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Forecasting
A case study UAE

Table of Contents
Introduction:....................................................................................................................................3
1) Internal factors.............................................................................................................................4
2) External Factors:..........................................................................................................................5
(A) Country Risk: Moderate............................................................................................................6
(B) Economic Risk: Low.................................................................................................................7
Government Risk: Low....................................................................................................................8
Benefits of Forecasting:...................................................................................................................8
References........................................................................................................................................9

Introduction:
Forecasting is an essential tool to predict how a particular product will perform in certain type of
market. Forecasting is a way which can help the managers of a company to peep into the future
scenario of a market. In the process of forecasting the significant future events are estimated by
analyzing the past and present scenarios (Arabian Business, 2016). There are several techniques
that are used by the business organizations to predict the future to analyze the sustainability of
their product in a market. Thus, it can be said that forecasting is process of making predictions
which are generally are done in a very systematic manner. As pointed out by L. A. Allen
Forecasting is a systematic attempt to probe the future by inference from the known facts
(Shell, 2003). There are several characteristics of forecasting, which have been illustrated below:
i) Relating to Future: Forecasting is always related to future course of events. Hence it is an
essential part of the business planning to formulate the future course of action.
ii) Dependent on the past and the present: The forecasting for a particular business is based on
the past and present events which are significant for the business and the personal experience of
the various stakeholders involved in making the forecast.
iii) Future Estimation: In the business forecasting the future of a particular type of business is
estimated. It estimates the probability of the happening of the various events in the future which
may or may not affect the business.
iv) Tools and methodologies: Forecasting is a process which is based on the analysis of the
various factors and thus various mathematical and statistical tools are employed for carrying out
the analysis. Personal observation is also a useful tool which can be employed in forecasting.

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There are several factors which affects the forecasting, that the managers has to take into account
while formulating the business forecast. These factors are illustrated as follows:

1) Internal factors: Internal factors may be defined as those events which take place
within an organization such as the policies of the organization, structure of the organization etc.
These factors can be altered at any point of time by the management of the company. The
various internal factors that play a key role in forecasting are:
a) Basic policies and programmes: Business activities are dependent upon the basic policies and
programs. Management can change the policies and programs at any time depending upon the
need of the business (Buckley, 2009). While making a forecast the forecaster considers the
present policies and programs followed by the company.
b) Structure of the organization: The forecast is highly dependent upon the structure of an
organization. The structure of the organization decides the relationship between the various
positions in an organization. Organization structure plays a crucial role in the selection and
formulating of the strategies in an organization. The strategy that is selected by an organization is
implemented by the organization structure. Thus organization is an essential part of forecasting.
c) Forecast of the sales: The sales forecast of an organization is an essential component on which
the business forecast of the organization depends. Every organization has the target to maximize
its production capacity to the complete extent of its production facilities (CONTRIBUTORS,
2013). The sales of all the organization are generally dependent upon a certain prices.
Forecasting of all the other process is typically dependent upon this factor.
d) Past records: Forecasting generally depends upon the past records of the organization. The
quality of the past data available with organization largely affects the quality of the forecast.

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e) Finance and future plans: The other crucial factors that affect the forecasting are the amount of
the financial resources available with the organization, expansion plans of the company and
plans related to the development of the product and the plans to determine the future requirement
for carrying out the business.

2) External Factors: External factors are those factors which are not directly related
to the nature and the type of business (Duska, 2000). There is no control of the management of a
company over the external factors but they are an important factor that affects the business
decisions. The different types of external factors are as follows:
i) Political environment: The political stability is very much crucial for the success of any
business activity. If the political environment in any country is stable then the business
organizations and managers can safely predict the policies of the government.
ii) Government approach: The approach taken by the government towards the business activity
affects the various business systems in a nation. Government generally plays various role such as
the regulatory role where the government applies different kinds of control on the business, in
the promotional role government may provide different kind of facilities and incentives to the
businesses, in the entrepreneurial role government may promote the business activities of the
public sector undertakings and finally in the planning role government may formulate various
future plans to determine path on which the country will progress (Gregory, 2013).
iii) Population trends: The location of the different types of population can affect the demand of
the company. The population trends are used by the managers to predict their sales and business
forecasting. These trends generally show the type of product that may suit a particular population
and forecast the demand of a particular product.

