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DUBAI BUSINESSSURVEYQ2-2017

Dubai Economy

Economic Information DivisionEconomic Policies & Studies Sector

INTRODUCTION

The Dubai Economy (DED) was established in March 1992, with the objective to organize, 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 that 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 offices now under the umbrella of DED, the mandate has been extended to include:

1. Mohammed Bin Rashid Establishment for Small & Medium Enterprises (SMEs)

2. Dubai Export Development Corporation (EDC)

3. Dubai Investment Development Agency (FDI)

4. Dubai Competitiveness Office (DCO)

In line with DED’s new mandate, the Economic Information Division conducts a quarterly Business Survey, in coordination with DED Agencies (EDC & SME) 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 second quarter of 2017.

02

DUBAI BUSINESS SURVEY, Q2 - 2017

AT A GLANCE

• On an annual basis, the Composite BCI has decreased by 6.9 points, from 117.5 points in Q2, 2016 to 110.6 points in Q2, 2017, owing to weaker forecasts for selling prices, volumes, hiring and net profits.

• A q-o-q comparison shows that the Composite BCI is steady, moving from 111.2 points in Q1, 2017 to 110.6 points in Q2, 2017 as a stronger forecast for large companies is offset by a weaker outlook for SMEs.

• Large companies are more optimistic about their predictions compared to the SMEs, with Composite BCI scores of 112.9 and 107.3 points, respectively.

• The projections for Q3, 2017 are weaker than the outlook for Q2, 2017 for all parameters in the survey. Businesses anticipate fewer customers and slower demand on account of the summer/holiday season, which has lowered expectations for economic activity.

• The manufacturing sector continues to have the strongest forecast for sales revenues, volumes sold, number of employees, and new purchase orders.

• The overall business community in Dubai is more bullish than the exporters with respect to its economic outlook for Q3, 2017. While the overall business community has displayed a stronger forecast for volumes, hiring, profits and new purchase orders, exporters are more optimistic about sales revenues. Both groups have similar projections for selling prices.

• Expectations about the business situation in Dubai have weakened on a quarterly basis: 39% of the respondents expect an improvement in the business situation for Q3, 2017 compared to 45% for the previous quarter, while the proportion of businesses anticipating deterioration has increased from 8% for Q2, 2017 to 10% for Q3, 2017.

• Respondents’ plans with respect to investment in capacity expansion are stronger when compared on a q-o-q basis, but have weakened on a y-o-y basis. Intentions with respect to technology upgrades are weaker both on a quarterly and annual basis.

• 87% of the responents said that they were aware of the implementation of VAT in 2018.

The Dubai Economy (DED) is a Dubai Government entity that has the mandate to help achieve the key strategic objectives of fostering ‘Sustainable Economic Development’ and strengthening the ‘Competitiveness of Dubai’.

In order to gauge the perceptions of the business community, DED conducts a quarterly business survey, to assess the level of current economic activity and the outlook of businesses for the next quarter.

In addition, the survey elicits feedback from businesses on challenges that may impact growth and development and assesses their investment outlook for the coming twelve months.

The quarterly business survey for Q2, 20171 was conducted with a total sample of 507 companies across the Emirate of Dubai. The sample included a mix of small, medium, and large enterprises and had adequate representation from the manufacturing, trading, and services sectors in proportion to their respective contributions to Dubai’s GDP.

In order to gauge ‘business outlook’ or expectations, the quarterly survey focuses on key indicators, such as sales revenue, selling prices, volumes sold, profits and number of employees. Respondents are asked to indicate if they expected an ‘increase’, ‘decrease’ or ‘no change’ in these parameters. The Q2, 2017 survey has captured the perceptions of companies across 30-35 sub-sectors.

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.

