inputs.

Rising costs of clinker, food ingredients &

flavours, plastic & petrochemical products,

metals (aluminium & steel), wood, chemicals,

and commercial fuel had an adverse impact

on manufacturing firms while rising prices of

tiles, marble, cement, electrical items, paints

were a cause of concern for construction

related businesses.

• Delays in payment receivables were

reported by 8.5% of respondents to be

worrisome: collecting money from customers,

making timely payments to suppliers and

negotiating better credit terms. In addition,

respondents expressed the need for more

transparency and stringent laws for enforcing

contracts and collecting debt.

• By firm size, the main challenges reported

by SMEs were more or less the same and

in the same order of severity as previously

stated for the total population of firms.

However, large companies have a different

ranking of these challenges: competition

first, followed by uncertainty in government

regulations, then by increasing government

fees.

• In terms of market orientation, the top

two business challenges, i.e. Government

fees and government regulations, are the

same for domestic and export oriented

firms. Outside these two challenges, non -

exporting firms mentioned the high cost of

rental & leasing and raw materials as the third

most significant challenge whereas exporting

firms considered the lack of demand and

competition as the next critical challenges.

• With reference to the off-shore/on-

shore status, the three main challenges, i.e.

Government fees, competition and business

regulations, are the same for Mainland as for

Free Zone companies. However, the lack of

demand for products and services and of

access to finance were considered the next

most critical challenges by mainland based

companies, whereas rentals were more of a

concern to free zone based companies. Yes No

0% 20% 40% 60% 80% 100%

Q1, 2012

Q4, 2011 46%54%

46%54%

Figure 14 - b

Figure 14 - a

Do you plan to expand your capacity ?

Do you plan to upgrade your technology ?

INVESTMENT OUTLOOKThe survey reveals that companies are

more willing to expand the capacity of their

business (54%) as compared to upgrading

technology(42%).Comparedtotheprevious

quarter, capital investment plans over a

twelve-monthhorizonaresteady;with54%

planning to expand their capacity (vs. 54%

ofbusinessesaspertheQ4survey)and42%

of firms planning to upgrade technology (vs.

38% of businesses as per the Q4 survey)

(Figures 14).

The primary reasons cited by firms reluctant

to expand their capacity in the coming

twelve months are unfavourable market

conditions, lack of clarity, investments

already undertaken in expanding the capacity

and under utilization of existing capacity.

Key sub-sectors not planning to expand

capacity are construction & contracting and

transportationsectorswith58%and40%of

respondents unlikely to expand.

From a sectoral perspective, manufacturing

companies are more inclined to invest in

new technology, as approximately 57%

of respondents expressed their intent to

upgrade the existing technology. In contrast,

service companies and to a lesser extent

trading and manufacturing companies are

rather inclined to expand capacity.

Economic Studies & Policies DivisionP.O. Box: 13223, Dubai, United Arab EmiratesTel : +971 4 445 5555, Dir : +971 4 445 5881Dir : +971 445 5884, Fax : +971 4 445 5830

www.dubaided.gov.ae

www.dubaided.gov.ae

DUBAIBUSINESSSURVEY

DUBAIBUSINESSSURVEY

Economic Studies & Policies Division

Q1 2012Q1 2012