Dubai Business Survey - Q4 2018

Transcription

1 Dubai Business Survey - Q4 2018

2 INTRODUCTION The Department of Economic Development (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 Vice President and Prime Minister, 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. Dubai SME 2. Dubai Exports 3. Dubai Investment Development Agency (Dubai 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 (Dubai Exports & Dubai SME) and in collaboration with Dun & Bradstreet South Asia Middle East Ltd., to provide a timely and objective assessment of business expectations and performance. This document summarizes the main findings of the survey for the fourth quarter of 2018 (Q4, 2018).

3 AT A GLANCE The Composite BCI has gained 10.2 points from points in Q4, 2017 to points in Q4, 2018, with the respondents anticipating higher revenues, volumes, increased hiring and profits. On a quarterly basis, the Composite BCI has gained 7.7 points from points in Q3, 2018 to points in Q4, The expected net balances for sales revenue, volumes, hiring, profits and new purchase orders have displayed y-o-y and q-o-q increase. The manufacturing sector anticipates higher sales volumes and new purchase orders as compared to the trading and services sectors for Q1, Large companies maintain stronger projections for Q1, 2019 as compared to SMEs with Composite BCI scores of and points, respectively. Large companies have highlighted a more optimistic forecast than SMEs for most parameters. The Composite BCI for exporters has displayed a y-o-y increase of 21.4 points to points in Q4, 2018 as compared to points in Q4, On a quarterly basis, the index gained 13.5 points, with respondents citing positive expectations on all parameters. On q-o-q basis, the proportion of firms expecting an improvement has increased from 52% for Q4, 2018 to 5 for Q1, 2019, while those expecting stability has moderated from 3 to. Technology upgradation and capacity expansion have tracked lower both on a quarterly and annual basis.

4 2 The Department of Economic Development (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. METHODOLOGY The quarterly business survey for Q4, was conducted with a total sample of 506 companies across the Emirate of Dubai. The sample includes a mix of small, medium, and large enterprises and has adequate representation from the manufacturing, trading, and services sectors in proportion to their respective contribution to Dubai s GDP. Overall Sample 506 Figure: 01 Survey Sample Services (SME) 72 Manufacturing (SME) Large Companies Large Companies Manufacturing Trading Services 32 Trading (SME) 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 expect an increase, decrease or no change in these parameters. The Q4, 2018 survey has captured perceptions of companies across various 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

5 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) For the Composite Business Confidence Index, the resulting scores are multiplied with their corresponding weights to arrive at a weighted average index score 2. 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) + * (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 = [( Balance on Selling Prices) x (Parameter Weight)] + [( Balance on Volumes Sold) x (Parameter Weight)] + [( Balance on No. of employees) x (Parameter Weight)] + [( Balance on Profits) x (Parameter Weight)]

6 4 BUSINESS CONFIDENCE INDEX - Q4, 2018 As per the Department of Finance (DoF), Dubai s budget for 2019 targets for the continuous development of infrastructure projects aligned to hosting of Expo 2020 and to meet the targets spelled out in the Dubai Plan The budget will create 2,498 new jobs, with an expected y-o-y increase of 1.2% in public revenues. The government has allocated of the total expenditure towards infrastructure and transportation; 33% towards social development; 22% towards security, justice and safety and 5% has been allocated towards instilling a culture of excellence, innovation, creativity and scientific research. The forecast for Q1, 2019 is optimistic, with the Composite BCI increasing by 10.2 points y-o-y to points. (A score of 100 indicates stable/neutral sentiments). Figure: 02 Composite Business Confidence Index - Q A quarterly comparison shows that the Composite BCI has gained 7.7 points from points in Q3, 2018 to points in Q4, 2018, with the respondents expecting better performance across all parameters. The Composite BCI for SMEs and large companies stands at and points, respectively. Q4, 2017 Q3, 2018 Q4, 2018 Large companies maintain stronger projections for Q1, 2019 as compared to SMEs with Composite BCI scores of and points, respectively. The former is more optimistic than the latter about their outlook with respect to expected business situation, volumes, hiring, profits and new purchase orders. However, SMEs have displayed a marginally better forecast for selling prices. Figure: 03 Business Confidence Index - Q4, SME INDEX LARGE COMPANY INDEX COMPOSITE BCI