METHODOLOGY

Figure: 01

Survey Sample

Overall Sample 507

Large Companies 70

Manufacturing 11

Services 35

Services (SME)

Trading 24

Manufacturing (SME)

Large Companies

Trading (SME)

64206

167

70

04


The 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

For the Composite Business Confidence Index, the resulting scores are multiplied with their corresponding weights to arrive at a weighted average Index score2. This Index is finally rebased so that Q2, 2011 = 100. 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 calculation: Overall Index = 60% * (Large enterprise Index) + 40% * (SME Index).

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

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)]

BUSINESS CONFIDENCE INDEX CALCULATIONSThe IMF expects Dubai’s GDP to grow at a 4% pace in 2017 compared to 2.6% in 2016, driven by local spending, including investment in preparation for the Expo 2020, and a pick-up in global trade. Dubai’s projected growth is much stronger than the average of 2.3% predicted for the MENA region. According to DED, the Emirate’s economy will also be aided by its diversification efforts and opening of new markets including Islamic finance and developing the renewable energy industry. Dubai’s projections for Q3, 2017 are positive with the Composite Business Confidence Index (BCI) at 110.6 points in Q2, 2017 (A score of 100 indicates stable/neutral sentiments).

The Composite BCI has declined by 6.3 points on a y-o-y basis, from 117.5 points in Q2, 2016 to 110.6 points in Q2, 2017, weighed down by a weaker outlook for SMEs. On a quarterly basis, the Composite BCI has dropped marginally, decreasing from 111.2 points in Q1, 2017 to 110.6 points in Q2, 2017 owing to weaker forecasts for selling prices, volumes, hiring and net profits.

The survey also reveals that large companies hold stronger business projections for Q3, 2017 compared to SMEs, with Composite BCIs at 112.9 and 107.3 points, respectively. Large companies are more confident than SMEs for selling prices and number of employees, while the latter is upbeat about volumes and profits.

BUSINESS CONFIDENCE INDEX – Q2, 2017

Figure: 02

Composite Business Confidence Index - Q2, 2017

117.5111.2

Q2, 2016 Q1, 2017

110.6

Q2, 2017

Figure: 03

Business Confidence Index - Q2, 2017

107.3

112.9

SMEINDEX

LARGECOMPANY

INDEX

110.6

COMPOSITEBCI

06


The latest forecast for Q3, 2017 is weaker than that for Q2, 2017 for most parameters: sales revenues, selling prices, volume of sales, hiring and net profits. Key reasons cited by respondents for this softer forecast include slow demand during the summer months due to fewer customers, fewer projects/orders and competition.

• On a quarterly basis, the forecast for volume of sales has weakened, with the net balance decreasing from 39% for Q2, 2017 to 30% for Q3, 2017. Since there are fewer tourists visiting Dubai during the summer months and also because many people are on vacation, the demand for many products decline during this time of the year. However, 45% of the respondents anticipate an increase in their volumes during Q3, 2017 as they hope to get new projects/orders or expect market conditions to improve, while 15% of the firms have projected a decline.

• The manufacturing sector continues to hold the firmest forecast for volumes for Q3, 2017, followed by the services sector, while traders continue to be the least optimistic.

• Predictions for selling prices are similar. A majority (81%) of the respondents anticipate no change in their selling prices, while 9% expect their selling prices to increase.

• The outlook for net profits has weakened q-o-q in line with the weakening sentiments with respect to sales volumes.

• Hiring numbers have moderated, both on a quarterly and annual basis.

