UAE Small and Medium Enterprises (SMEs) are demonstrating remarkable resilience and optimism despite facing economic headwinds such as rising operational costs, corporate tax implementation, and high borrowing costs. A recent RAKBANK survey highlights their adaptability, with a significant majority reporting revenue growth and a favorable outlook for the future business environment.
Navigating Economic Headwinds with Resilience
The latest RAKBANK SME Confidence Index, based on insights from over 1,200 UAE-based SMEs, reveals a confidence score of 57. While this marks a marginal four-point drop from 61 in 2023, it remains well above the base score of 50, indicating a stable and optimistic sentiment. Over two-thirds (68%) of SMEs view the future business environment favorably, and more than 60% have reported revenue growth over the past two years.
Key Challenges and Strategic Responses
SMEs in the UAE are actively navigating several challenges:
- Increased Operational Costs: Over two-thirds of SMEs have experienced higher operating costs, with interest rates and labor costs acting as significant pressure points.
- Corporate Tax Implementation: The introduction of corporate tax in 2024 is perceived as a moderate business impact, leading to cautious hiring practices as businesses assess their obligations.
- High Borrowing Costs: Only 39% of SMEs expressed confidence in meeting debt obligations, a decrease from the previous year, indicating concerns about debt servicing.
To address these issues, many SMEs are investing ambitiously in:
- Technology
- Operational efficiencies
- Sustainability strategies
- Product innovation and market expansion
Sectoral Performance and Confidence
The survey highlights varied confidence levels across different sectors:
- Consumer and Retail Services: This sector remains the highest-performing, with a confidence score of 60, driven by increased consumer spending and successful adoption of new business channels.
- Construction and Manufacturing: Scored 57.
- Transport: Scored 57.
- Trading: Scored 58.
- Public Services and Professional Services: Saw notable declines to 56, primarily due to increased costs and lower confidence in debt servicing.
Smaller SMEs (with revenues up to AED 30 million) exhibited higher confidence, scoring 58, while larger SMEs (AED 30-100 million) dipped to 55.
Digital Adoption and Sustainability Focus
Digital transformation is gaining traction among UAE SMEs:
- 22% now sell products or services online.
- 45% use digital banking channels monthly.
Sustainability is also emerging as a key priority, with 55% of SMEs either already on or planning to embark on a sustainability journey. One in three SMEs cited sustainability as a short-term business objective.
Banking Sector Support
RAKBANK, a significant player in the SME financing landscape with over AED 10 billion exposure, continues to support the sector. Raheel Ahmed, Group CEO of RAKBANK, emphasized the bank’s commitment to being a trusted partner, providing financial solutions and advisory support. A strategic AED 1 billion co-financing partnership with Emirates Development Bank further reinforces funding for priority sectors, ensuring continued growth and diversification within the UAE’s dynamic SME ecosystem.
Key Takeaways
- Overall SME confidence remains positive despite a slight dip in the index score.
- More than three in five SMEs reported revenue growth in the last two financial years.
- Rising operational and borrowing costs are primary concerns.
- Digital adoption and sustainability initiatives are on the rise.
- Smaller SMEs show higher confidence compared to larger counterparts.
- Financial partners are crucial in providing tailored solutions and advisory support.
Sources
- UAE SMEs: Cost and debt levels remain biggest worries, Gulf News.
- UAE SMEs continue to show resilience, but confidence drops marginally, Arabian Business.
- UAE SMEs optimistic as 3 in 5 report revenue growth despite cost increases: Survey, Arabian Business.
- UAE SMEs remain optimistic amid economic pressures, reveals RAKBANK index, Gulf Business.
- UAE small businesses show steady optimism despite economic headwinds, Khaleej Times.