7 OVERALL BUSINESS OUTLOOK - Q1, 2019 The survey shows that the outlook for Q1, 2019 is optimistic as compared to Q1, 2018 and Q4, 2018 for most parameters: revenues, volumes, hiring, profits and new purchase orders. The uptick in sentiments is supported by expectations of additional customers, seasonal rise in demand, new projects and overall optimisim surrounding Expo The outlook for hiring is more optimistic as compared to the previous quarters, with the respondents anticipating an increase in headcount backed by an increase in business activity. However, the forecast for increase in selling prices is lower due to competition. Forecast Business Performance Q1, 2019 Table: 01 Q1, 2018 Q4, 2018 Q1, 2019 Parameter Increase Decrease No Balance Sales Revenue 47% % 54% 63% 52% Selling Prices 36% 7 56% 2 20% 6 74% Volumes Sold % 46% % No. of Employees 22% 75% 6 75% 7% 23% 6% 7 Profits 33% 25% 3 15% 27% 54% 2 New Purchase Orders % 4 7% 4 Note: Increase % + Decrease % + % No = 100% Note : In an event it does not add up to 100%, the balance percentage is the Not Applicable figure. The outlook for volumes has displayed a y-o-y and q-o-q increase; with the net balance increasing from 22% in Q1, 2018 and in Q4, 2018 to 47% for Q1, of the respondents anticipate an increase in volumes in Q1, 2019, supported by expectations of rise in demand and tourist footfalls. On the other hand, of the respondents forecast a decline in volumes due to increase in costs and competition. Further 3 of the respondents expect no change in the volumes due to stagnant market conditions. The manufacturing sector is optimistic about its business prospects for the following parameters: revenues, volumes, hiring, profits and new purchase orders. The services sector is optimistic about its selling prices while the trading sector is least optimistic about all parameters. The new purchases forecast is more bullish for Q1, 2019 compared to the previous quarters, driven by predictions of higher demand and respondents hopes of obtaining new projects. The profitability forecast is in line with projections for volumes and revenues.

8 6 Figure: 04 Sectoral Balances (Sales Volume), Quarterly Outlook - Q1, % 5 The selling prices forecast has moderated as compared to the same period in the preceding year. While it has remained unchanged as compared to the expectations for Q4, Manufacturing Services Trading A comparison of projections among the key economic sectors shows that manufacturing sector holds the strongest outlook for the following parameters: revenues, volumes, hiring, profits and new purchase orders. While the trading sector is the least optimistic of the three sectors. SECTOR-WISE OUTLOOK FOR SALES VOLUMES MANUFACTURING SECTOR The manufacturing sector is most optimistic about its business prospects and volumes for Q1, The forecast is most optimistic since Q1, 2017, with the respondents anticipating additional customers, seasonal rise in demand and new projects aligned to Expo % of the manufacturing firms expect to sell higher volumes, while 2 expect stability in their volumes in the first quarter of Figure: 05 Quarterly Balances (Sales Volume) - Manufacturing Sector 35% 32% 27% 53% Q4, 2017 Q1, 2018 Q2, 2018 Q3, 2018 Q4, 2018 Q1, 2019 Manufacturing sub-segments most optimistic about their volumes for Q1, 2019 are Food, Furniture and Metal manufacturers. However, expectations for increase in volumes has tracked lower among manufacturing firms operating in Plastic and Cement industries.

9 SERVICES SECTOR Firms in the services sector have also displayed a stronger forecast for their volumes for Q1, 2019 as compared to the previous quarters. Expectations of higher demand in terms of acquiring new customers/projects/contracts/ orders have backed the optimistic outlook of the services sector for Q1, Figure: 06 Balances on Sales Volume for Key Service Sectors, Quarterly Outlook Q1, % 46% 53% 76% 64% 63% -3 CONSTRUCTION TOURISM & HOSPITALITY 52% 44% 33% 50% 4 32% 33% 4 5 TRANSPORTATION & LOGISTICS OVERALL SERVICES SECTOR Q4, 2017 Q1, 2018 Q2, 2018 Q3, 2018 Q4, 2018 Q1, 2019 Within the services sector, Hospitality segment (which includes services related to travel and car rentals) is most optimistic about higher volumes for Q1, A net balance of 70% was recorded for higher volumes, with the respondents expecting a rise in seasonal demand and new customers. Transportation & Logistics segment has also displayed a stronger outlook for the coming quarter as compared to the previous quarter; with firms expecting a seasonal rise in demand after the winter season. TRADING SECTOR The trading sector s forecast for volumes for Q1, 2019 is the weakest when compared to the manufacturing and services sectors. However, expectations have strengthened over the quarter and the year.

