Confidence Among UAE SMEs: Insights from RAKBANK’s Latest Index

UAE small and medium enterprises (SMEs) are showcasing remarkable resilience, building on their adaptability during challenging times. Recent findings from RAKBANK’s SME Confidence Index underline this positive trend, based on feedback from over 1,200 SMEs across the UAE.

Understanding the Confidence Index

RAKBANK’s Confidence Index, measuring business sentiment among SMEs, operates on a scale where 50 indicates a neutral sentiment. The latest survey yields a score of 57, demonstrating a stable and optimistic outlook amid a fluctuating economic landscape.

Current State of Business Sentiment

While the Index score has seen a slight dip from 61 in 2023 to 57 in 2024, overall optimism remains strong. Notably, 68% of SMEs view the future business climate favorably, and over 60% experienced an increase in revenue over the last two years. This resilience reflects the ability of SMEs to navigate ongoing challenges effectively.

The Landscape of SME Optimism

Despite facing a combination of hurdles such as rising operational costs, the implementation of a corporate tax, and high borrowing expenses, the overall sentiment among SMEs suggests a strong capacity for adaptation. Raheel Ahmed, Group CEO of RAKBANK, highlights recent developments, including a strategic partnership with Emirates Development Bank for AED 1 billion ($272 million) in co-financing. This initiative, announced at the ‘Make it in the Emirates’ forum, underscores a commitment to supporting the SME sector’s growth and sustainability.

Trends Shaping the Future

The report points to several trends influencing the SME landscape heading into 2025. The Consumer and Retail Services sector is currently leading in performance, fueled by an uptick in consumer spending and the effective adoption of new business channels. This sector boasts a confidence score of 60, while others like Construction and Manufacturing (57), Transport (57), and Trading (58) remain steady. However, Public Services and Professional Services experienced more significant declines, dropping to a score of 56 largely due to cost increases and waning confidence in managing debt.

Key Insights from the Survey

The survey reveals several critical takeaways that illustrate the current state of SMEs in the UAE:

• Overall Confidence Levels: Despite a slight decrease to 57, the Index score indicates positive sentiment across various sectors.

• Continued Revenue Growth: More than three out of five SMEs reported an increase in annual revenues over the past two financial years.

• Optimism Among Smaller Firms: SMEs with annual revenues up to AED 30 million ($8.2 million) reported the highest confidence score of 58. In contrast, larger firms generating between AED 30 million and AED 100 million ($8.2 million to $27.2 million) saw a drop to 55.

• Challenges Presented by Rising Costs: Over two-thirds of SMEs noted higher operational expenses, with only 39% expressing confidence in their ability to meet debt obligations—a noticeable decline from the previous year.

• Increased Digital Adoption: Currently, 22% of SMEs sell their products or services online, and 45% utilize digital banking channels monthly.

• Focus on Sustainability: A noteworthy 55% of SMEs are either implementing or planning to begin sustainability initiatives, with one in three highlighting this as a primary business objective in the short term.

Confronting Challenges and Seeking Solutions

While optimism persists among UAE SMEs, they remain vigilant of challenges such as escalating business costs, a growing need for credit, competitive pressures, and adjustments to the new corporate tax regulations effective from 2024. Consequently, many SMEs are investing proactively in technology, boosting operational efficiencies, and pursuing sustainability measures to foster long-term growth and stability.

The report emphasizes the importance of supportive financial partners in navigating these complexities, with tailored banking solutions regarded as essential to fostering a conducive environment for SME development. By focusing on these aspects, UAE SMEs demonstrate their commitment to evolving alongside the dynamic economic landscape.