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DUBAI

BUSINESS

SURVEY

Economic Studies & Policies Division

Q1 2012

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INTRODUCTION

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

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

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

President, and Ruler o Dubai, issued Decree no. 25 giving ull responsibility to DED to plan and

regulate the overall economic perormance o Dubai, supervise its unctions and support the

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

DED is still responsible or its traditional activities o business registration, licensing and commercial

protection in Dubai. However with our new agencies now under the umbrella o DED, the mandate

has been extended to include:

1. Mohammed Bin Rashid Establishment or Small & Medium Enterprises

2. Dubai Export Development Corporation

3. Dubai Events & Promotions Agency

4. Foreign Investment Oce (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 o business expectations and perormance. This document summarizes

the main ndings o the survey or the rst quarter o 2012.

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AT A GLANCE

ThecompositeBusinessCondenceIndexforDubaifortherstquarterof2012stood

at over 120 points, indicating an overall positive business outlook or the coming

quarter (Q2, 2012).

Theoutlookonsalesispositive,with86%ofbusinessesexpectingeitheranincreaseor

no change in their sales or the next quarter. In terms o economic activity, expectations

are the highest among manuacturing rms ollowed by services and trading rms.

The severity of challenges, as perceived by businesses, has changed from the

previous quarter (Q4, 2011). In the current quarter (Q1, 2012), government ees have

been reported as the most important challenge, up rom the third position in the last

quarter. Insucient demand is the next most severe challenge - top challenge in last

quarter - ollowed by requent changes in government regulations - ranked number 5

in the previous quarter - and competition rom local and international players, which

was perceived as the second biggest challenge in the previous quarter.

Comparedtothepreviousquarter,nochangeisreportedininvestmentplansovera

twelve-monthtimehorizon,with42%ofbusinessesplanningtoupgradetechnology

and54%intendingtoexpandcapacity.

METHODOLOGY

The quarterly business survey or Q1,

20121

was conducted on a total o 500

companies across the Emirate o Dubai. The

sample included a mix o small, medium

and large enterprises, ensuring adequate

representation rom manuacturing, trading

and services, proportionately to their

respective contributions to Dubais GDP.

BUSINESS CONFIDENCE INDEX CALCULATIONS

The Business Condence Index (BCI) is

calculated as a weighted average score o the

ollowing business outlook indicators,

Selling Prices

Volumes Sold

Number o Employees

Prots

For each indicator, resulting scores are

calculated using the net balance method:

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

FortheCompositeBusinessCondenceIndex,

the resulting scores are multiplied with their

corresponding weights to arrive at a weighted

average Index score2. This index is nally re

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

account o the economys composition by

rm size, the index is weighted by the relative

contributions o SMEs and large businesses to

Dubais GDP. The nal result is the ollowing

index:OverallIndex=60%*(Largeenterprise

Index)+40%*(SMEIndex).

1For the purpose o the survey, each quarter is defned as ollows: Q1 is theperiod 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 o each year.

2 Weighted Average BCI = [(Net Balance on Selling Prices) x (ParameterWeight)] + [(Net Balance on Volumes Sold) x (Parameter Weight)] + [(Net

Balance on No. o employees) x (Parameter Weight)] + [(Net Balance on

Profts) x (Parameter Weight)]

In order to tap business outlook or expectations,

the survey ocused on key indicators, such

as sales, selling prices, volumes sold, prots

and number o employees. Respondents

were asked to indicate i they expected an

increase, decrease or no change in these

indicators. The Q1, 2012 survey has captured

the perceptions o companies across 30-35

sub-sectors.

BCI scores are classifedin the ollowing three groups

BCI < 100, business expectations are negative

BCI = 100, business expectations are stable

BCI > 100, business expectations are positive

When expressed with reerence to the

base quarter Q2-2011, the ollowing

interpretations hold (t and t-1 reerring 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 o Economic Development

(DED) is a Dubai Government Department

that has the mandate to help achieve

the key strategic objectives o ostering

Sustainable Economic Development and

strengthening the Competitiveness of

Dubai. In order to gauge the perceptions

o the business community, DED has

launched Dubais Quarterly Business

Surveys with the key objective to

providing a snapshot o Dubais current

economic activity and the outlook or the

ollowing quarter.

