News & Updates
Results of JETRO’s 2016 Survey on Business Conditions of Japanese-Affiliated Firms in Middle East
Despite uncertain outlook, market growth expected
Nearly 60% of companies forecast business expansion
Feb 01, 2017
Between September 5 and November 13 2016, the Japan External Trade Organization (JETRO) conducted its latest survey on business operations of Japanese-affiliated firms in three countries in the Middle East: the United Arab Emirates (UAE), Saudi Arabia and Turkey. The survey received valid replies from 212 firms (a 49.3% response rate) out of 430 companies to whom we sent questionnaires. The question items covered areas including:
- Status of operations
- Future business outlook
- Advantages and disadvantages of the investment environment.
Below is a summary of the results.
- Regarding operating profits for 2016, of respondents, a majority reported a surplus. Meanwhile, due to deteriorating public safety and declining crude oil prices, 19.1% indicated a deficit. A ratio of 33.2% has experienced a decline in operating profits from last year.
- Operating profits for 2017 compared with the previous year is likely to pick up.
- Despite uncertain outlook, “market size and growth potential” was cited as advantages. Among respondents, 57.1% expected their business to expand. Those in the UAE reported several benefits in the investment environment, such as free zones and benefits in the taxation system.
- Concerns cited by respondents were an undeveloped or unclear legal system, rising costs in human resources and other areas and time-consuming procedures, among others. The biggest issue in Turkey was unstable political and social conditions.
- Status of operations for 2016: Ratio of profitable companies accounts for majority
Regarding operating profit forecasts for 2016, 52.9% of total companies in the Middle East reported a surplus and 19.1% a deficit.
Looking at the results by country, the UAE had the highest ratio of companies with a surplus at 55.4%, followed by Saudi Arabia (53.8%). Turkey ranked the lowest, falling short of a majority at 47.2%.
- Status of operations for 2017 compared with previous year: More companies expect improvement
Regarding operating profit forecasts for 2017 in comparison with the previous year, in the Middle East overall, the ratio of companies reporting improvement increased from 30.2% in 2016 to 42.7% in 2017. Meanwhile, the percentage of those expecting their profit to decline decreased from 33.2% to 10.2%. Seeing the results by country, the ratio of respondents indicating improvement was the highest in Turkey (49.1%), followed by Saudi Arabia (45%). The UAE saw a comparatively low percentage at 38.9%.
Among reasons contributing to improvement, in both results by country and of the overall region, increased sales in local markets was most commonly cited in both 2016 and 2017. The second largest reason was increased sales due to expanded exports. Meanwhile, among reasons given for declining profit, decreased sales in local markets ranked first in both results by country and across the region.
- Future business outlook: 57.1% of companies intend to expand business
Regarding business outlook in the next one or two years, in both results by country and of the Middle East overall, a majority of companies forecast business expansion. Combined with the percentage of those answering that they are likely to retain the current level (ranging from 30% to 40%), over 90% of companies expected to either expand or maintain business operations as they are. Two major reasons given for anticipated expansion—in both results by country and across the region—were increased sales and high growth potential. Meanwhile, among functions companies intend to strengthen, the sales function was overwhelmingly cited.
On the topic of human resource systems, the ratio of companies reporting an increase in local employment over the previous year as well as those expecting an increase in local employment in the future both exceeded 40% across the entire region. Meanwhile, over 70% reported no change in the number of dispatched Japanese employees.
- Advantages of investment environment: Market size and growth potential marks highest
Among advantages of the investment environment, market size and growth potential marked 60.4% in the results across the region. Benefits of the taxation system (42.5%) and free zones (41.5%) were also commonly cited.
Seeing the results by country, market size and growth potential ranked the highest in Saudi Arabia and Turkey. Companies in the UAE reported several other advantages than free zones and benefits of the taxation system, such as the living environment for Japanese employees and stable political and social conditions.
- Challenges in investment environment: Concerns about administration, rising costs and public safety pointed out
Looking at the results about disadvantages of the investment environment across the region, an undeveloped or unclear legal system (60%) ranked first, followed by rising labor costs (55.2%) and time-consuming procedures (51.4%). Additionally, more than 40% of companies cited unstable political and social conditions (42.9%) and rising costs in various commissions (41.9%). Respondents were most concerned about administration, rising costs and public safety.
Seeing the results by country, companies in the UAE are largely affected by increased costs, where the ratio of those reporting three kinds of rising costs in particular—human resource expenses, various commissions and office rent—made up over or nearly a majority, respectively. Meanwhile, companies in Saudi Arabia pointed out several issues mainly from the administrative front, such as an undeveloped or unclear legal system (88.1%) and time-consuming procedures (81%). In Turkey, almost all companies pointed out unstable political and social conditions (98.1%).
Middle East and Africa Division, Overseas Research Department
Mr. Tsunemi, Mr. Ono and Mr. Yonekura
Tel: (03) 3582-5180