10 8 Figure: 07 Quarterly Balances (Sales Volume) - Trading Sector 23% 7% 3 20% Q4, 2017 Q1, 2018 Q2, 2018 Q3, 2018 Q4, 2018 Q1, 2019 Key sectors optimistic of higher demand over the next quarter include the following: Traders of Electronics items are more optimistic about their volumes for Q1, 2019 with 62% of the participants in this segment expecting to sell higher volumes in the coming quarter. Traders of automotive products are the least optimistic; of these traders expect lower volumes in Q1, EXPECTED BUSINESS SITUATION Dubai s companies expect the business situation to be stronger in Q1, 2019 as compared to the previous quarter. The proportion of firms anticipating an improvement in business situation has increased from 4 for Q1, 2018 to 5 for Q1, 2019 while the proportion expecting a stable outlook has declined from 5 to. Further, the share of firms expecting deterioration in business situation has declined from for Q1, 2018 to 7% for Q1, Figure: 08 Expected Business Situation % 52% 5 44% 5 3 7% Q4, 2017 Q1, 2018 Q2, 2018 Q3, 2018 Q4, 2018 Q1, 2019 Improvement Stability Deterioration Analysed by sub-segments, significantly more respondents in the Construction, Hotels & Restaurants and Transportation segments expect their business situation to improve in Q1, 2019 as compared to the previous quarter. Competition is the primary challenge for firms in Dubai, as cited by 46% of the respondents, followed by delay in payments/receivables () and demand/market conditions (). It needs to be noted that of the respondents do not anticipate any obstacles to hinder their business operations.

11 IN FOCUS Prospects for Dubai s Economy Economic Outlook for 2019 Dubai s GDP in constant prices reached AED Bn (USD Bn) in 2017, up by 2. from AED (USD Bn) in This can be compared to a higher rate of growth of 3. achieved in The trajectory of the emirate s real GDP and annual percentage growth rate over the last decade shown in below chart. Dubai s economic performance often compared to cities similar in terms of size and in their dependence on international trade. In Singapore, real GDP increased by 3.6% in 2017, up from 2.4% the year before, Hong Kong s economy grew by 3. in 2017 compared with 2% in Both of these economies grew faster because of revitalized growth in global GDP, while Dubai s slower growth had more to do with reduced demand from its neighboring countries affected by oil prices. The UAE grew by 0. in 2017, but Dubai s relatively diversified economic base, unlike other GCC nations, helps it to contain the effects of some adverse developments such as declining oil prices or other external shocks. For example, the negative, although muted, effect of the global financial crisis, which produced negative economic growth of minus 2.6% in 2009 in Dubai is illustrated in the chart. Stimulant policies applied by the Federal Government and the Government of Dubai subsequent to the crisis also contributed in boosting the economy, and hence, the resumption of growth in all sectors, including those sectors particularly influenced such as construction and real estate. GDP in Constant Prices and annual Growth Rate (percentage) % 4.6% % 3.7% % % 4.0% % 4% 3% 2% 0% - -2% -3% Source: Dubai Statistic Center GDP AED billions Growth rate *IMF World Economic Outlook, October 2018

12 10 DUBAI SME OUTLOOK Q1, 2019 SMEs account for a dominant share in Dubai s total business composition. 451 of the 506 firms that were interviewed as part of the survey are SMEs. These include micro, small, and medium enterprises as per Dubai s SME definition. The Composite BCI has gained 8.2 points from points in Q4, 2017 to points in Q4, 2018 on a y-o-y basis, with the respondents anticipating higher revenues, volumes, increased hiring and profits. On a quarterly basis, the index has gained 7.7 points from points in Q3, 2018 to points in Q4, Forecast Business Performance (SMEs) Q1, 2019 Table: 02 Q1, 2018 Q4, 2018 Q1, 2019 Parameter Increase Decrease No Balance Sales Revenue 47% 22% 3 25% 55% 32% 62% 2 52% Selling Prices 7% 56% 30% 1 70% 74% Volumes Sold % 57% 32% 46% No. of Employees 2 70% 15% 75% 5% 2 6% 73% 15% Profits 32% 24% 44% 15% 2 53% 30% 36% New Purchase Orders 3 44% 23% 44% 3 47% 7% 3 Note: Increase % + Decrease % + % No = 100% Note : In an event it does not add up to 100%, the balance percentage is the Not Applicable figure. Key outlook indicators for the next quarter are summarized below. A quarterly comparison shows that SMEs are more upbeat about most parameters for Q1, 2019 than they were for Q4, 2018, underlined by higher seasonal demand. A higher proportion of respondents intend on stabilizing their selling prices in Q1, Large companies continue to be more optimistic than SMEs with respect to expected business situation, volumes, hiring, profits and new purchases. However, SMEs have displayed a marginally higher forecast for selling prices. Manufacturing SMEs hold the strongest outlook for all parameters evaluated in the survey. Traders hold the weakest forecast for revenues, selling prices, volumes, hiring, net profits and new purchase orders. 44% of manufacturing SMEs and 44% services SMEs forecast an increase in their capacity utilization during Q1, The proportion of SMEs anticipating an improvement in business situation has increased from 4 for Q1,

