The majority of non-oil private sector companies in the UAE are upbeat over future economic outlook with 52.2 per cent forecasting higher sales and 39 per cent anticipating improvement in cash flows, a report said.
Most exporters share a cautiously positive outlook on future perspectives, with 43.5 per cent of them expecting increased profitability, according to the Credit Opinion Survey for the UAE conducted by Coface, a worldwide leader in trade credit management solutions and risk information services.
Expectations remain quite positive among domestic suppliers as well, as 42 per cent of those surveyed believe that their profitability will improve either moderately or substantially within the next six months, while 59 per cent (mainly those in the construction, agrofood and retail sectors) expect to see an improvement in sales during this period.
Coface’s analysis reveals that the GCC region will be the leading export market (the highest in terms of current sales), followed by the Mena region. The economies of the GCC region are rising to the challenge this year, as their export markets continue to record the largest volume of sales in the Middle East. Of those companies surveyed in the Mena region, 26 per cent intend to export to the GCC, benefiting from its proximity, cultural similarities and economic integration.
New opportunities in the real estate market are expected- thanks to new tourist attractions and improved legislation and reforms which are supporting the construction sector in 2017.The survey also indicates that the retail sector could well represent some opportunities, on the back of the country’s strong base of wealthy consumers. Nevertheless, the sector is still subject to downward pressures, due to tight fiscal conditions.
In line with these cautiously positive perspectives, 43 per cent of companies mentioned that they would be recruiting new staff over the next six months.
Trade credit risk consciousness
UAE companies – exporters and domestic suppliers alike - reported average payment terms of 60 to 90 days, with average payment delays of 30 to 60 days. Among exporters, the energy sector is suffering from the longest average payment delays, with above 210 days.
On the domestic front, the construction sector is experiencing the longest payment terms, with an average of 97 days and delays of 93.1 days.
Respondents cited their client’s financial difficulties and administrative inefficiencies - such as weaknesses in the debt collection process - as the main reasons for non-payment. Delays in payment, in turn, are resulting in a squeeze on liquidity for 52 per cent of the companies, additional interest costs for 44 per cent and loss of income for 42 per cent.
Companies’ outstanding receivables and unpaid invoices accounted for, on average, a single digit percentage of total annual turnover. A majority of exporters reported that outstanding receivables and unpaid invoices accounted for between 2 per cent to 5 per cent of their total annual turnover.
On the domestic suppliers’ side, 18 per cent of respondents said that outstanding receivables and unpaid invoices account for less than 2 per cent of their total sales, while 20 per cent said that they accounted for 5 per cent to 10 per cent of their turnover and 16 per cent for 20 per cent of turnover. Coface’s experience has shown that 80 per cent of outstanding receivables with payment delays in excess of six months will not be fully paid at all.
An important trend highlighted by the report, is that 52.2 per cent of respondents said that the average payment delays for overseas customers were worse than for domestic customers. This is an indicator of tight financial conditions in foreign markets.
Over half of the exporters said that the UAE has the best payment terms in the region, while36.8 per cent qualified the whole of the GCC as having the longest payment terms.
For exporters, the most frequent payment periods during the last six months were 60 days (39.1 per cent) and 90 days (30.43 per cent). Almost 35 per cent of the respondents said that the maximum payment terms during the last six months were 120 days, while 26.1 per cent said that maximum payment terms were 180 days or more (ultra-long overdue amounts).
The majority (61 per cent) of the respondents that are focused on the domestic market reported that average payment terms, over the last six months, varied between 60 to 90 days. The maximum payment terms offered by domestic companies to their clients was shorter than those granted by exporters, as only 27 per cent offered 120 days to clients (compared to 35 per cent of exporters).
Average payment delays are shorter for domestic companies than for exporters. Average payment delays of less than 30 days were noted by 11 per cent of domestic companies (compared to 9 per cent for exporters), while 29 per cent reported between 30 to 60 days (48 per cent for exporters) and 27 per cent between 60 to 90 days (13 per cent for exporters). Average payment delays of over210 days were only cited by 4 per cent of surveyed companies (9 per cent for exporters).
“The results of this survey are very timely, especially now that the economy is beginning to inch up again and UAE businesses are looking at maximising their competitive leverage this year. The UAE’s diversified economy has helped to mitigate the intensity of the effects of the oil price decline. The steady growth expected in 2017 will be mainly driven by non-oil foreign trade, private consumption, tourism and new investments for the Dubai Expo 2020," said Massimo Falcioni, CEO of Middle East Countries at Coface.
“The diversified structure of the UAE’s economy has meant that domestic suppliers have been less impacted by the economic slowdown and tight liquidity conditions than exporters, which have been affected by the weak recovery in world trade,” said Seltem Iyigun, economist for the Middle East at Coface.