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29 November 2023

Confidence down in fourth quarter

By Matt Smith




Business confidence in the UAE slipped in the fourth quarter of 2007 amid concern over staffing issues and inflation, according to a report issued by HSBC. The bank interviewed about 1,100 businesses across the region to compile its quarterly HSBC Gulf Business Confidence Index.

The overall index has fallen from 100 in the first quarter of 2007 to 97.8 in the final quarter of last year. For the UAE, the latest figure is 97.7, having fallen from 99.5 in the third quarter.

“Looking at the year as a whole, confidence levels among Gulf businesses have shown a consistent level, which are higher than in many parts of the world” said Antoine Cahuzac, Chief Executive of HSBC Global Banking in the Middle East.

“Gulf business is in growth mode, and remains positive in its outlook. The index reflects this sentiment across the region,” he added.

Qatar is head and shoulders above its Gulf rivals, with an overall confidence rating of 112, with the remaining countries polling between 95 and 99 except for Bahrain, where confidence has slumped to 92.

While the emphasis remains on expansion and growth, Gulf businesses appear to be lowering their expectations. For example, in the first quarter of last year, 71 per cent said they were expecting revenue growth, but this had slumped to 66 per cent by December. Similarly, 52 per cent of companies now predict their profit margins will remain stable or expand, compared to 58 per cent at the start of 2007.

Rising costs are a major concern, with 57 per cent of respondents saying inflation was negatively impacting business, while the cost of real estate was having a detrimental effect on 49 per cent of those polled.

In the first quarter of 2007, only 36 per cent of businesses said inflation was having a negative impact, which means the number of companies citing this as a problem has jumped by almost 60 per cent in nine months, underlining the mounting inflationary threat.

Cahuzac said: “The findings reflect the increasing challenges and opportunities of doing business in the region. Elements such as inflation, human resources and currency valuations have emerged as the major issues facing the region’s business people; but against this background the survey indicates a strong optimism and level of confidence in the future.

“This reflects what our customers are telling us: that this is a booming part of the world to do business, and that expectations for 2008 remain high.”

One of the biggest concerns for businesses remains keeping up with staffing requirements, with 32 per cent of respondents saying they were confident, 26 per cent pessimistic and 42 per cent neutral or unsure.

Record oil prices have led to massive liquidity in the Middle East, boosting equity markets and investments, but just under a third of companies now say high oil prices are harming their business. This has risen from 22 per cent in the first quarter of 2007, although just over a quarter continue to say high oil prices are beneficial.

Companies are anticipating posting excellent results for 2007, with 56 per cent of respondents now saying they expect to increase profits by five per cent or more. However, the number of companies predicting profits will rise by more than 15 per cent has slumped from 32 to 24 per cent between the first and fourth quarters of 2007.

Interestingly, the number of companies predicting their turnover will rise by at least five per cent has increased from 59 to 65 per cent over the same period, implying respondents expect rising costs to eat into their bottom line. Almost two thirds of companies questioned said their revenues would grow, while more than half anticipated meeting quarterly budgets and annual targets.

Respondents appear less certain about their ability to outperform rival companies, with 40 per cent saying they were confident of defending themselves against competition, while 49 per cent were neutral or did not know and 11 per cent were pessimistic.

Almost a quarter of firms said the Middle East’s unstable geopolitical environment was damaging their business, while a similar figure said the political situation in their core business was having a negative impact.