OVERALL BUSINESS OUTLOOK – Q3, 2017

Forecast Business Performance – Q3, 2017

Increase Decrease NoChange

NetBalance Increase Decrease No

ChangeNet

Balance Increase Decrease NoChange

NetBalance

Table: 01

44%

9%

45%

16%

39%

43%

44%

9%

45%

16%

39%

43%

15%

10%

15%

6%

18%

12%

41%

81%

40%

78%

43%

45%

41%

81%

40%

78%

43%

45%

29%

-1%

30%

10%

21%

31%

Parameter

Q3, 2016 Q2, 2017 Q3, 2017

SalesRevenue

SellingPrices

VolumesSold

No. ofEmployees

Profits

NewPurchase

Orders

54%

11%

50%

23%

47%

52%

11%

9%

11%

4%

13%

10%

35%

80%

39%

73%

40%

38%

43%

2%

39%

19%

34%

42%

48%

13%

48%

18%

43%

47%

15%

8%

15%

4%

17%

16%

37%

79%

37%

78%

40%

37%

37%

79%

37%

78%

40%

37%

33%

5%

33%

14%

26%

31%

The manufacturing sector’s forecast for volumes for Q3, 2017 has shown a moderation compared to the outlook for Q3, 2016, and Q2, 2017 due to low demand during the summer months and impact on investment stemming from low oil prices. 53% of the manufacturing firms hope to sell higher volumes in Q3, 2017 compared to 57% in Q2, 2017and 67% in Q3, 2016 as they hope for new projects and orders. 38% of the respondents expect stability in their volumes, while 9% anticipate a decline.

Glass, furniture and metals manufacturers are most optimistic about their volumes during Q3, 2017, while plastics manufacturing firms are the least confident.

MANUFACTURING SECTOR

SECTOR-WISE OUTLOOK FOR SALES VOLUMES

Manufacturing companies hold the most bullish forecast for most parameters in the survey: sales revenues, volumes sold, number of employees and new purchase orders. The trading segment on the other hand holds the weakest outlook for revenues, selling prices, volumes, hiring, profits and purchase orders.

Figure: 04

Sectoral Net Balances (Sales Volume),Quarterly Outlook - Q3, 2017

44%39%

Manufacturing Services

12%

Trading

Figure: 05

Quarterly Net Balances (Sales Volume) - Manufacturing Sector

44%

Q3, 2017

47%

Q2, 2017

58%

Q1, 2017

52%

Q4, 2016

58%

Q3, 2016

32%

Q2, 2016

08


According to the survey, the forecast for volumes is steady on a quarterly basis, and has firmed up on a y-o-y basis. The annual improvement in forecast is possibly due to respondents’ expectations of getting new orders/tenders/projects/contracts.

• Within the services sector, the construction sector is most optimistic about its volumes during Q3, 2017 (net balance of 55%). On the other hand, hotels & restaurants are least optimistic with a net balance of 23%, as this segment is most impacted by fewer tourist arrivals.

• Among construction, architecture & real estate firms, 55% expect an increase in volumes during Q3, 2017 as these respondents expect to get more projects or new orders during the third quarter, while 4% anticipates a decline, resulting in a net balance of 51%.

• In the transportation segment, 48% of the firms hope to see higher volumes during Q2, 2017, while a 7% anticipate a decrease.

SERVICES SECTOR

Sentiments with reference to sales volumes in the trading sector have moderated both on a y-o-y and q-o-q basis. 35% of the traders anticipate a rise in volumes during Q3, 2017, versus 46% in Q2, 2017 and 45% for Q3, 2016. Among the three main sectors, trading firms hold the weakest outlook for all parameters in the survey.

TRADING SECTOR

Figure: 06

Net Balances on Sales Volume for Key Service Sectors, Quarterly Outlook Q3, 2017

Q3, 2017Q2, 2016 Q3, 2016 Q4, 2016 Q1, 2017 Q2, 2017

CONSTRUCTION

63%41%

54%75%

49%55%

TOURISM & HOSPITALITY

-29% 5%

51%63%

-6%24%

TRANSPORTATION & LOGISTICS

24%47%

14% 27%56%

41%

OVERALL SERVICES SECTOR

26% 24% 28%47% 39% 39%

Key sectors optimistic of higher demand over the next quarter include the following:

• 60% of traders in the construction sector have forecast an increase in volumes as they anticipate new orders, while an equal proportion (20% each) expect a decline or stability in their sales volumes.