13 2018 to 5 for Q1, 2019, while the proportion expecting a stable outlook has declined from 5 to 35%. Additionally, the share of firms expecting deterioration has marginally declined from in Q1, 2018 to 7% in Q1, The key challenges faced by SMEs are competition (46%), delay in payments/receivables () and subdued demand/market conditions (27%). of the SME respondents do not anticipate any obstacles in their business operations. DUBAI EXPORTERS OUTLOOK - Q1, 2019 The survey included 149 export-oriented manufacturing, trading, and services firms in Dubai. For the purpose of this report, an exporter is defined as an entity with export sales accounting for 20% or more of its consolidated sales. The business outlook of exporters has strengthened on an annual and quarterly basis. The Composite BCI for exporters has registered a score of points in Q4, 2018, as against points in Q4, 2017 and points in Q3, Forecast Business Performance (Exporters) Q1, 2019 Table: 03 Q1, 2018 Q4, 2018 Q1, 2019 Parameter Increase Decrease No Balance Sales Revenue 25% 35% 15% 52% 14% % 5 Selling Prices 33% 5 24% 1 6 6% 23% 7% 70% Volumes Sold 35% % 54% No. of Employees 7 2% 80% 0% 1 3% 7 Profits 3 2 2% 57% 30% 44% New Purchase Orders 36% 1 32% 56% 5% 36% 5 Export Sales 15% 25% 57% 3 54% 6% 3 4 Note: Increase % + Decrease % + % No = 100% Note : In an event it does not add up to 100%, the balance percentage is the Not Applicable figure. Key outlook indicators for the next quarter are summarized below. The survey for Q1, 2019 reveals that exporters are marginally less optimistic than the overall business community with Composite BCI scores of and points, respectively. The exporters outlook for business in Q1, 2019 has improved on an annual and quarterly basis, with the respondents anticipating higher sales, volumes, increased hiring and profits.

14 12 The outlook for selling prices is positive as compared to Q4, 2018, as 23% of the respondents expect an increase in the parameter in Q1, 2019 (as against 1 in Q4, 2018) due to improving business conditions. 4 of the exporters have indicated plans to export to new markets during Q1, 2019 versus a corresponding 33% in the last quarter. The leading new markets for export diversification are Africa, GCC and Europe. The proportion of exporters anticipating an improvement in business situation has increased from 35% for Q1, 2018 to 6 for Q1, 2019, while the proportion expecting a stable outlook has declined from 54% to 32%. Additionally, the share of firms expecting deterioration in business situation has decreased to 7% in Q1, 2019 as compared to in the corresponding period of the preceding year. Key challenges faced by Dubai s exporters related to exporting their goods and services outside the UAE are payment & collection risks (23%), legal & regulatory issues (1) and competition (). of the respondents do not anticipate any obstacles in their business operations. OVERALL BUSINESS PERFORMANCE Q4, 2018 Although the main purpose of the survey is to gauge business expectations for future activity, it also captures actual changes in business performance from one quarter to another, as elicited from the feedback given by responding firms. Overall Business Performance Q4, 2018 Table: 04 Q4, 2017 Q3, 2018 Q4, 2018 Parameter Increase Decrease No Balance Sales Revenue 35% % 24% 3 - Selling Prices 1 7-7% 27% 65% -1 62% -15% Volumes Sold 32% -6% -23% - No. of Employees 14% 1 6-4% 7-5% 15% 6 - Profits % % 1 46% 35% -27% New Purchase Orders 27% 46% 33% 50% - 20% 46% 6% Note: Increase % + Decrease % + % No = 100% Note : In an event it does not add up to 100%, the balance percentage is the Not Applicable figure. In Q4, 2018, of the respondents indicated an increase in their volumes, while reported a decrease, resulting in a net balance of negative. Firms that reported increase in volumes cited several reasons including conducive business conditions, higher demand from existing/ new customers, and increased number of projects.

