UAE small businesses show steady optimism despite economic headwinds

Khaleej Times

2 days ago

The UAE's small and medium enterprises (SMEs) continue to build on the momentum of the resilience demonstrated in recent years. While challenges persist, including rising operational costs, corporate tax implementation, and high borrowing costs, the overall trajectory signals adaptability and optimism among SMEs in navigating the evolving business landscape, a study showed.
RAKBank this week released its latest SME Confidence Index, highlighting a promising outlook for sector. Based on insights from over 1,200 UAE-based SMEs collected between October and December 2024, the report – done in partnership with RFI Global – reveals an SME Confidence Index score of 57, a marginal drop by four points from 61 in 2023. Measured against a base score of 50, the findings reflect a stable and optimistic sentiment against a dynamic economic environment.
The findings show that optimism remains steady, with over two-thirds (68 per cent) of SMEs viewing the future business environment as favourable, and more than 60 per cent reporting revenue growth over the past two years.
Among the SMEs, consumer and retail services remain the highest-performing sector, driven by a continued rise in consumer spending and successful adoption of new business channels. The report also highlights how SMEs across industries are prioritising product innovation and market expansion as key strategies for growth in a competitive landscape. While consumer and retail services SMEs achieved a sector confidence score of 60, construction and manufacturing (57), transport (57), and trading (58) remained steady in confidence, while public services and professional services saw more notable declines to 56, largely due to increased costs and lower confidence in debt servicing.
More than three in five SMEs reported an increase in annual revenue over the last two financial years. SMEs with revenue up to Dh30 million posted the highest confidence score at 58, while larger SMEs (Dh30-100 million) dipped to 55.
Raheel Ahmed, Group Chief Executive Officer of RAKBank, said: 'Small and medium enterprises are the backbone of every thriving economy, and in the UAE, they play a central role in driving diversification and sustainable development. At RAKBank, we continue to reinforce our commitment to be a trusted partner on their journey, providing the insights, tools and support they need to grow their businesses and contribute to the wider economy.'
Over two-thirds of SMEs experienced higher operational costs, while only 39 per cent expressed confidence in meeting debt obligations, down from last year. Twenty two per cent of SMEs now sell their products or services online, and 45 per cent use digital banking channels monthly. Fifty five per cent of SMEs are either on or planning to begin a sustainability journey, with one in three citing it as a short-term business objective.
While UAE SMEs remain optimistic, they are also navigating barriers such as increased costs of doing business, rising demand for credit, competitive pressures, and adapting to the corporate tax regime introduced in 2024. To address these issues, many SMEs are investing ambitiously in technology, operational efficiencies, and sustainability strategies aimed at long-term growth.
'SME confidence is still high however moderated slightly due to rising operational and borrowing costs, uncertainty surrounding corporate tax, and a slower growth outlook. While most of the SMEs remain bullish but SMEs, particularly in professional and public services, are cautious about their debt obligations amid ongoing cost pressures,' Vikas Suri, head of wholesale banking, RAKBank, told Khaleej Times.
RAKBank is actively addressing SME challenges through digital onboarding, with 92 per cent of accounts opened digitally, as well as tailored solutions for startups and women-led businesses. It has also introduced enhanced services in business banking apps and seamless corporate tax payment integration to improve efficiency.
The bank has over Dh10 billion exposure to the SME segment, which is expected to rise this year as well and has recently strengthened its SME lending through a Dh1 billion co-financing partnership with Emirates Development Bank, ensuring funding reaches priority sectors. 'UAE government initiatives like credit guarantee schemes and digital adoption programs further enhance accessibility,' Suri said.