2

DUBAI BUSINESS SURVEY

Q1 2012

Economic Studies & Policies Division

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 VicePresident, 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 DEDs new mandate, the Economic Studies & Policies Division conducts a quarterly Business Survey, in coordination with DED Agencies (EDC & SMEs), 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.

AT A GLANCE

METHODOLOGY
The 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 Dubais GDP. 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.

The composite Business Confidence Index for Dubai for the first quarter of 2012 stood at over 120 points, indicating an overall positive business outlook for the coming quarter (Q2, 2012). The outlook on sales is positive, with 86% of businesses expecting either an increase or no 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 the previous 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. Compared to the previous quarter, no change is reported in investment plans over a twelve-month time horizon, with 42% of businesses planning to upgrade technology and 54% intending to expand capacity.

Sample Composition
(SME) - 255

ce rvi Se

Manu fa - 4 ctu r

g in

Services - 1

Overall Sample 500

Large - 25

an (S ufac M E) tur 60 ing

Tr ad ing

(SM E) - 1 6 0

Figure 1

BUSINESS CONFIDENCE INDEX CALCULATIONS

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 re based so that Q2, 2011 = 100. Finally, taking account of the economys composition by firm size, the index is weighted by the relative contributions of SMEs and large businesses to Dubais GDP. The final result is the following index: 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
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

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 of Dubai. In order to gauge the perceptions of the business community, DED has launched Dubais Quarterly Business Surveys with the key objective to providing a snapshot of Dubais 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.

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)]

ra d
T

ing

-9

Large Companies 25

DED Business Survey Q1-2012

DED Business Survey Q1-2012

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 shows a seasonal dip in overall optimism of 9% 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.

OVERALL BUSINESS OUTLOOK FOR Q2, 2012

Forecast Business Performance Q2, 2012
Sales Revenue Selling Prices Volume Sold No.of Employees Prots New Purchase Orders 23% 9% 8% 49% 3% 44% 45% 0% 10% 20% 30% 40% 19% 13% 50% 60% 70% 50% 15% 83% 14% 74% 37% 40% 80% 90% 1% 100% 37% 35%

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

140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 Q2 2011 Q3 2011 Q4 2011 Q1 2012 100.0 115.2 133.2 120.5

Increase

Decrease

No Change

Not Applicable

Figure 4

Overall, the survey reveals a positive outlook for the coming quarter; with 50% of companies expecting an improvement in their sales revenue and 35% 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 few companies (9%) intend to raise their 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, employees), closely followed by firms of the service sector. In contrast, respondents in the trading sector have a comparatively lower outlook for the coming quarter (Figure 5).

Sectoral Net Balances Quarterly Outlook

60% 42% 40% 20% 0% 35% 33%

Figure 2

Q2, 2012
Manufacturing Services Trading

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

140.0 112.2 100.0 126.0

Figure 5

120.5

Quarterly Net Balance

(Sales Volume) - Manufacturing Sector
60% 52% 39% 40% 42%

60.0

20.0 SME Index Large Company Index Composite BCI

Figure 3

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 of 112 and 126 (Figure 3). The higher 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.

20%

0%

Q4, 2011

Q1, 2012

Q2, 2012

Figure 6

DED Business Survey Q1-2012

DED Business Survey Q1-2012

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

80% 63% 60% 47% 40% 20% 0% -20% -40% -60% Q3, 2011 Q4, 2011 Q1, 2012 Q2, 2012 -54% Overall Service Sector Transportation & Logistics Construction Services Tourism & Hospitality 35% 17% 36% 33% 16% 0% 34% 38% 55% 55% 45% 66%

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 & businesses are expected account of new orders buyers in local market as re-export business. computer trading to be higher on from institutional well as growth in

In line with the positive outlook on sales, the percentage of companies planning to increase their purchase orders has remained largely stable (45% in Q2), as many companies plan 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 in the next quarter, followed by trading (48%) and services (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 least to remain stable with 44% of respondents 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, with 87% of the respondents reporting either improvement or stability in comparison with Q1 of this year (Figure 9).

