Business confidence hits new low

Trader sentiment is weighed down but companies believe sales will improve , according to a Dubai Chamber of Commerce survey.

Business sentiment among Dubai traders is at its lowest in five years, prompted by concerns about instability in financial markets, project cancellations and the restructuring of Dubai World. The findings are in a survey conducted by the Dubai Chamber of Commerce and Industry (DCCI) in the three months ending in January. Its sentiment index fell to 5.7 from 5.9 a year earlier.

Although overall confidence dropped, more than a third of the companies surveyed believed sales would improve this year. Volatility in international financial markets and the delay or cancellation of projects were cited by respondents as the two main reasons for their negative outlook. Dubai World's efforts to restructure US$26 billion (Dh95.49bn) of debt and the restrictive policies of banks for providing credit were also given as factors.

The survey results reflected the changing economic conditions that Dubai traders would have to adapt to in the post-financial crisis era, said Hamad Buamim, the director general of the DCCI. "We are changing from a supply-driven economy to a demand-driven economy," said Mr Buamim. "The issue of controlling costs is more important." More than half of the firms surveyed believed it would take more than a year for the liquidity crunch to ease. A total of 45 per cent said the financial crisis would end within a year, with just 4 per cent believing it would be over by the end of the first quarter.

Smaller companies with less than 10 employees were more pessimistic than larger companies. Lower profits and lower sales were cited by companies as the biggest impact of the financial crisis. Generally, companies operating within the consumer goods and general trade industries displayed more optimism than those in other sectors. Across product lines, household goods were seen as showing the least signs of a recovery in demand. Most demand was expected to be seen for general trade items.

About 59 per cent of the companies surveyed believed that obtaining credit would be harder this year, compared with last year. Securing letters of credit from buyers and working capital lines of credit were highlighted as the most pressing financial needs of companies. Reducing visa fees, introducing easier rental payment schemes and providing comprehensive financial support were among suggestions on how the Government could make business easier for traders.

TechniLine Electronics, an importer and distributor of sound systems, has seen its turnover drop 15 per cent since the financial crisis emerged. "We are cautious," said Bhagwan Shivlani, the managing director of the company based in Deira. "We've put on hold growth plans until the economy settles down. We've found while our business is down our business expenses, including rental charges, are up."

The DCCI survey was conducted between November and January and covered a sample of 1,400 members operating in the trading sector. The results of the survey were released on the same day as another report that showed confidence among investors in the GCC declined last month. The investment bank Shuaa Capital said its GCC investor confidence index fell 8.9 points last month, the second consecutive monthly fall, as a lack of clarity on Dubai World's debt restructuring weighed on investor sentiment.

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