The small and medium-sized enterprises (SMEs) sector is experiencing a slow deceleration, according to the results of Gulf Finance Corporation’s Q3 Gulf Finance SME Sentiment Survey.

Gulf Finance Corporation is a leading provider of finance to SMEs and micro businesses.

Lowered expectations on growth
The proportion of respondents positive on growth outlook for the coming three months is lower at 78 per cent in Q3 survey compared to 93 per cent in Q2. At the same time twice as many respondents, 14 per cent, see stagnation in growth levels which are reported to remain the same (Q2: 6 per cent), while 7 per cent are expecting growth to be negative in the coming quarter (Q2: 0 per cent).

David Hunt, CEO of Gulf Finance, said: “The survey findings indicate the SME sector is experiencing a slow deceleration as the global economic malaise permeates the local economy at a faster rate than anticipated.”

“Although the majority of SMEs still see opportunities for growth, a larger portion of SME respondents report a negative growth outlook and deterioration in their ability to raise finance and collect payments – two telling indicators of tightening liquidity. This was reinforced by a greater number of respondents also reporting a decline in orders, sales and recruitment. The uncertain summer months have been replaced by a nervous looking winter,” he added.

Signs of tightening liquidity
As a whole, payment collection worsened in Q3 compared to the first two quarters of the year. A total of 55 per cent of respondents state their payment collection ability remains strong (Q2: 72 per cent), while the number of respondents revealing a deterioration in payment collections increased significantly to 15 per cent (Q2: 2 per cent).

On the credit side, 13 per cent of those surveyed had experienced more difficulty in raising finance (Q2: 0 per cent). Although 35 per cent stated their ability to raise finance had remained unchanged (Q2: 26 per cent), and 53 per cent, of respondents, or one in two (Q2: 74 per cent), did not report problems in accessing growth capital, the downward trend in access to funding is a sign of more difficult times ahead for SMEs.  

Hunt added: “These trends are important indicators of the state of UAE SMEs and consistent with what we are seeing in the market, that is, financial institutions are tightening credit, which is clearly now beginning to affect small businesses.”

“At Gulf Finance, we have also experienced an increase in number of customers approaching us to discuss problems they are facing with regards to payment collections and are currently working with some of them to help improve this issue, he said.

Weaker performance in Q3
In the third quarter, the survey for the first time recorded a weakening in orders received compared to the second quarter with 7 per cent of respondents claiming their orders decreased or significantly decreased (Q2: 0 per cent). The number of respondents reporting an increase in orders received decreased to 71 per cent (Q2: 80 per cent) while the share of orders remaining flat grew to 22 per cent (Q2: 18 per cent).

Corresponding to this, a growing number of firms seem to have reassessed hiring plans with 29 per cent of SMEs surveyed reporting that headcount during Q3 remained the same (Q2: 24 per cent) and 4 per cent reporting a reduction in number of staff during the quarter (Q2: 0 per cent). Despite this, a total of 67 per cent stated that they have expanded their teams (Q2: 72 per cent).

Q4 outlook cautious
Looking ahead, overall sentiment on final quarter growth is less positive than in previous quarters with 78 per cent of survey respondents forecasting an increase in sales (Q2: 91 per cent). A larger number, 19 per cent, of those surveyed expect growth to remain flat (Q2: 8 per cent), while results reveal that 3 per cent of SMEs participating in the survey foresee negative growth in Q4.

With regards to headcount, 70 per cent state that they will consider an increase in number of staff (Q2: 72 per cent), while 29 per cent will maintain the same number of employees (Q2: 27 per cent). A small number of respondents, 2 per cent, are planning to downsize their workforce (Q2: 0 per cent).

“Although growth opportunities for SMEs still preside, the less bullish and increasingly pessimistic sentiment in the market is evidence that the effects of a slowing pace of economic growth are beginning to impact SME performance. A number of factors could reverse this trend and we will be monitoring developments closely until the end of the year,” concluded Hunt. – TradeArabia News Service