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iv) Fiscal policy: The tax structure and spending of the government comes under the ambit of
fiscal policy. The tax imposed by the government affects the purchasing ability of an individual.
UAE is one the most stable gulf country and attracts a lot of business activity (Harvard Business
Review, 1971). The population of UAE is economically sound and there are no ethnic tensions in
the country. The risk report of the country is as follows:

(A) Country Risk: Moderate

a) Political Risk: It is one of the six nations that are part of the Gulf Cooperation council. Though
UAE is not greatly impacted by the regional, social political unrest that are taking place in the
gulf region but these factors are major cause of concern for the country. Different types of civil
unrest are subdued by generous social spending by the government which is nearly 50% of the
total government spending.
ii) Credit rating: The credit rating of UAE as per World Bank is Aa2 which comes under the
category of economically stable countries. IMF has given the credit rating of A which signifies
that the country has a stable economic growth (Hooper, 2013).
iii) Corruption: Since there is stable government in UAE and government has a strong stand
against corruption thus, risk due to corruption in UAE is very less. It is one of the least corrupt
countries in the Arab world. The government of UAE has taken special initiatives to make the
country business friendly.

(B) Economic Risk: Low

i) Inflation: The rate of inflation of UAE is around 3% in the year 2016. In the year 2015 the
average rate of inflation was 3.7. The cost of the housing and utility rose by around 8.4 percent
where as the cost of the food s and the drinks increased by around 1.2%.
ii) Excahnge Rate: The Purchasing Power Parity of the country was around 60577.60 US dollars
in 2014. The Nominal effective exchange rate (NEER) is around 122.7 as of August 2015. The
real effective exchange rate (REER) of UAE is around 110.16 as November 2015.
iii) GDP: The net GDP of UAE as of 2013 is around 402.3 billion
iv) Unemployment: The rate of unemployment In UAE is around 3.6 percent in 2014. The rate of
unemployment has come down over the years.
v) Interest rate: The benchmark rate of interest was raised in UAE by 25 basis points. The new
rate of interest is 1.25% as of December 17th. The rate of interest was raised for the first time
since December 2008.
vi) Recession: Since the government has invested heavily in the social sectors thus the effect of
recession is very less on the country.

Government Risk: Low

i) Regulations: The risk due to the government regulations is low in the country.

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ii) Taxes: The government of UAE has adopted a stable tax rate which has benefitted the
business activities in the country. In terms of tax stability UAE is considered to be the most
stable country in the region.

Benefits of Forecasting:
1) Forecasting is an effective tool for devising the strategy for promoting the new businesses.
This will give a clear picture of how the environment will be for business in the near future. If
the promoters of the business are satisfied with the forecast then they can plan to promote the
product.
2) It is an essential ingredient of planning process. The future course of action of any
organization is dependent upon the forecast of the company (Laird, 2006).
3) Forecasting is leads to effective coordination among the different departments in an
organization.
4) Forecasting also plays a crucial role in achieving the objects of the organization and
improving the quality of the management of the company.

References

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Arabian Business, (2016). Saudi, UAE economic growth forecasts cut for 2016. [online]
Available

at:

http://www.arabianbusiness.com/saudi-uae-economic-growth-forecasts-cut-for-

2016-603467.html [Accessed 15 Feb. 2016].

Buckley, P. (2009). Business history and international business. Business History, 51(3), pp.307333.
CONTRIBUTORS. (2013). Business Strategy Review, 24(4), pp.83-83.
Duska, R. (2000). Business Ethics: Oxymoron or Good Business?. Business Ethics Quarterly,
10(1), p.111.
Gregory, A. (2013). GOLDEN LESSONS. Business Strategy Review, 24(4), pp.76-81.
Harvard Business Review, (1971). How to Choose the Right Forecasting Technique. [online]
Available at: https://hbr.org/1971/07/how-to-choose-the-right-forecasting-technique [Accessed
15 Feb. 2016].
Hooper, W. (2013). INSIDE CHANGE. Business Strategy Review, 24(4), pp.46-49.
Laird, D. (2006). Doing the business: Business Insight's permanent evolution. Business
Information Review, 23(3), pp.181-188.
Scott, A. (2013). CLASS FACTS. Business Strategy Review, 24(4), pp.64-67.
Tradingeconomics.com, (2016). United Arab Emirates Interest Rate | 2007-2016 | Data | Chart |
Calendar. [online] Available at: http://www.tradingeconomics.com/united-arab-emirates/interestrate [Accessed 15 Feb. 2016].
Shell, R. (2003). Management of professionals. New York: Marcel Dekker.