• Among electronic traders, 36% are confident of higher volumes in Q2, 2017 owing to expectations of new orders, while 43% foresee stability in this parameter.

Additionally, 45% of the respondents have indicated that they do not expect any hurdles to impact their business operations during Q3, 2017. Competition and poor market conditions are the two leading concerns for Dubai’s firms.

Firms in Dubai expect the business situation in Q3, 2017 to moderate. The proportion of firms that have forecast an improvement for Q3, 2017 stands at 39%, lower than the proportion of 45% in Q2, 2017. A higher proportion of firms 51% anticipate stability in Q3, 2017 versus 47% in Q2, 2017, while the number of businesses anticipating deterioration has tracked sideways from 8% in Q2, 2017 to 10% in Q3, 2017.

Expected Business Situation:

Figure: 07

Quarterly Net Balances (Sales Volume) - Trading Sector

12%

Q3, 2017

35%

Q2, 2017

36%

Q1, 2017

39%

Q4, 2016

34%

Q3, 2016

36%

Q2, 2016

Figure: 08

Expected Business Situation

Improvement Stability Deterioration

Q2, 2016

39%

47%

14%

Q3, 2016

44%

44%

12%

Q4, 2016

50%

41%

9%

Q1, 2017

47%

46%

7%

Q2, 2017

45%

47%

8%

Q3, 2017

39%

51%

10%

10


Under a co-operation agreement with Department of Economic Development (DED), Dubai Airport Free Zone Authority (DAFZA) enables customers to obtain dual licenses to operate across Dubai

DAFZA signed a Memorandum of Understanding (MoU) with DED on September 19, 2017, providing dual licenses to its companies to operate across the Emirate of Dubai. The MoU is in line with intensified efforts between DAFZA and DED to support the Dubai Government’s goal of establishing a diversified and flexible knowledge-based economy driven by innovation and investment. H.E. Dr. Mohammed Al Zarooni, Director General of DAFZA, and H.E. Sami Dhaen Al Qamzi, Director General of Department of Economic Development, signed the agreement.

General Objectives of the MoU:• A strategic partnership to strengthen Dubai’s

position as a global economic centre

• Co-operation between the parties that serves to increase the flow of investments

Specific Objectives of the MoU:• Strengthen joint cooperation between the two

parties on initiatives targeting all aspects related to providing economic support for DAFZA’s main services

• Serve the common interest and strategic objectives of both parties

• Enhance the coordination between the two parties through the licensing and activities of companies operating in DAFZA

• Simplify procedures through diversifying the service channels of DED and licensing the business and commercial activities of the free zones

Terms, Powers and Obligations:• Applicants must obtain the approval of the free

zone first, in accordance with the stipulated conditions

• DED may modify or add any activity related to the licenses of companies subject to the approval of DAFZA

• Both parties will work closely to improve the levels of governance, compliance and transparency for businesses working within DAFZA

• DED will also monitor and inspect licensed companies to ensure their compliance with the applicable laws on various commercial activities, particularly the Law on the Suppression of Fraud and Deception in Commercial Transactions, the Consumer Protection Law, the Commercial Transactions Law and Commercial Agencies Law

Commenting on the agreement

H.E. Sami Al Qamzi, Director General of DED said:

“We at the Department of Economic Development are committed to improving our services to achieve sustainable economic development and enhance competitiveness as well as convenience so that businesses in Dubai can cope with continuous changes and concentrate their time and efforts on growth.”

H.E. Al Qamzi added that DED will continue to develop Dubai’s business environment to remain competitive in line with the emirate’s world-class infrastructure. “We are guided by the vision of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President and Prime Minister and Ruler of Dubai, to make Dubai a preferred place to live, work and visit as well as a smart and sustainable city and a pivotal hub of the global economy by 2021,” he said.