10%

Figure 7

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.

Food & beverage trading businesses engaged in re-exports, have higher optimism on their sales performance.

Quarterly Net Balances

(Sales Volume) - Trading Sector
60% 58%

Expected Business Situation Q2, 2012

40%

Deterioration - 13% 35% 33% Stability - 42% Improvement - 45%

20%

0%

Q4, 2011

Q1, 2012

Q2, 2012

Figure 8

Figure 9

DED Business Survey Q1-2012

DED Business Survey Q1-2012

DUBAI SME OUTLOOK FOR Q2, 2012

SMEs Business Forecast Q2, 2012
Sales Revenue Selling Prices Volume Sold No.of Employees Prots New Purchase Orders 0% 10% 21% 8% 8% 49% 3% 44% 45% 20% 30% 40% 20% 13% 50% 60% 70% 49% 16% 84% 14% 76% 36% 40% 80% 90% 1% 100% 37% 35%

DUBAI EXPORTERS OUTLOOK FOR Q2, 2012

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% or more of its consolidated revenues through exports.
Increase Decrease No Change Not Applicable

For a majority of exporting businesses, export sales are forecasted to grow or remain stable in the coming quarter due to sustained demand from other GCC countries, Africa and Asia Pacific countries such as China, Hong Kong, Japan, and Philippines. With regard to prospects for export

Exporters foresee marginally higher business performance than domestic oriented firms, with 55% of the former expecting an increase in revenues against 46% for the latter. 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.

diversification, and similarly to Q4 results, approximately 42% of exporters plan to sell to new markets in the coming quarter, with a particular focus on African & GCC markets. Employment is projected to remain stable, as 73% of exporters are planning to maintain the same workforce in the upcoming quarter as in Q1, 2012. Procurement levels are expected to

Figure 10

Given the dominant share of SMEs in Dubais total business composition (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 Dubais SME definition. Overall, the results indicate positive expectations for the upcoming quarter, with 49% of the respondents expecting an increase and 35% reporting no change in sales for Q2, 2012 (Figure 10). 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% and 33%, respectively. Although their 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 trading SMEs (positive net balance of 42% for manufacturing SMEs, 35% for services and 13% for trading).

In terms of selling prices, most SMEs - 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% of the respondents). However, the proportion 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 purchase orders with 40% expecting no change 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% expecting higher capacity utilization against 38% only for large companies. Finally, the Q1 survey reveals a seasonal dip in the number of SMEs that foresee an improvement in profits for Q2, 2012, 44% expecting an increase for Q2, 2012 against 57% for Q1, 2012. However, large companies are more optimistic than SMEs about Q2 profits, with a net positive balance of 31% for the former against 24% for the latter.

increase in line with export sales, with 52% of respondents expecting an increase in their new purchase orders. Finally, the outlook on profit is positive, 54% of the respondents expect an increase while 28% report no change for Q2, 2012 (Figure 11).

Exporters Business Forecast For Q2, 2012

Sales Revenue Selling Prices Volume Sold Export Sales No.of Employees Prots New Purchase Orders 0% 10% 20% 24% 11% 8% 58% 55% 3% 54% 52% 30% 40% 50% 59% 81% 13% 13% 73% 18% 13% 60% 70% 28% 35% 80% 90% 100% Increase Decrease No Change 30% 32% 16% 25%

Figure 11

DED Business Survey Q1-2012

DED Business Survey Q1-2012

OVERALL BUSINESS PERFORMANCE Q1, 2012

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: 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).

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 80 and 90%.