In addition to the current situation and

uture expectations, the survey reports

on key challenges impacting business

growth and development and assesses

the investment outlook or the coming

twelve-month horizon.

Sample Composition

Overall

Sample

500

Trading(SME)-160

Serv

ice(SME)-255

Large - 25

Manuf

acturing

(SME)60

Large

Companies

25Ser

v i

ces

-

12

Manufactu

ring

-4

Tradin

g-

9

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BUSINESS CONFIDENCE INDEX Q1, 2012

The composite condence index in Q1, 2012

stood at 120.5 points, indicating a positive

overall business outlook or the 2nd quarter,

2012. (A score o 100 indicates neutral

sentiments).

However, a quarter-on-quarter comparison

showsaseasonaldipinoveralloptimismof9%

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

combined eect o reduced tourism activity in

the upcoming summer months, and the onset

o amily vacations and school holidays.

Although optimism is widely shared amongall the rms, expectations are more upbeat

among large businesses than among SMEs,

as shown in their respective index scores

of112and126(Figure3).Thehigherlevel

o condence among large companies is

primarily due to a more optimistic outlook

on uture selling prices and prots. This is

similar to the Q4-2011 nding according to

which large companies were relatively more

optimistic than SMEs on the account o

higher prot expectations.

140.0

120.0

100.0

80.0

60.0

40.0

20.0

0.0

100.0

Q2 2011

115.2

Q 3 2 01 1 Q 4 201 1 Q 1 20 12

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 Confdence Index 2012 (Base Quarter, Q2, 2011)

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

Forecast Business Perormance 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%

o companies expecting an improvement

intheirsalesrevenueand35%foreseeing

no change in Q2 as compared to Q1 2012

(Figure 4).

Continuing thetrends ofthe 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 o the

manuacturing rms on all key parameters

(sales volume, selling prices, prots, em-

ployees), closely ollowed by rms o the

service sector. In contrast, respondents in

the trading sector have a comparative-

ly lower outlook or 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 BalancesQuarterly Outlook

Quarterly Net Balance(Sales Volume) - Manuacturing Sector

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Net Balances on Sales Volume or 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 Service

Sector

Transportation &

Logistics

Construction

Services

Tourism &

Hospitality

Although positive, the outlook or the trading

sector is lower than or manuacturing

and services. In addition, expectations are

strongly infuenced by the optimism o retail

oriented businesses (Figure 8).

Trading sub-sectors such as jewellery,

ootwear, cosmetics, garments, pharmacy,

electronics and auto-parts oresee positive

perormance in the next quarter owing to

rising exports:

The ashion-oriented businesses (jewellery,

ootwear & cosmetics trading) are bullish on

their expected sales volume due to higher

optimism on export sales as well as plans

or stock clearance through promotions &

discounts.

Garment trading businesses also expect

higher sales in the next quarter, as the demand

or summer wear is likely to increase rom

retailers who oten tend to buy / procure

stock rom wholesalers beore the upcoming

shopping estival - Dubai Summer Surprises

(DSS) - and the estive Ramadan season.

Sales o electronics & computer trading

businesses are expected to be higher on

account o new orders rom 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 perormance.

In line with the positive outlook on sales, the

percentage o companies planning to increase

their purchase orders has remained largely

stable(45%inQ2),asmanycompaniesplan

to replenish stocks or the upcoming Dubai

Summer Surprises & Ramadan season. A

look at the dierent sectors reveals that

manufacturing rms (55% ofrms) are the

keenest on raising their new purchase orders

inthenextquarter,followedbytrading(48%)

andservices(41%)rms.

As or employment, the outlook remains largely

stable with 74% ofbusinessesexpecting no

change in their employee count in Q2, 2012.