H.E. Dr. Mohammed Al Zarouni, Director General of DAFZA said:

“The MoU complements DAFZA’s leading role in increasing the flow of foreign direct investment, and is in line with our strategic plan for 2017 to 2021. We are confident that this new licensing agreement will add significant value to the economy of Dubai and the UAE in general, as it will help attract international investors and offer a unique business experience serving the best interests of companies operating within the free zone.”

IN FOCUS

Key outlook indicators are summarized below.

• SMEs have softened their stance when compared on a quarterly basis for all parameters: revenues, selling prices, volumes, hiring, profits and new purchases.

• The selling prices outlook has weakened with a net balance of negative 3% for Q3, 2017 versus a net balance of 3% in the previous quarter. However, 81% of SMEs have forecast that their selling prices will remain unchanged due to pre-determined market prices and competition.

• SMEs are more optimistic than large companies regarding revenues, volumes and net profits.

• Manufacturing SMEs continue to be more bullish for most of the parameters in the survey, while trading firms hold the weakest outlook for revenues, volumes, hiring, net profits and purchase orders.

• 48% of manufacturing SMEs and 43% of services firms forecast an increase in their capacity utilization during Q3, 2017.

SMEs account for a dominant share in Dubai’s total business composition. 437 of the 507 firms that were interviewed as part of the survey were SMEs. These included micro, small, and medium enterprises as per Dubai’s SME definition. SME business projections have softened q-o-q and y-o-y, with the Composite BCI slipping from 111.0 points in Q2, 2016 and 117.1 points in Q1, 2017 to 107.3 points in Q2, 2017.

DUBAI SME OUTLOOK – Q3, 2017

Forecast Business Performance (SMEs) – Q3, 2017



ChangeNet


NetBalance

Table: 02

29%

-3%

30%

9%

21%

30%

Parameter

Q3, 2016 Q2, 2017 Q3, 2017

SalesRevenue

SellingPrices

VolumesSold

No. ofEmployees

Profits

NewPurchase

Orders

47%

13%

47%

17%

42%

46%

47%

13%

47%

17%

42%

46%

17%

7%

16%

5%

18%

17%

17%

7%

16%

5%

18%

17%

36%

80%

37%

78%

40%

37%

36%

80%

37%

78%

40%

37%

30%

6%

31%

12%

24%

29%

54%

12%

49%

24%

47%

52%

10%

9%

9%

3%

12%

9%

36%

79%

42%

73%

41%

39%

44%

3%

40%

21%

35%

43%

43%

8%

45%

16%

39%

43%

14%

11%

15%

7%

18%

13%

43%

81%

40%

77%

43%

44%

12


Key outlook indicators for the next quarter are summarized below.

• While exporters are more optimistic than domestic-market oriented firms about their revenues and selling prices, the latter holds a stronger forecast for volumes, hiring, net profits and new purchase orders.

• The outlook for export sales has moderated both on a quarterly and yearly basis.

• 52% of the exporters have indicated plans to export to new markets during Q3, 2017 compared to 41% in Q2, 2017. The leading new markets for export diversification are Africa, GCC and Asia.

• The key challenges faced by Dubai’s exporters related to exporting their goods and services outside the UAE are competition (14%), economic sanctions & embargo in key export markets (9%) and exchange rate fluctuations (8%).

The survey included 102 export-oriented manufacturing, trading, and services firms in Dubai. For the purpose of this report, an exporter is defined as an entity with exports accounting for 20% or more of its consolidated sales. The composite BCI for exporters has moderated from 115.1 points in Q2, 2016 and 119.2 points in Q1, 2017 to 102.4 points in Q2, 2017.

