Launches HSBC Trade Confidence Index in UAE
Traders in the UAE are more confident about business prospects than their counterparts in Hong Kong, Singapore and rest of Asia
They identify Middle East as the key growth area for their business
UAE’s small and mid-market businesses (SMEs and MMEs) that engage in export and import have identified The Middle East as the most promising region for growth in the next three months, according to the new HSBC Trade Confidence Index. Fifty-seven per cent of survey respondents in the UAE cite the Middle East as the region with the best growth prospects, compared to only seven per cent and six per cent of UAE respondents respectively who expect growth from Greater China and Western Europe (including UK).
The index also shows the UAE traders are the most confident on trade activity growth over the next three months while traders in Hong Kong and Singapore are the most bearish. The UAE scored 115.2 points on the trade confidence index, the highest of any other country surveyed, compared to Hong Kong at 93.1 and Singapore 99.9, the other major trading centers covered in the survey.
In the first survey of its kind, the HSBC Trade Confidence Index asked 2,100 trade-oriented SMEs and MMEs in 24 cities across seven countries 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 and government regulation on their businesses. The results were used to calculate an index ranging from 0 to 200 where 200 represents the highest confidence level, 0 represents the lowest and 100, neutral. Full survey results can be viewed in the attached slides.
H.E. Sheikha Lubna Bint Khalid Al Qasimi, UAE Minister of Foreign Trade said: “If the HSBC Trade Confidence Index is of any indication, it’s a clear sign that the UAE continues to be a place to do business and capture growth opportunities. The UAE has taken several rapid and practical steps to cope with the implications of the global financial crisis; the Government guaranteed bank deposits and offered substantial financial facilities to banks amounting USD 32 billion in the fourth quarter of last year, boosting confidence in the UAE’s economy and confirming the ability of country to deal rapidly, immediately and positively with the latest economic developments”
Simon Cooper, Deputy Chairman and CEO, HSBC Bank Middle East Ltd said:
“Developing economies such as the UAE are reporting brighter prospects for trade business because in many cases their economies are not as heavily reliant on Western markets as some of the other countries covered in the survey. In the UAE, government measures to stimulate the domestic economy are also buoying business confidence. The UAE and the wider Middle East are expected to recover faster from the downturn and continue to grow in 2010.”
Kersi Patel, Regional Head of Trade and Supply Chain, HSBC, said: “Trade is the lifeblood of the UAE economy and its Trade to GDP ratio of over 130, one of the highest in the world, is testimony to this. The UAE enjoys a strategic location as a gateway to regional markets covering over half of the world’s population - population which is young and getting increasingly prosperous - within around four- hour flying distance. Equally important, the UAE government has exerted enormous efforts to boost the trade sector by investing heavily in trade-related infrastructure and providing incentives even in the current difficult environment through the reduction of operating costs and the promotion of a business friendly environment.”
In summary, the HSBC Trade Confidence Index provides two perspectives on the trade outlook in the region:
• the more developed markets of Hong Kong, Singapore and Australia are less optimistic – exports are significantly down and the recession continues to impact overall economic activity and sentiment; and
• the developing economies of the UAE, India, mainland China and Vietnam are more positive, even if they are not immune to the slowdown.
Outlook on trade volumes
UAE respondents are quite positive in their outlook on trade volumes, with 34 per cent saying they expect volumes to increase in the next three months. In contrast, Singapore and Hong Kong are less positive, with only 29 per cent and 24 per cent of respondents respectively expecting trade volumes to increase.
Outlook on impact of government trade regulation
50 % of traders in UAE expect emerging government regulations to benefit their businesses – indicating strong faith in Government to take proactive steps to support business, much higher than 33% in Singapore and only 8% in Hong Kong
Outlook on the need for trade finance
39% of the respondents in the UAE said they will need more trade finance in the next three months compared to only (30%) in Hong Kong and (20%) in Singapore.
When asked where they will go for financing, at least half of the respondents in the UAE (49%), Hong Kong (50%), Singapore (39%) said they expect their banks to meet their trade finance needs. In contrast, 25 per cent of respondents in the UAE said they will rely on self-funding over bank financing.
Outlook on buyer and supplier-related risks
For the next three months, the majority of respondents across Asia expect little change in the level of risk they face from suppliers not honouring their trade agreements. However, about one-third of respondents in Hong Kong (31%), Singapore (24%) and UAE (18%) expect the risk of payment default by their buyers to increase.
When asked what they will do to protect themselves from risk of non-payment by buyers, traders in the UAE (27%), Singapore (16%) and Hong Kong (10%) identified greater use of secured trade finance products through their banks as the top strategy.
Mr Patel noted: “More than ever, suppliers are anxious about getting paid on time – or getting paid at all. Buyers are less likely to make payments before they are certain that all terms in the trade agreement are met. While they have been a preferred way of securing trade receivables in the region, structured trade finance solutions like Standby Credits, Documentary Credits, Confirmations and Avalisation, have now made a strong comeback across many parts of the world due to the increased security they provide to buyers and sellers.”
Mr Patel added that: “In the current environment we are seeing an increase in frivolous disputes being raised by buyers with a view to avoiding payment, and therefore the usage of structured trade products complemented by having a reputed and preferably the same Bank at both ends of the trade transaction is the best way for exporters to cover the risk of non payment by buyers.”
Outlook on impact of foreign exchange on business
In contrast to most other countries, respondents in UAE expect to benefit from fluctuating exchange rates (39%).
Mr Patel observed: “Managing foreign exchange risk has always been a challenge for traders buying and selling in different currencies. Today the risks are greater as businesses face highly volatile foreign exchange markets and hedging has become a key solution supplementing structured trade products for many companies engaged in trade.”