However, manuacturing & service rms are

slightly more inclined to hire additional workers

in the coming quarter as compared to trading

rms.

Given the overall positive outlook on sales,

prots are generally expected to rise or at

leasttoremainstablewith44%ofrespondents

expecting higher prots in the next quarter

while less than 20% think their prots will

decline

According to rms overall assessment, the

business outlook or Q2, 2012 remains positive,

with87%oftherespondentsreportingeither

improvement or stability in comparison with

Q1 o this year (Figure 9).

Within manuacturing, sales expectations

are high or companies engaged in metal

abrication, manuacturing o plastics and

urniture.

In contrast, companies in ood & beverage

(F&B), cement, and glass manuacturing

are expecting declining sales in the coming

quarter.

The positive outlook or the Service Sector

is driven by sub-sectors like proessional

services, transportation, IT & telecom; which

are expecting a signicant increase in their

sales in the coming quarter (Figure 7).

Transportation companies are also having a

positive outlook or Q2 2012 with shipping,

cargo and logistics companies expecting a

seasonal rise in activity as traders tend tostock 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 rom existing projects

that were previously put on hold. This trend

is rearmed by the positive sentiments o

many architecture & engineering rms who

also expect some o the stalled projects to be

revived in the coming quarter.

Tourism & Hospitality rms oresee a decline in

business perormance or the coming quarter.

With the advent o the summer season, inbound

tourism is likely to decline in the next quarter.

Hotels and hotel apartments are expecting,

as a consequence o 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 or 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

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Given the dominant share o SMEs in

Dubaistotalbusinesscomposition(95%of

the total number o rms), 475 o the 500

respondents who were interviewed as part

o the survey were SMEs. These included

micro, small and medium enterprises as

per Dubais SME denition.

Overall, the results indicate positive

expectations or the upcoming quarter,

with49%oftherespondentsexpectingan

increaseand35%reportingnochangein

salesforQ2,2012(Figure10).Comparison

between large companies and SMEs

shows that the ormer are moderately

more optimistic about sales revenues than

the latter, with a positive net balance o

41%and33%,respectively.Althoughtheir

sales volumes are expected to be similar,

large companies intend to increase their

selling prices in the coming quarter. Forinstance, some o the large transportation

companies are planning to increase their

prices in the next quarter due to rising uel

costs and port handling charges.

In line with the overall business

outlook, manuacturing SMEs are the

most optimistic about sales volumes in

Q2, 2012, ollowed by services and then

tradingSMEs(positivenetbalanceof42%

formanufacturingSMEs,35%forservices

and13%fortrading).

The survey included 128 export-oriented

manuacturing, trading & services rms

located in Dubai. For the purpose o this

report, an exporter is dened as an entity

thatearns20% ormoreofitsconsolidated

revenues through exports.

Exporters oresee marginally higher

business perormance than domestic oriented

rms,with55% oftheformerexpectingan

increaseinrevenuesagainst46%forthelatter.

Other key outlook indicators are summarized

below.

Manuacturing and services rms arereported 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 manuacturing (chemicals,

ood & beverage, glass and plastics); and

services (transportation, IT & telecom and oil

& gas).

Trading rms reporting a decline in the

upcoming quarter are those involved in

building & construction, and textiles. Key

reasons that are mentioned or this downturn

include the economic sanctions against Iran

and the general political uncertainty in the

region.

Intermsofsellingprices,mostSMEs- 84%-

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

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

where75%of SMErespondentsexpectedprice

stability or Q1, 2012.

In terms o employment, SMEs plan to maintain

the current workorce levels or Q2, 2012 (cited by

76%oftherespondents).However,theproportion

o SMEs planning to increase their workorce has

marginally declinedfrom28% inQ1 to 21% in

Q2,2012. Large companiesare 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 inmanuacturing and services are more optimistic

or the next quarter than large companies, with

47%expectinghighercapacityutilizationagainst

38%onlyforlargecompanies.