15 A majority of respondents (62%) reported stability in their selling prices in Q4, 2018 and reported a reduction in prices due to unfavourable business conditions, less demand and competition. 6 of the respondents reported that size of labour force remained unchanged, while 15% reported an increase to meet business requirements. of the respondents reported reduction in number of employees in order to reduce costs and maintain profits. 1 of the respondents indicated an increase in profits in Q4, 2018 as compared to the recorded in Q3, 2018, while 46% reported a decrease, resulting in a net balance of negative 27%. Factors that contributed to the decline in profits included competition, increase in operational expenses and less demand. Firms reported a better performance with respect to new purchase orders both on a quarterly and annual basis. Labour costs remained unchanged for 6 of the firms, while it increased for 27% and declined for 5% of the firms. The cost of raw materials increased for 23% of the firms, while reported no change in the parameter. Rental costs increased for of the respondents, while the costs were stable for 6 and declined for of the respondents. 22% of the firms reported that they availed of bank finance during Q4, Among these firms, 2 reported an increase in the cost of finance, while 67% said that such costs remained unchanged and 4% reported a decline. of the firms stated that they are planning to avail bank finance in the coming quarter. The proportion of firms viewing their current business situation as Good rose marginally from 2 in Q3, 2018 to 22% in Q4, Further, the proportion viewing their business situation as Average rose from 57% to 62%, and the firms citing a Poor situation decreased from 22% to in the reviewed period. Figure: 09 Balances on Sales Volume for Key Sectors, Quarterly Output - Q4, % -15% -2% - - Manufacturing Trading Construction Transportation Tourism & Hospitality Overall Services ( Balance = % of respondents citing an increase - % of respondents citing a decrease)

16 14 In Q4, 2018, the sales volume performance of the manufacturing sector was stronger than that of the services and trading sectors. Within the manufacturing sector, Food, Furniture and Metal segments reported increase in sales volumes (positive net balance), while manufacturing firms operating in Plastic industries reported weak figures (negative net balance). The weakest sales volume performance was recorded by trading firms. Within the trading sector, none of the sub-segments reported a positive net balance for volumes. Within the services sector, Tourism & Hospitality and Hotels & Restaurants segment reported an increase in sales volume. SMEs PERFORMANCE Q4, 2018 Overall Business Performance (SMEs) Q4, 2018 Table: 05 Q4, 2017 Q3, 2018 Q4, 2018 Parameter Increase Decrease No Balance Sales Revenue 24% % 22% 3 - Selling Prices 1 7-7% 2 64% -20% 27% 63% - Volumes Sold 23% - 15% -27% 25% 3 - No. of Employees 1 6-5% 72% -6% 14% 70% -2% Profits % New Purchase Orders 25% 2-4% 15% % 2 46% 4% Note: Increase % + Decrease % + % No = 100% Note : In an event it does not add up to 100%, the balance percentage is the Not Applicable figure. In Q4, 2018, 25% of the SMEs reported an increase in volumes, while 3 reported decline in volumes, resulting in a net balance of negative. A majority of the respondents (63%) reported stability in their selling prices in Q4, 2018, while 27% reduced their prices mainly due to less demand and increased competition. of the respondents increased prices due to increase in operational expenses. SMEs reported a better performance with respect to new purchase orders and hiring both on a quarterly and annual basis.

17 The proportion of SMEs viewing their current business situation as Good, Average and Poor accounted for 22%, 6 and of the respondents respectively in Q4, Large companies displayed stronger performance than SMEs with respect to the parameters: revenues, selling prices, volumes, hiring, net profits and purchase orders. EXPORTERS PERFORMANCE - Q4, 2018 Overall Business Performance (Exporters) Q4, 2018 Table: 06 Q4, 2017 Q3, 2018 Q4, 2018 Parameter Increase Decrease No Balance Sales Revenue 14% 4-27% -23% 2 3-6% Selling Prices 25% 65% -15% 6% 27% 67% -2 27% 60% -14% Volumes Sold 1-22% 44% % No. of Employees % -7% 76% 0% Profits 4-36% 44% 46% - 23% 35% -1 New Purchase Orders 20% 35% -15% 35% 52% -22% 1 50% 7% Export Sales 14% 27% % - 30% 20% 4 Note: Increase % + Decrease % + % No = 100% Note : In an event it does not add up to 100%, the balance percentage is the Not Applicable figure. In Q4, 2018, 2 of the respondents indicated increase in volumes, while experienced a decline in volumes, resulting in a net balance of negative 5%. With respect to export sales, 30% of the firms reported an increase, while 20% experienced decline, resulting in a net balance of. 4 of the firms reported stability in sales volume. Exporting firms reported better performance than domestic-market oriented firms with respect to revenues, selling prices, volumes, hiring, profits, capacity utilisation and new purchase orders. The net balance for volumes for exporters stood at negative 5% compared to negative for domesticmarket oriented firms.

