Labour issues drag on rising business confidence

Tight labour regulations are the largest challenge for companies in the region, according to a new survey of businesses.

Restrictive labour rules are the biggest hurdle to doing business in the UAE, a new survey of executives shows, even as overall confidence in the economy improves.

Companies have become significantly more optimistic about business conditions since the depths of the financial crisis, according to the latest survey by the management consultancy Oliver Wyman and the polling firm Zogby International. But confidence of senior executives in government policies has dipped in the past year.

The survey last month polled 141 senior executives in the UAE and Saudi Arabia about their confidence in the business outlook and the state of government policy.

A total of 45 per cent of UAE executives polled felt business conditions had improved, an increase by 30 percentage points on the number of positive responses in October 2009. In Saudi Arabia, 78 per cent of businesses believed conditions had improved.

Oliver Wyman intends to use the results to provide feedback to the Federal Government about priorities for policy reform.

"In a region with US$100 [Dh367.27] oil price and continued double-digit growth, a lot of the policymaking questions get pushed under the table," said John Turner, a partner at Oliver Wyman in Dubai. "Before oil prices again go over $100 and the coffers are refilled, this is a prime time to address these policy issues revealed through the financial crisis."

The Government has said it plans to relax rules surrounding the private sector to create a more flexible environment to attract foreign investment and create jobs. Laws are in the pipeline to allow greater foreign ownership of companies and some labour rules have also been reformed in recent weeks.

The results of the survey, however, suggest companies feel more needs to be done.

More than half of surveyed executives in the UAE said their confidence in government institutions had either been moderately or greatly undermined in the past year. In Saudi Arabia the figure was closer to 40 per cent.

The drop in business confidence may be related to unhappiness with important systemic issues, Oliver Wyman said.

Restrictive labour regulations were cited as a hurdle by 43 per cent of UAE executives and 39 per cent in Saudi Arabia.

Visa rules for expatriate workers and families, unrealistic nationalisation quotas and complex hiring or firing restrictions were seen as challenges surrounding labour regulations.

Limited access to financing was cited as an issue by 34 per cent of UAE executives and 30 per cent of Saudi executives.

Many companies have struggled to obtain finance since banks tightened lending conditions during the financial crisis. Loans turning sour caused lenders to become more risk averse.

Excessive collateral requirements and high interest rates were viewed by respondents as the biggest issues concerning access to finance.

The survey also shed light on what businesses believe to be the biggest threat to business conditions. Nearly three-quarters of UAE executives said outside macro-economic shocks were the biggest threat. Terrorism, regional military conflict and ethnic or religious tensions were viewed as far smaller risks.

The poll is conducted every six months across private and public-sector firms.