Finally, the Q1 survey reveals a seasonal dip in

the number o SMEs that oresee an improvement

inprotsforQ2,2012,44%expectinganincrease

forQ2,2012against57%forQ1, 2012.However,

large companies are more optimistic than SMEs

about Q2 prots, with a net positive balance o

31%fortheformeragainst24%forthelatter.

For a majority o exporting businesses,

export sales are orecasted to grow or remain

stable in the coming quarter due to sustained

demandfromotherGCCcountries,Africaand

Asia Pacic countries such as China, Hong

Kong, Japan, and Philippines.

With regard to prospects or export

diversication, and similarly to Q4 results,

approximately42% ofexporters planto sell

to new markets in the coming quarter, with a

particularfocusonAfrican&GCCmarkets.

Employment is projected to remain stable,

as73% ofexporters areplanning tomaintain

the same workorce in the upcoming quarter

as in Q1, 2012.

Procurement levels are expected to

increasein line with export sales, with 52%

o respondents expecting an increase in their

new purchase orders.

Finally,theoutlookonprotispositive,54%

o 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, 2012

SMEs Business Forecast Q2, 2012

DUBAI EXPORTERS OUTLOOK FOR Q2, 2012

Exporters Business Forecast For Q2, 2012

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Although the main purpose o the survey is

to gauge business expectations or uture

activity, it also sheds light on the actual

changes in perormance rom one quarter to

another, as reported by responding rms. The

ollowing is a summary o the main ndings:

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

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

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

10%

-23%

-14%

-25%

-14%

42%

Manufacturing Trading Construction Transportation

Tourism &

Hospitality Other Services

Compared with the previous quarter (Q4,

2011), business was overall relatively slower in

Q1, 2012, as a higher number o respondents

reported a decrease rather than an increase

in sales. However, there are a ew exceptions

such as tourism and manuacturing rms

which reported an improvement in Q1, 2012

in comparison with the preceding quarter, Q4

2011 (Figure 12).

Echoing last quarter trends, manuacturing

perormed better than services and trading.

The positive perormance o manuacturing

seems to be driven by plastics, chemicals and

ood & beverages. However, rms producing

or dealing in cement and metals aced

challenges due to the continuing slowdown

in construction activity. This is also refected

in their capacity utilization which averaged

35to50%against70%forplastics,chemicals

and ood & beverages.

The main actor accounting or the

negative net balance or trading is the decline

in sales or textiles due to high competition

rom local & international players, urniture

due to reduced local demand, groceries &

oodstu because o high competition rom

supermarkets & hypermarkets, auto parts due

tohighcompetitionfromChineseplayers,and

nally building & construction or lack o new

projects.

The perormance o services was pulled

down by the slowdown o transportation,

contracting, architectural and proessional

services rms even though a ew contracting

companies reported increased sales, driven

by price discounts oered to win new

work contracts on existing construction

projects. In contrast, businesses related

to tourism & hospitality (car rental, hotels,

restaurants, travel agencies & tour operators)

outperormed other types o services, driven

by high demand in the peak tourist season o

the rst quarter o this year which resulted

in high hotel occupancy rates reaching between

80and90%.

CompaniesoperatingintheIT&telecom

services sector also obtained new contracts

rom Government & multinational companies.

In contrast, the transportation sector continued

to suer in Q1, 2012, owing to lower orders

rom Europe, reduced cargo movements to

Iran due to recent trade restrictions, reduced

movements o construction material due to

low local demand, and urther reduction in

the value o orders rom existing customers.

Hiring remained roughly stable in Q1,

2012, although a proportion o businesses

reported new hiring as refected in a positive

net balance of 10%. A majority of rms

(67%)reported indeedno changein their

employee count or this quarter. Hiring was

more prevalent in the services sector with

a positivenetbalanceof 14%,followedby

manufacturing(positivenetbalanceof10%)

andtrading(positivenetbalanceof6%).The

majority o companies that reported a decline

in employment were rom the contracting

services and transportation sector.