DUBAI EXPORTERS’ OUTLOOK – Q3, 2017

Forecast Business Performance (Exporters) – Q3, 2017



ChangeNet


NetBalance

Table: 03

48%

11%

43%

11%

36%

39%

35%

18%

12%

19%

6%

25%

14%

19%

34%

77%

38%

83%

39%

47%

46%

30%

-1%

24%

5%

11%

25%

16%

Parameter

Q3, 2016 Q2, 2017 Q3, 2017

SalesRevenue

SellingPrices

VolumesSold

No. ofEmployees

Profits

ExportSales

NewPurchase

Orders

52%

9%

50%

12%

41%

48%

55%

52%

9%

50%

12%

41%

48%

55%

7%

12%

7%

3%

14%

8%

7%

7%

12%

7%

3%

14%

8%

7%

41%

79%

43%

85%

45%

44%

38%

41%

79%

43%

85%

45%

44%

38%

45%

-3%

43%

9%

27%

40%

48%

59%

10%

53%

16%

51%

51%

55%

7%

10%

8%

4%

10%

7%

7%

34%

80%

39%

80%

39%

42%

38%

52%

0%

45%

12%

41%

44%

48%

Although the main purpose of the survey is to gauge business expectations for future activity, it also captures the actual changes in business performance from one quarter to another, as elicited from the feedback given by responding firms.

• The net balance for volumes sold in Q2, 2017 was recorded at negative 17% as 20% registered an increase while 37% reported a decrease in sales volumes. The decrease in volumes was a result of slow market conditions, fewer customers due to the summer/holiday season, lack of new projects and competition.

• A majority (67%) reported that their selling prices were firm in Q2, 2017, while 22% had to lower their prices mainly due to competition.

• 64% of the firms were able to maintain the size of their labor force, while 17% had to increase it to address business requirements, and 19% had to trim employee numbers.

• Weaknesses in volumes is reflected in the moderation of purchase orders.

• 36% of the firms experienced an increase in the cost of labour due to a rise in the cost of living and hikes in wages & salaries, but it remained unchanged for 60% of the firms.

• 22% of the respondents were impacted by the rising cost of raw materials, while 47% reported no change in the parameter. Rental costs increased for 28% of the respondents.

• Of all the participants in the survey, 39% reported that they availed of bank finance during Q2, 2017. Of these, 23% reported an increase in the cost of finance, while 70% said that such costs remained unchanged.

OVERALL BUSINESS PERFORMANCE – Q2, 2017

Overall Business Performance - Q2, 2017



ChangeNet


NetBalance

Table: 04

-22%

-11%

-17%

-2%

-26%

-13%

Parameter

Q2, 2016 Q1, 2017 Q2, 2017

SalesRevenue

SellingPrices

VolumesSold

No. ofEmployees

Profits

NewPurchase

Orders

21%

9%

22%

14%

19%

22%

28%

22%

27%

9%

30%

27%

51%

69%

51%

77%

51%

51%

-7%

-13%

-5%

5%

-11%

-5%

20%

10%

21%

11%

18%

21%

30%

20%

30%

13%

36%

27%

50%

70%

49%

76%

46%

52%

-10%

-10%

-9%

-2%

-18%

-6%

17%

11%

20%

17%

18%

19%

39%

22%

37%

19%

44%

32%

44%

67%

43%

64%

38%

49%

14


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

• All key sectors reported weak economic performances during Q2, 2017. However, the construction sub-segment registered positive economic performance due to an increase in the number of projects.

• While the overall net balance of the manufacturing sector was negative, food manufacturers recorded a positive economic performance in Q2, 2017. On the other hand, furniture, aluminium and cement manufacturers achieved negative net balances.

• Within the trading sector, construction and electronic traders reported a positive net balance for volumes, while the remaining segments registered negative performances.

Figure: 09

Net Balances on Sales Volume for Key Sectors, Quarterly Output - Q2, 2017

-6% -19%

18%

-17% -52% -18%

Manufacturing Tourism & Hospitality Overall ServicesTrading

• 20% indicated a rise in their volumes in Q2, 2017 while 38% registered a decrease, resulting in a net balance of negative 18%.

• A majority of the SMEs reported stable hiring numbers in Q2, 2017.

