A Dubai traders’ outlook survey for 2012 conducted by Dubai Chamber of Commerce and Industry pointed to an increase in the overall performance of the trading sector in comparison to the year 2011 but slightly lower than the pre-crisis levels.
The survey, organised at the end of 2011 and based on a scale from one to ten with ten representing the highest rating, showed the average expectation rating for 2012, which was 5.8, increasing by only 0.1 from the corresponding score of 5.7 for 2011, and remaining lower than the pre-crisis levels by almost a point.
Highlighting the factors affecting the expectations, the survey revealed that despite the positive growth signals from Dubai’s foreign trade and tourism data, experiences of last year and the recent downgrading of forecasts for global economy and international trade seemed to weigh heavily on expectations for the current year.
Outlook for trading of basic necessities brighter
Citing the reasons for the positive outlook of traders of basic consumer items, the survey pointed out to the growing population of Dubai which resulted in a score of 6.2 (Fig. 2). The strong demand for consumer electronics in the country as well as the region and the on-going thrusts for expansion of the industry sector had lifted the outlook of traders of machinery and equipment, leading to the second highest rating of 5.8 for the group.
On the other hand, traders of household appliances, of industry inputs, and of construction materials were found to be less upbeat. Job losses during the financial crisis and slow growth of employment had negative impact on disposable income of households, leading to postponement of purchases of household durables. The survey further revealed that despite the positive signals for Dubai’s construction sector, development remained slow.
Meanwhile, the cautious stance of banks and other lending institutions had narrowed access of SMEs to additional capital, greatly affecting their capacity to sustain their level of operations as payment defaults remained common and competition grew keener.
The survey further indicated that the size of businesses was determined by the number of employees as traders employing less than ten workers were found to be the least optimistic group, giving an average rating of 5.5. The other two groups had nearly the same average ratings, with the medium sized traders being slightly less optimistic than the large traders. Respective ratings for the two groups of traders were 6.15 and 6.25.
Net expectation score for market demand expectations
The survey informed that net expectation scores for market demand, or the weighted difference between the positive and the negative expectations, reflected an overall positive outlook at 42%, suggesting that those expecting at least ‘Good’ demand in 2012 outnumbered those with negative demand expectations. Variations in demand expectations across type of goods traded in the market and by employment size followed the same pattern as noted for overall expectation.
Market demand is directly determined by the consumer preferences, which are shaped by many factors in the market. Foremost of these are product availability and differentiations, price variations and purchasing power/capacity of customers.
Leading the factors that contributed positively to quality of supply was the growing competition, giving rise to more exciting marketing campaigns aimed at making the products appealing and accessible to consumers and buyers. Additionally, the market becomes more exciting with the expected expansion in product variety and choices offered to the consumers. Expected improvements in availability of skilled manpower, inventory, and supply procurement also contributed positively to demand expectations.
On the other hand, there were some factors that were expected to exert negative impact on demand expectations including the growing difficulty of access to additional capital, limiting capability to expand supply. Allied to these factors was the expected worsening condition for access to financial support and services. However, these factors can be addressed by relevant policies and issuance of amendments to current procedures, the survey revealed.
Positive impact of policy measures
Fortunately, the negative impact of factors weighing down demand expectations may be addressed through the issuance of policy measures that would ease access to additional capital and make doing business much easier. Issuance of such policies is expected to turn around the negative market demand expectation of about 7% of traders, leading to a rise of 13 percentage points in the overall average net expectation score, to a level of 55%, a level that would be comparable to the global pre-crisis period (Fig. 3 below).