Mirroring the overall perormance o the

business community on sales volumes, new

purchase orders also declined in this quarter,

as refected by a negative net balance o

3%.Around47%of respondents intrading

reported a decline in new purchase orders

against30%inmanufacturing&services.

Following last quarter behaviour, the cost

o labour remained relatively stable in Q1, 2012

with70%ofbusinessesreportingnochange

inunitlabourcostsandonly26%anincrease

imputed to annual increments & bonuses

provided to employees at the beginning o

the year (January).

The cost o raw materials, a growing cause

o concern or most businesses, increased

for 49% of the respondents in Q1, 2012,

11 percentage points higher than in Q4,

2011 ndings. Rising costs related to uel

(diesel) had, as expected, a strong impact

on transportation activity while the cost oclinker, ood ingredients & favours, plastic &

petrochemical products, metals (aluminium

& steel), wood and chemicals adversely

aected manuacturing. In addition, rising

prices o tiles, marble, cement, electrical

items and paints are reported to be the main

cause o concern or construction related

businesses.

Rental costs remained stable in Q1, 2012 or

76%oftherespondents,resonatingndings

rom the last quarter which showed that or

78% of respondents rents didnt change.

However, for a few respondents (14%),

rents increased in the last quarter ollowing

the annual renewal o contracts, with an

approximateincreasefrom5%to10%.

The current quarter survey also revealed

thataround32%ofrespondentsusedbanknanceoutofwhich81%reportednochange

and19%anincreaseinthecostofnance.In

terms o sectors, manuacturing rms made

moreuseofbanknance(40%)thantrading

(35%)andservicesrms(29%).

The combination o the slowdown in sales

and rising costs (mainly o raw materials)

ledtolowerprotswith57%ofbusinesses

reporting a decline in Q1, 2012 as compared

to Q4, 2011.

OVERALL BUSINESS PERFORMANCE Q1, 2012

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Relatively low demand or products andservices(citedby 22%of therespondents):

Insucient demand constrained businesses

in the construction sector (including cement,

glass and metal manuacturing companies),

due to the slow recovery o the real estate

sector and the scarcity o new projects. The

transportation industry also experienced

a dip in demand due to the unavourable

economic climate in the US and Europe,

economic and trade sanctions against

Iran and sti competition rom local and

international companies.

The survey also addressed the key challenges,

as perceived by rms at the end o Q1, 2012. It

is interesting to note that almost a quarter o

the sample reported no business challenges

which is a signicant change compared to

Q4,2011ndings(11%).

The ollowing are ound 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 o trade license renewal and the

increase in employee visa ees (on account o

reduction in tenure o visa rom 3 to 2 years,

mandatory Emirates ID requirement etc).

Transportation rms also reported rising port

handling charges and municipality ees.

Sectorally, manuacturing exporters

perormed better on sales volumes and

prots as compared to services and tradingexporters.

With respect to employment, a majority

of exporting rms (70%) maintained the

same levels as in Q4, 2011. However, unlike

manuacturing and trade, a third o service

exporters reported new hiring in Q1, 2012.

Finally, ollowing Q4-2011 trends, a majority

ofexporters(54%)reportedrisingcostsof

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

Comparison between export-oriented

and domestic market-oriented rms points

to similar sales perormances, with almost

equalproportions(30%forexporters&33%

or domestic rms) reporting a rise in sales.

However, a marginally higher number o

export oriented companies (as compared

to domestic market-oriented rms) have

reported an increase in selling prices and

prots.

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%

GovernmentFees

Government

Regulations

Competition

CostofRental

&Leasing

CostofRaw

Materials

&Inputs

Payment/Receivables

Delay

FinancialChallenges

CostofUtilities

PoliticalInstability

CostsofLabor

Others

CurrencyFluctuations

Demandfor

Products/Services

SMEs perormance in Q1, 2012 mirrors

the perormance o the overall business

community, since they accountfor 95%of

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

sales perormance o SMEs was lower in the

last quarter when compared with Q4, 2011.