Following last quarter behaviour, the cost of labour remained relatively stable in Q1, 2012 with 70% of businesses reporting no change in unit labour costs and only 26% an increase 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% of the respondents, resonating findings from the last quarter which showed that for 78% of respondents rents didnt change. However, for a few respondents (14%), rents increased in the last quarter following the annual renewal of contracts, with an approximate increase from 5% to 10%. The current quarter survey also revealed that around 32% of respondents used bank finance out of which 81% reported no change and 19% an increase in the cost of finance. In terms of sectors, manufacturing firms made more use of bank finance (40%) than trading (35%) and services firms (29%). The combination of the slowdown in sales and rising costs (mainly of raw materials) led to lower profits with 57% of businesses reporting a decline in Q1, 2012 as compared to Q4, 2011.
DED Business Survey Q1-2012

Net Balance on Sales Volume for Key Sectors, Quarterly Output - Q1, 2012
50% 40% 30% 20% 10% 0% -10% -14% -20% -23% -30% Manufacturing Trading Construction -25% Transportation Tourism & Hospitality Other Services -14% 10% 42%

Companies operating in the 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 (positive net balance of 10%) and trading (positive net balance of 6%). The

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

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 35 to 50% against 70% for plastics, chemicals and food & beverages.

The

main

factor

accounting

for

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 against 30% in manufacturing & services.

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 to high competition from Chinese players, and finally building & construction for lack of new projects.

10

DED Business Survey Q1-2012

11

DUBAI SMES PERFORMANCE Q1, 2012

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.

KEY BUSINESS CHALLENGES IN DUBAI

Key Business Challenges Q1, 2012

35% 29.6% 30% 25% 20% 15% 10% 5% 0% Cost of Raw Materials & Inputs Political Instability Competition Cost of Rental & Leasing Payment / Receivables Delay Currency Fluctuations Financial Challenges Government Fees Demand for Products / Services Costs of Labor Government Regulations Cost of Utilities Others

21.7% 16.6% 12.6% 11.0%

10.5% 8.5% 7.5% 6.9% 5.7% 3.0% 2.4% 2.2%

Figure 13

EXPORTERS PERFORMANCE Q4, 2011

Comparison between export-oriented 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 costs of raw materials in the current quarter i.e. Q1, 2012.

and domestic market-oriented firms points to similar sales performances, with almost equal proportions (30% for exporters & 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.

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, 2011 findings (11%). The following are found to be the major challenges impacting the business in Dubai (Figure 13) Government fees - cited by almost 30% 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. Relatively low demand for products and services (cited by 22% of the respondents): 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.
DED Business Survey Q1-2012

12

DED Business Survey Q1-2012

13

 The

third

most

important

business

Delays

in

payment

receivables

were

challenge is government regulations (cited by 17% of the respondents). Frequent changes in business regulations (relating to business licensing procedures, importexport procedures, municipality and traffic rules), coupled with a lack of communication of such changes, are perceived as the third most serious challenge. Competition (cited by ~13% of respondents): Competition from local and international players is the fourth most serious challenge. Firms in transportation, manufacturing

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-

INVESTMENT OUTLOOK
The survey reveals that companies are more willing to expand the capacity of their business (54%) as compared to upgrading technology (42%). Compared to the previous quarter, capital investment plans over a twelve-month horizon are steady; with 54% planning to expand their capacity (vs. 54% of businesses as per the Q4 survey) and 42% 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 transportation sectors with 58% and 40% 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.

(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

Do you plan to upgrade your technology ?

Q1, 2012

42%

58%

Q4, 2011

38%

62%

0% Yes

20% No

40%

60%

80%

100%

Figure 14 - a

Do you plan to expand your capacity ?

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.

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.
0% Yes 20% No 40% 60% 80% 100% Q4, 2011 54% 46% Q1, 2012 54% 46%

Figure 14 - b

14

DED Business Survey Q1-2012

DED Business Survey Q1-2012

15

Economic Studies & Policies Division

P.O. Box: 13223, Dubai, United Arab Emirates Tel : +971 4 445 5555, Dir : +971 4 445 5881 Dir : +971 445 5884, Fax : +971 4 445 5830 www.dubaided.gov.ae

DUBAI BUSINESS SURVEY

Q1 2012

www.dubaided.gov.ae