Business conditions in Saudi Arabia's non-oil private sector improved overall in January, but at a slower rate as strong competition and cautious consumer spending pulled back growth.
The seasonally-adjusted Purchasing Managers' Index – a gauge designed to give an overview of operating conditions in the non-oil private sector economy – slipped to 54.9 in January in the kingdom, from 56.9 in December. The reading remained well above the 50 level, indicating economic expansion.
Business activity in Saudi Arabia increased last month, but the rate of expansion was similar to that of the 14-month low seen in December. The latest slowdown largely reflects a weaker contribution from the new orders component of the PMI, according to the survey.
"January data suggested that non-oil private sector companies remained in expansion mode. However, business activity was again constrained by a slowdown in new order growth,” Tim Moore, an economics associate director at IHS Markit, which compiles the survey, said.
“Non-oil firms in Saudi Arabia are optimistic about the business outlook for 2020, but levels of confidence have dropped since December, which acted as a brake on staff hiring and input buying at the start of the year."
The latest rise in sales volumes was the softest rate of growth recorded in 13 months. Export sales also dipped slightly, reflecting subdued business conditions in overseas markets, according to the survey.
Looking ahead, businesses in Saudi Arabia remained confident about growth prospects in the coming 12 months, according to the survey. The degree of positive sentiment, however, slipped in January from that seen in December. It was the lowest for almost one-and-a-half years.
Meanwhile, a decline in new orders retracted growth in the UAE's non-oil private sector in January. It is the first time the sector has not registered growth in a decade, according to the PMI survey by IHS.
The headline PMI number in the second-biggest Arab economy dropped to 49.3 in January from 50.2 in December, signalling a slight deterioration in business conditions. Workforce numbers also dropped, while selling prices were lowered for the sixteenth month running.
On the demand side, total new orders fell as companies struggled to gain sales momentum. Orders from abroad, however, grew for the third month in a row and at a faster pace than in December, according to the survey.
UAE companies responded by leaving output levels unchanged in January, ending a sequence of growth that had lasted for almost a decade.
"Despite lower prices, new orders fell for the second time in three months in January, adding extra pressure on businesses and halting output growth,” said David Owen, an economist at IHS Markit.
"Looking ahead, it is hoped by many firms that the upcoming Expo 2020 will restore new business volumes and kick-start activity. Another bright note is growing momentum in export sales.”
In Egypt, non-oil private sector economy weakened at a much faster rate in January as sales fell on the back of a sharp reduction in business activity. Employment and purchases also declined in the most populous Arab nation.
Egypt’s PMI gauge fell to a three-year low of 46 in January, from 48.2 in December. The health of the sector has now deteriorated in each of the past six months.
Contributing to the downturn was a sharp contraction in output, with the rate of decline accelerating to the fastest since January 2017. The fall in new orders was also the quickest in nearly three years. Export demand also softened for the fourth month running, according to the survey.
"January PMI data brought unwelcome news for Egypt's non-oil private sector,” Mr Owen said. “Firms squarely linked this [drop in PMI index] to falling sales, with customers increasingly cautious about their expenditure and new contracts dwindling."
On the positive side, business expectations remained positive in January, despite dropping to a four-month low. Respondents hoped that lower prices would drive sales and activity higher in the coming months, Mr Owen said.
UAE currency: the story behind the money in your pockets
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
What the law says
Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.
“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.
“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”
If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.
