Seasonal demand and expected projects lead to brighter business outlook in Dubai in Q2 2016

Tuesday 26 July 2016

Dubai - MENA Herald: Expectations of acquiring new projects/orders, improvement in market conditions, higher demand due to the festival season and new customers have had a significant impact on the overall business outlook in Dubai, as shown in the quarterly business survey conducted by the Department of Economic Development (DED).

The composite Business Confidence Index (BCI) of Dubai firms rose to 117.5 points during the second quarter (Q2) of 2016, up 7.4 points from the same quarter of 2015 and also higher than the Q1 2016 index score of 116.5.

Businesses generally were optimistic on sales and volumes as 44% of those surveyed (500 firms) expected the situation to improve, against 39% in the first quarter on 2016, and another 44% expecting stability to prevail. While 48% of the businesses in Dubai expect their sales volume to increase in the third quarter of 2016, 37% anticipate volumes to hold steady.

A comparison of the forecast for Q3 2016 versus that for Q2 2016 shows that all parameters, except the selling prices index, have maintained a steady trend. The net balance for selling prices has increased from 1% for Q2 2016 to 5% for Q3 2016 on the back of rising raw material costs and projections of improvement in demand. The net balance for sales volume stands at 33% for Q3 2016, higher than the 27% for Q3 2015 and 31% for Q2 2016.

In line with the emirate’s growing profile as a manufacturing hub and source market for finished products, the manufacturing sector was the most optimistic across all parameters – revenues, volumes, selling prices, employment, profitability as well as new purchase orders for the third quarter of 2016.

Confidence on receiving new orders/contracts/projects both from the government and private sectors and an increase in demand are the major factors keeping manufacturers buoyant compared to their counterparts in the trading and services sectors. Within the manufacturing sector, furniture and plastics manufacturers hold the strongest outlook for volumes.

The transportation sub-segment of the services sector is the most optimistic for Q3 2016, while the travel & hospitality segment is the least optimistic about their volumes. Within the trading sector, the most optimistic segments are computers, auto, construction materials and food & beverages.

The current survey also shows that large companies continue to be more optimistic compared to SMEs, with composite BCI scores of 121.8 and 111.0 points respectively. Although marginally less optimistic compared to the overall business community (117.5), exporters are more confident than domestic-market oriented firms with respect to revenues, volumes, profits and purchase orders but are less optimistic about selling prices and employment.

Competition, market conditions, delayed payments and rental/leasing costs were among the main challenges cited by most businesses. The proportion of businesses that intend to invest in capacity expansion and technology upgrades has gone up in Q2 2016 compared to the previous quarter; 69% of the companies plan to invest in expansion of capacity in Q2 2016 versus 61% in Q1 2016 and 65% intend to upgrade technology in Q2 2016 versus 57% in Q1 2016.

With respect to innovation, 88% of the businesses said that they have not implemented any type of innovation in their businesses. Of the remaining, 40% indicated that the main purpose for implementing innovation was quality improvement. 87% of the firms did not have any provision for research and development (R&D). Of the 13% that had an ongoing budget or made provisions for R&D, 29% had budgeted more than 10% of their sales towards this end.

DED conducts the quarterly surveys as an effective tool to measure the pulse of the business community and allow the government and the private sector to track and analyse major trends and issues that have a bearing on economic activity in Dubai.

The Q2 2016 (April - June) survey covered 500 companies in Dubai. The companies were asked to indicate if they anticipated an ‘increase,’ ‘decrease,’ or ‘no change’ in key indicators such as sales revenues, selling prices, volumes sold, profits and number of employees.

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