Buoyant business confidence in Gulf despite oil’s decline, survey reveals

Optimism among chief financial officers is near the highest levels of the past three years, Deloitte finds.

Ongoing political turmoil in parts of the Middle East has not dented business confidence in the region, or at least not in the Arabian Gulf.

Here, optimism among chief financial officers is near the highest levels of the past three years, according to a new survey from Deloitte.

The accountancy firm’s Global CFO Signals report, released on Monday, found that 47 per cent of the survey’s 125 respondents across the Middle East were “decidedly more optimistic regarding the financial prospects of their companies compared with the preceding six months”.

Such headline optimism, however, masks a sharp division in the region between the countries of the GCC, where economic growth is most concentrated, and the remainder of the region, where sentiment was unsurprisingly more muted.

“As of Q3, 2014, CFOs in the UAE reported a net 62 per cent increase in optimism, for example, whereas CFOs in Lebanon and Syria did not report any net increase in optimism,” according to James Babb, the Deloitte Middle East CFO programme leader.

The confidence of CFOs in the GCC helped the Middle East buck a global trend of falling global optimism, with uncertainty on the rise across a number of the surveyed countries, according to Deloitte.

Geopolitical risk, particularly in parts of the Middle East, Russia/Ukraine and the euro zone, has been cited as a major concern by CFOs in several countries.

“From a CFO’s perspective, such geopolitical uncertainties weigh on growth and investment prospects, particularly in Europe, which is in danger of falling into recession again,” according to Deloitte’s chief global economist, Ira Kalish.

The majority of Middle East CFOs surveyed for the report said they expected equity issuance and mergers and acquisitions activity to increase during 2015.

A net 61 per cent of surveyed CFOs, who work for both listed and non-listed entities around the region, reported they would consider these transactions to streamline current offerings rather than to diversify.

Regional CFO priorities for the coming year include organic growth, the introduction of new products/services and expansion into new markets, according to the survey.

Such priorities are indicative of the CFO’s evolving role from simple operator within a company to a strategic driver of an organisation, according to Mr Babb.

CFOs anticipated equity-driven growth for the Middle East, with 52 per cent believing major equity indexes will continue to grow over the next year, while 34 per cent believe that equity issuance will continue to increase over the same period.

CFO forecasts for the performance of major equity indexes rebounded to high thresholds that were previously consistently reached between 2009 and the first half of 2011.

Such predictions, however , were made before Middle East equity gains were all but cancelled out in recent weeks, provoked by falling oil prices.

Bank borrowing and capital expenditure were identified by CFOs as the key business metrics most likely to increase over the coming year, according to the survey.

Measured against other channels of external financing, bank borrowing was considered the most favourable (54 per cent), compared with equity issuance (43 per cent) and corporate debts (31 per cent).

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