UAE, Oman CEOs bullish on outlook despite challenges
MANY BUSINESSES ARE EXPECTED TO EXPERIENCE A MARGIN SQUEEZE IN SHORT TERM
Chief executive officers in the UAE and Oman are highly optimistic about the future prospects of their businesses than many of their global counterparts, with more than half predicting growth over the next three years, according to KPMG’s 2018 CEO Outlook Survey.
The results of the study found that despite challenges posed by both global and regional headwinds, business optimism is high in both countries although there has been a dip in confidence in the business environment.
“Chief executives are generally optimistic about the economy and the growth opportunities that disruption and transformation offer. Achieving growth will require CEOs to combine equal measures of resourcefulness with realism, while being open to new thinking, acquiring more skills and challenging convention,” said Nader Haffar, CEO, KPMG Lower Gulf.
The UAE and Oman, despite rising foreign direct investment (FDI), continued economic expansion. However, greater government investments are facing a number of short-term challenges in terms of the rising dollar, the impact of fiscal reforms such as the introduction of value-added tax (VAT) this year, rising regulatory costs and investments in technology.
The strengthening of the dollar during 2018, approximately 10 per cent year to date, has created headwinds for businesses in the UAE and Oman, particularly in the nonoil sectors.
“The impact on the external competitiveness of the UAE economy will likely pose some challenges, particularly in the aviation and tourism industries, which are directly impacted by foreign spending. It could at the same time, however, offer advantages to residents in terms of remittances overseas and travel abroad,” said Vikas Papriwal, head of Advisory at KPMG Lower Gulf.
The hospitality industry has been affected, with average daily rates (ADR) falling by 9.7 per cent, although a 7.2 per cent increase in demand was also recorded. Similarly, in the food and beverage industry, supply is seen outpacing demand, leading to declines in profitability.
Construction sector
In the construction industry, subsidies for international companies such as export-guarantee schemes may mean that it is more cost effective to hire foreign rather than UAE/ Omani contractors.
The introduction of VAT has also had an impact on the UAE economy. Inflation has risen to an estimated 4.8 per cent, year-on-year.
VAT is expected to be introduced in Oman in 2019.
“... in the long-term VAT is expected to have a more positive impact on the overall economy. In the short term, however, companies may be experiencing tighter margins and a squeeze on working capital, causing cash-flow and liquidity problems,” said Papriwal.