• Large companies reported better economic performance than SMEs with respect to all parameters in the survey: revenues, selling prices, volumes, hiring, profits and new purchase orders.

SMEs PERFORMANCE - Q2, 2017

Overall Business Performance (SMEs) – Q2, 2017



ChangeNet


NetBalance

Table: 05

-24%

-14%

-18%

-4%

-28%

-14%

Parameter

Q2, 2016 Q1, 2017 Q2, 2017

SalesRevenue

SellingPrices

VolumesSold

No. ofEmployees

Profits

NewPurchase

Orders

20%

9%

21%

12%

18%

20%

28%

22%

27%

10%

30%

27%

52%

69%

52%

78%

52%

53%

-8%

-13%

-6%

2%

-12%

-7%

19%

10%

20%

11%

17%

21%

30%

20%

29%

13%

36%

27%

51%

70%

51%

76%

47%

52%

-11%

-10%

-9%

-2%

-19%

-6%

17%

10%

20%

15%

17%

19%

41%

24%

38%

19%

45%

33%

42%

66%

42%

66%

38%

48%

16


• Exporters reported a stronger performance than domestic-market oriented firms with respect to sales revenues, with a net balance of negative 12% and negative 24%, respectively.

• Exporters registered better performance than domestic-market oriented firms for volumes, hiring, profits and new purchase orders, while the latter performed better in terms of selling prices.

• While manufacturing exporters achieved a relatively better performance for volumes (net balance of negative 4%), traders and services exporters recorded negative net balances of 8% and 38%, respectively.

EXPORTERS’ PERFORMANCE – Q2, 2017

Overall Business Performance (Exporters) – Q2, 2017



ChangeNet


NetBalance

Table: 06

19%

9%

24%

20%

21%

20%

16%

31%

25%

32%

18%

38%

25%

28%

50%

66%

44%

62%

41%

55%

56%

-12%

-16%

-8%

2%

-17%

-5%

-12%

Parameter

Q2, 2016 Q1, 2017 Q2, 2017

SalesRevenue

SellingPrices

VolumesSold

No. ofEmployees

Profits

ExportSales

NewPurchase

Orders

19%

7%

21%

7%

20%

20%

21%

48%

69%

48%

83%

44%

49%

46%

33%

24%

31%

10%

36%

31%

33%

-14%

-17%

-10%

-3%

-16%

-11%

-12%

22%

6%

23%

10%

20%

20%

21%

30%

23%

31%

11%

36%

30%

27%

48%

71%

46%

79%

44%

50%

52%

-8%

-17%

-8%

-1%

-16%

-10%

-6%

A summary of the major challenges facing Dubai’s business community are as follows:

1. Competition: This is the biggest challenge as indicated by 20% of Dubai’s firms. 65% of these companies anticipate that competition will become more severe.

2. Demand/market conditions: Slow demand and poor market conditions are a hindrance to 8% of the businesses.

3. Increase in expenses: 6% of Dubai’s businesses are concerned about rising expenses.

4. Government Regulations/Fees & Delay in Payments/Receivables: 5% each of the firms consider these as obstacles to their operations.

The remaining concerns were less important and each impacted 4% or fewer of the participants.

The key hurdles faced by both SMEs and large companies were competition and demand/market conditions. Exporters were largely impacted by political uncertainty in the region and competition.

KEY BUSINESS CHALLENGES IN DUBAIThe survey also addressed key challenges perceived by businesses at the end of Q2, 2017 that may impact near term business growth and development. 45% of the respondents do not expect to face any negative factors to hinder their business operations in Q2, 2017 compared to 78% in the previous quarter.