Key fndings are summarized as ollows:

Most SME respondents (67%) reported

no change in the size o their workorce. A

large proportion (48%) reportedincreases

in the cost o raw materials & other inputsin the last quarter. This may have negatively

impacted their prots as 57%of surveyed

SMEs reported a decline in Q1, 2012.

Large companiesperformed better than

SMEsintermsof salesvolumes,with50%

o the ormer reporting an increase in sales

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

outcome was better than or SMEs.Figure 13

Key Business Challenges Q1, 2012

DUBAI SMES PERFORMANCE Q1, 2012

EXPORTERS PERFORMANCE Q4, 2011

KEY BUSINESS CHALLENGES IN DUBAI

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DED

Business Survey

Q1-201214DED

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 trac

rules), coupled with a lack o communication

o such changes, are perceived as the third

most serious challenge.

Competit ion(citedby~13%ofrespondents):

Competition from local and international

players is the ourth most serious challenge.

Firms in transportation, manuacturing(cement, plastics and ood & beverage) and

trading (construction material) seem to be the

most aected by this challenge. For instance,

ood & beverage manuacturing companies

cited intense competition rom companies

in Saudi Arabia supplying to the UAE with

strong support rom the Saudi government.

High cost o 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 o

the business slowdown, rents increased by

5-10%. This challengewas feltto bemore

pronounced among Free Zone companies.

Businesses have also been adversely

aected by fuctuating and increasing costs

o key raw materials and some other inputs.

Rising costs o clinker, ood ingredients &

favours, plastic & petrochemical products,

metals (aluminium & steel), wood, chemicals,

and commercial uel had an adverse impact

on manuacturing rms while rising prices o

tiles, marble, cement, electrical items, paints

were a cause o concern or construction

related businesses.

Delays in payment receivables were

reported by 8.5% of respondents to be

worrisome: collecting money rom customers,

making timely payments to suppliers and

negotiating better credit terms. In addition,

respondents expressed the need or more

transparency and stringent laws or enorcing

contracts and collecting debt.

By rm size, the main challenges reported

by SMEs were more or less the same and

in the same order o severity as previously

stated or the total population o rms.

However, large companies have a dierent

ranking o these challenges: competition

rst, ollowed by uncertainty in government

regulations, then by increasing government

ees.

In terms o market orientation, the top

two business challenges, i.e. Government

ees and government regulations, are the

same or domestic and export oriented

rms. Outside these two challenges, non -

exporting rms mentioned the high cost o

rental & leasing and raw materials as the third

most signicant challenge whereas exporting

rms considered the lack o demand and

competition as the next critical challenges.

With reerence to the o-shore/on-

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

Government ees, competition and business

regulations, are the same or Mainland as or

Free Zone companies. However, the lack o

demand or products and services and o

access to nance were considered the next

most critical challenges by mainland based

companies, whereas rentals were more o a

concern to ree 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 OUTLOOK

The survey reveals that companies are

more willing to expand the capacity o their

business(54%) ascomparedto upgrading

technology(42%).Comparedtotheprevious

quarter, capital investment plans over a

twelve-monthhorizon aresteady; with54%

planningtoexpandtheircapacity(vs.54%

ofbusinessesaspertheQ4survey)and42%

o rms planning to upgrade technology (vs.

38% ofbusinessesas per the Q4survey)

(Figures 14).

The primary reasons cited by rms reluctant

to expand their capacity in the coming

twelve months are unavourable marketconditions, lack o clarity, investments

already undertaken in expanding the capacity

and under utilization o 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, manuacturing

companies are more inclined to invest in

new technology, as approximately 57%

o respondents expressed their intent to

upgrade the existing technology. In contrast,

service companies and to a lesser extent

trading and manuacturing companies are

rather inclined to expand capacity.

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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

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www.dubaided.gov.ae

DUBAI

BUSINESS

SURVEY

Q1 2012