18 16 KEY BUSINESS CHALLENGES IN DUBAI The survey highlights key challenges perceived by businesses at the end of Q4, 2018 that may impact near term business growth and development. of the survey respondents do not expect to face any hurdles in their business operations in Q4, 2018 compared to in the previous quarter. Figure: 10 Figure: 11 Key Business Challenges, Q3, 2018 Key Business Challenges, Q4, 2018 No Negative Factors Competition Demand/Market Conditions VAT Implementation Delay in Payments/Receivables Overhead Expenses Government Regulations/Fees Cost of Rental/Leasing Impact of Oil Prices Others* Availability/Cost of Finance Availability/Cost of Labor Availability/Cost of Raw Materials Currency Fluctuations Delay/No New Projects Inflation 1 7% 4% 3% 2% 2% 2% Competition Delay in Payments/Receivables Demand/Market Conditions VAT Implementation Increase in Operational Expenses No Negative Factors Delay/No New Projects Government Regulations/Fees Global/Regional Economic Conditions Availability/Cost of Finance Availability/Cost of Raw Materials Impact of Oil Prices Availability/Cost of Labor Others Currency Fluctuations Inflation 46% 22% 5% 5% 3% 3% 3% 2% *Others include challenges surrounding government policies of other countries, supplier concerns A summary of the major challenges facing Dubai s business community are as follows: 1. Competition: Among 46% of firms that consider competition as one of their major challenges, 6 stated that the challenge s intensity has increased over the quarter. 2. Delay in Payments/Receivables: of the firms faced this challenge in their business operations in Q4, Among these, 7 of the respondents reported an increase in the intensity of the challenge. 3. Demand/Market Conditions: Among the which consider demand/market conditions as a business challenge, 46% reported an increase in the intensity of the challenge over the quarter. 4. VAT Implementation: 22% of the respondents consider this as a key business challenge. 5. Increase in Operational Expenses: of the respondents operations are hampered by this factor. The remaining concerns each affected or fewer of the participants. Competition, delay in payments/receivables and slowing market demand and conditions are the top concerns affecting both SMEs and exporters. Large companies also cited similar concerns.

19 INVESTMENT OUTLOOK The survey also gauges the business community s investment outlook with respect to capacity expansion and technology upgrade plans over a twelve-month horizon. Figure: 12 Do you Plan to Expand the Capacity of your Business? Q4, 2018 Figure: 13 Do you Plan to Upgrade your Technology? Q4, % 66% 47% Q3, 2018 Q4, 2017 Q3, 2018 Q4, % 3% 33% YES NO Not Sure % YES NO Not Sure 6 3 Respondents continue to be less bullish about their plans to invest in capacity expansion on a q-o-q and y-o-y basis (47% in Q4, 2018 versus 64% in Q3, 2018 and 6 in Q4, 2017). Similarly, respondents are less optimistic about their technology upgrade plans in Q4, 2018 vis-à-vis the previous quarter and the same period in of the firms intend to invest in technology upgradation in Q4, 2018 compared to 65% in Q3, 2018 and 6 in Q4, Key reasons cited by respondents for not considering expansion in 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 do not want to expand amid poor market conditions or lack of new projects/ funds. Manufacturing sector firms are most optimistic about capacity expansion plans and technology upgrades. 52% of manufacturers have expansion plans, as compared to 47% of traders and of services firms. of manufacturers have plans to upgrade technology as compared to 35% of services firms and 27% of trading firms. Large companies are more optimistic than SMEs about capacity expansion plans and technology upgrades. 5 of the large companies expect to invest in expansion plans compared to of SMEs. 44% of large companies are more bullish about technology upgrades as compared to 32% of SMEs.

20 Economic Information Division Economic Studies & Policy Sector P.O. Box: 13223, Dubai, United Arab Emirates Tel: Dir: Dir: Fax: