UAE traders bullish on business in the next quarter

The HSBC index shows that UAE is one of the top three most confident countries in the world on trade activity and growth. The UAE scored 118 points, up 3% from the previous quarter. Improved sentiment was also evident in Hong Kong (102 points) and Singapore (110 points), the other two key global re-export centres covered in the survey, where confidence scores rose by about 10% since the last survey conducted in the second quarter of 2009.

The HSBC Trade Confidence Index covers a total of 12 markets - including key economies in the Asia-Pacific region, the United Arab Emirates (UAE), Brazil, the UK and the US. In the biggest global opinion survey of its kind, over 3,500 trade-oriented small and middle sized corporates were asked about their three-month outlook on: trade volume; buyer and supplier risks; the need for trade finance; access to trade finance and the impact of foreign exchange on their businesses.

Simon Vaughan Johnson, Regional Head of Commercial Banking, HSBC Bank Middle East, said:

"International trade is the foundation of the UAE economy. It is pleasing to see growing confidence in the UAE business environment. Clearly traders have been very receptive to Government support and see Banks such as HSBC as reliable partners and enablers for their international business."

"Being a leading international business bank is about bringing HSBC's global reach and scale to our customers in the region, meeting their international needs consistently wherever they want to do business. It also means focusing on cross-border trade flows and providing global solutions which enable customers to conduct business as easily overseas as locally. Importers and Exporters in the region clearly recognize the role played by HSBC in supporting them grow their international trade business and have consistently voted HSBC as the Best Trade Bank in Middle East in polls conducted by various international publications," he added.

The UAE's advantageous geographical location and a young and increasingly prosperous population across the region are important contributors to the positive sentiment amongst importers and exporters.

"Encouragingly, traders in the UAE have focused their efforts on growing business rather than on financial engineering to generate profits, leaving financing and security of trade receivables to banks - and banks in UAE have risen to the challenge of keeping credit flowing for trade businesses. Strongly capitalized banks, like HSBC, will continue to have the appetite and the capability to support customers' growing trade finance needs as their confidence and activity return," said Kersi Patel, Regional Head of Trade and Supply Chain, HSBC Bank Middle East.

Outlook on trade volumes

UAE business sentiment improved further since the first survey in second quarter of 2009. 46% (34% last time) of UAE respondents expect trade business to increase over the next three months, and a further 40% expect it to remain at current levels.

Sentiment in Singapore and Hong Kong also saw improvement with a 39% (29 last time) and 40% (24% last time) of respondents respectively expecting trade volumes to increase.

The Middle East continues to be the key area for growth for UAE traders, with Sub-Saharan Africa emerging as an area for expansion. Outlook on impact of government trade regulation 41% of traders in UAE see government regulations as beneficial to their business, as compared to 26% in Singapore and 11% Hong Kong.

Kersi Patel said, "The UAE government has taken swift and decisive steps to bolster trade in this challenging environment. Recent action by the Government to reduce the cost of setting up and conducting business in the UAE is a clear indicator of their commitment to maintaining a business-friendly environment. UAE traders have shown faith in these initiatives with positive results that are much higher than the global average of 22%."

Outlook on the need and access for trade finance

30% (39% previously) of the respondents in the UAE said they will need more trade finance in the next three months compared to 24% (30% previously) in Hong Kong and 23% (20% previously) in Singapore.

Nearly half of all respondents in the UAE (50%) and Hong Kong (42%) will expect to borrow from banks to fuel business expansion. In Singapore it stood at 39% with 38% of respondents expecting to finance their business expansion plans with their own funds. In contrast only 25% and 23% of respondents in the UAE and Hong Kong respectively said they will rely on self-funding over bank financing.

Kersi Patel commented; "Trade finance is a key business challenge that SMEs and MMEs need to manage. Given the results, we believe the growing need for trade finance is positive as it reflects customers' need to expand and diversify business operations. It also shows that other sources of funds are limited as trade businesses look to their banks to cover the gap."

Access to trade finance remained largely unchanged. 34% (32% previously) of UAE respondents expect improved access to trade finance; and an additional 57% (55% previously) expect their ability to access trade finance to remain at current levels.

Outlook on buyer and supplier-related risks

For the next three months, UAE expect supplier risk to be very stable. 80% of traders responded that their expectation of suppliers not honouring trade agreements to remain the same.

Traders' outlook on buyers defaulting on payments also remained largely unchanged. With 18% (21% previously) of the traders expecting the risk of buyers defaulting on payment to increase and a further 64% (66% previously) expect it to remain at the same level.

Kersi Patel said; "One of the major concerns for any trader is buyer payment default, after having produced the goods and delivered them to the buyer. In the UAE, and as seen recently across most parts of the world, secure trade finance products such as Documentary Credits have played a vital role in mitigating risks involved in international trade business."

Outlook on impact of foreign exchange on business

Globally fluctuating foreign exchange rates has been identified as the biggest barrier to growth. However in UAE, this was not so. 27% of traders in UAE expect foreign exchange movement to have a positive impact on their businesses, as compared to 19% in Singapore and 12% in Hong Kong.