Figure: 10 Figure: 11

78%

7%

5%4%

4%3%

2%

1%

1%

1%1%2%

No Negative Factors

Competition

Demand/Market Conditions

Increase in Expenses

Delay in Payments/Receivables

Cost of Rental/Leasing

Availability/Cost of Raw Materials

Availability/Cost of Finance

Government Regulations/Fees

Impact of Oil Prices

Inflation

Others

Key Business Challenges, Q1, 2017

45%

20%

5%

4%

3%

2%

1%

2%

No Negative Factors

Competition

Demand/Market Conditions

Increase in Expenses

Government Regulations/Fees

Delay in Payments/Receivables

Political Uncertainty in the Region

Availability/Cost of Finance

Cost of Rental/Leasing

Global/Regional Economic Conditions

Impact of Oil Prices

Inflation

Delay/No New Projects

Currency Fluctuations

Others

Key Business Challenges, Q2, 2017

5%

6%

8%

3%

1%

1%

1%

18


INVESTMENT OUTLOOKThe survey also gauges the business community’s investment outlook with respect to capacity expansion and technology upgrade plans over a twelve-month horizon.

• Plans to invest in capacity expansion have firmed up on a q-o-q basis (62% in Q2, 2017 versus 61% in Q1, 2017), but are lower with projections a year ago (69% hoped to invest in expansion in Q2, 2016). Respondents are less bullish about their technology upgrade plans in Q2, 2017 vis-à-vis the previous quarter and a year ago. 64% of the firms intend to invest in upgrading technology in Q2, 2017 compared to 65% in Q1, 2017 and Q2, 2016.

• Key reasons cited by respondents for not considering expanding business capacity include satisfaction amongst applicable respondents related to size and scale of their current operations and/or prioritization towards achieving stability and profitability, over and above market expansion. Additionally, some businesses did not want to expand amid poor market conditions or lack of new projects.

• Manufacturing sector firms are most optimistic about capacity expansion plans and technology upgrades. 63% of manufacturing companies versus 62% of trading firms and 61% of services companies have expansion plans. 67% of manufacturing companies versus 64% each of trading and services firms expect to implement technology upgrades.

• SMEs are more hopeful than large companies about investment in business expansion. 62% of the SMEs will invest in expansion plans compared to 60% of large firms. On the other hand, 74% of large companies are more bullish about technology upgrades versus 63% of SMEs.

• Intent to invest in capacity and upgrade technology is similar among exporters and domestic-market oriented firms.

Figure: 12

Do you Plan to Expand the Capacityof your Business?

Q2, 2017

62%

38%

Q1, 2017

61%

39%

Q2, 2016

69%

31%YESNO

Figure: 13

Do you Plan to Upgradeyour Technology?

Q2, 2017

64%

36%

Q1, 2017

65%

35%

Q2, 2016

65%

35%YESNO

VALUE ADDED TAX (VAT)The Q2, 2017 DED Survey asked respondents on whether they were aware of the upcoming implementation of VAT in the UAE.

87% of the respondents reported that they were aware of the VAT implementation in the UAE.

Some of the challenges cited by respondents while implementing VAT in their respective firms include: investing in new accounting systems and software resulting in increasing operational costs, the need to conduct regular audits and ensure proper monitoring/control, increase in documentation and lack of clarity about provisions, procedures and implementation of VAT.

Figure: 14

Are you Aware of the Implementation of VAT in the UAE in 2018?

13%

87%

YESNO

20


While 14% of the respondents highlighted the positive impact of VAT implementation, 28% reported that this tax will impact their firms negatively.

The Survey also highlighted that the positive impact with the introduction of VAT would be the standardization of processes in the organization. However, the negative effect with the introduction of this tax is the increase in the cost of product/services, increase in expenses and declining sales and profitability.

Figure: 15

Potential Impact of VAT on Businesses

27% (Not Sure)

28% (Negative Impact)

14% (Positive Impact)

31% (No Impact)

Economic Information DivisionEconomic Policies & Studies Sector

P.O. Box: 13223, Dubai, United Arab Emirates Tel: +9714 445 5555Dir: +9714 445 5881 Dir: +9714 445 5884Fax: +9714 445 5830

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