Private companies in the UAE operating outside the oil sector expect to be more profitable in the next six months, says a new survey. About 43.5 per cent of exporters and 42 per cent of UAE domestic suppliers forecast profitability in the next six months, with 52.2 per cent and 59 per cent respectively expecting a gain in sales from the previous year, according to the inaugural survey by Coface.
The survey also found that 39 per cent of exporters anticipated higher cash flows. Meanwhile, 43 per cent of companies said that they expected to hire new staff in the next six months, it said.
Coface polled 136 companies from 11 different industries for its survey.
“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, the economist for the Middle East at Coface.
The UAE economy’s growth has been slowed in recent years by the collapse in oil prices that started in summer 2014.
As a result, governments and companies have cut back on spending on projects and slashed jobs. Consumers became cautious about spending money, further dampening growth.
However, a rebound in oil prices since November has improved business confidence in the Emirates while an improvement in global trade has made economists, including those at the IMF, more upbeat about the local economy.
The non-oil economy is set to rebound this year on stronger global trade and investment spurred by Dubai Expo 2020, the IMF said on Monday.
Non-oil GDP is forecast to expand at 3.3 per cent this year with the budget deficit shrinking to 4.5 per cent of GDP, it said.
Key economic indicators for the UAE, such as the monthly purchasing managers’ index, have also been showing improvement in recent months.
A gauge of the Dubai economy says the emirate’s business conditions improved in March amid gains in output, new orders and employment.
Wholesale and retail, travel and tourism and construction industries led the advance on the Emirates NBD Dubai Economy Tracker in March, capping the index’s strongest quarter since the first quarter of 2015.
Yet while there are a number of encouraging signs of a rebound in economic growth, not everyone is totally convinced that this is the year that the economy will bounce back after several difficult years amid low commodity prices.
Standard Chartered recently downgraded its economic growth projection for the UAE as a whole for 2017 to 1.5 per cent from 2.1 per cent.
Still, Coface remains upbeat, saying that companies that do business locally have been less affected than exporters.
“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,” Mr Iyigun said.
mkassem@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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