United Arab Emirates Sector report
Sectors @ a glance
Industry performance outlook
Construction/ Const. Materials
Remains Poor Due to the economic downturn, domestic sales of passenger cars and commercial vehicles decreased 34% year-on-year in January-September 2020, which has led to increased credit risk for the car retail segment. Due to low business and consumer sentiment, there is no comprehensive rebound on the horizon, and automotive value added is estimated to decline 17% in 2020. The transport segment has been impacted by lockdown measures and decreased demand for logistics, with the airline segment severely hit.
Remains Fair Until recently, chemicals and pharmaceuticals businesses have shown acceptable business financials. However, the deteriorating demand from key buyer sectors has had a negative impact on chemicals performance. Payment performance of businesses in the plastic and related segments remains poor, while the payment performance of pharmaceutical businesses is better, given increased demand for medicines and medical products due to the pandemic.
The industry was already performing poorly before the coronavirus outbreak, as modest economic growth over the past couple of years prevented higher spending on building projects. This already led to increased cash difficulties and tight margins for construction businesses, especially for smaller players. Construction businesses are adversely impacted by the ongoing recession, especially by reduction in government spending, low capital expenditure from corporates and decreased demand for housing. Many high-profile building projects have been delayed or stopped. Sector value added is estimated to contract by 4% in 2020, and insolvencies as well as business closures have increased.
The domestic consumer durables market remains characterised by high competition (online and offline), single-digit margins, low entry barriers, high indebtedness of businesses and prudent bank support with loans. Consumption of non-food consumer goods has decreased due to comprehensive lockdown measures (e.g. temporary closure of shopping malls and commercial centres), and the fact that about 5% of the population (approximately 500,000 mainly expatriate workers) have left the country due to pandemic. Retail value added is estimated to have contracted 7% in 2020. Distributors present in Dubai’s free trade zones and redistributing to the wider Middle East and Africa are impacted by sharply decreased demand in those end-markets. Payment delays and protracted defaults continue to remain high due to deteriorating demand, cash flow problems, fierce competition and lack of support from banks. The level of non-payment notifications and credit insurance claims in the non-food retail sector increased in H2 of 2020 compared to H1.
Up from Poor to Fair The ICT market in general is characterised by stiff competition, low and declining margins, low entry barriers and a lack of support from banks. However, the industry has been an indirect beneficiary of the coronavirus pandemic. Large ICT companies with good market shares are expected to deliver single to double-digit growth in 2020 and 2021, as a result of the need for more digital connectivity, higher cloud based activity and increased investments by companies and individuals in IT hardware and software products. The sector is expected to do relatively well in 2021, with value added expected to increase by more than 4%. However, caution is advised when dealing with ICT traders and companies which do not have a long history of operations, as we there have been many run away cases in this sector in the past.
Remains Fair The banking sector has proved largely resilient in 2019 and 2020, despite a subdued economic performance and deteriorating government finances, both triggered by low oil prices. However, increased financial troubles for businesses and consumers alike due to the ongoing recession have led to increased non-performing loans and problematic assets. As a result, lending conditions remain tight in the UAE.
Remains Poor Sales have been negatively impacted by lockdown measures, a decreasing population (approximately 500 thousand people, mainly expatriate workers, have left the country due to pandemic), declined consumer confidence and less demand from still struggling hotels and restaurants. Competition appears to have intensified in this segment as customer base has reduced and supply remains at an elevated level. As a result, payment defaults have sharply increased in this segment.
Remains Poor The business outlook has worsened due to decreasing orders on hand, which resulted from the economic downturn. Domestic demand from key buyer sectors like construction and oil and gas has deteriorated.
Metals and Steel
Remains Poor In 2019 the metals industry already showed a subdued performance, with lower demand from key sectors like construction, along with rising pressure on margins. In 2020 the situation has further worsened, due to the severe economic downturn triggered by the coronavirus pandemic. Reduced demand from both local and offshore re-export business has impacted metal and steel providers. Steel value added is estimaed to have decreased almost 16% in 2020, with a 10% rebound forecast in 2021.
Remains Poor Due to the comprehensive lockdown measures in early 2020, the ongoing pandemic and decline in the number of international tourists, many service businesses suffered heavily in 2020, especially hotels and catering, restaurants, bars, entertainment and cultural events, travel agencies and tour operators. Hotel and catering value added is estimated to have contracted 32% in 2020.
Service sectors in Dubai have been especially severely affected by the massive deterioration in tourism inflow. Many hotels, private tourist related businesses and restaurants have closed, while establishments which have reopened are still running below optimal utilization levels. This leads to stress on the financial performance, and both payment delays and insolvencies increased sharply in 2020.
Remains Poor Wholesalers and retailers are negatively affected by changes in customer behaviour and increased competition from new online retailers. Their performance has further deteriorated due to low sales during the lockdown in early 2020 and subdued consumer sentiment. Textiles value added is estimated to have decreased more than 8% in 2020.