Saudi business outlook reveals gradual improvement amidst slow global economic recovery - NCB and Dun and Bradstreet's Business Optimism Index

The Business Optimism Survey for Q4 2009 was conducted in October 2009 in a scenario of growing optimism amid revival of the global economy on the back of increasing demand and curtailment of uncertainty in the financial markets.

The BOI survey shows that in line with the pickup in global economic activity, the respondents from the non hydrocarbon sector in Saudi Arabia have displayed a rise in expectations for sales volume and the selling prices. These two factors are contributing to an improved outlook for profitability of Saudi businesses in the upcoming quarter. On the other hand, surging oil prices have enhanced the outlook of the hydrocarbon sector on the back of which the business optimism regarding profitability has gone up from the Q3 level of 38 to 48 in Q4.

Commenting on the findings of the survey, Dr. Said Al-Shaikh, Senior Vice President and Chief Economist of the National Commercial Bank said:

"the fourth quarter's Business Optimism Index shows how the business sentiment in Saudi Arabia is influenced by the developments in the world economic outlook and the general atmosphere of the international markets. There are increasing signs suggesting a gradual recovery in the global economy, most evidently in the areas of finance and business services, which can be attributed to rising liquidity in the financial markets. While there are some sectors in the Saudi economy still concerned about the availability of finance and prices of raw materials, yet these concerns are relatively lower than the past quarters."

Al-Shaikh added "the financial results of the third quarter recently released by the Saudi companies reaffirmed, as a whole, the continued growth and stability in the Saudi economy, notwithstanding, the financial turmoil that a few businesses faced and the provisions made by Saudi banks in response. There is no doubt that the continued support provided by the Saudi Arabian Monetary Agency to the banking sector along with the expansionary fiscal policy opted by the Kingdom both have played a pivotal role in raising the level of optimism of the business community in Saudi Arabia."

On his part, CFO of Dun and Bradstreet South Asia Middle East Ltd, Mr. Phil Strange said, "The BOI study points towards further strengthening of the Saudi economy on the back of improved global economic outlook and the measures taken by the Saudi government including injecting more liquidity into the system. The business units surveyed in the report have shown an increased optimism towards their volumes of sales and selling prices which in turn is expected to drive demand levels in the economy and enhance the profitability of the business units in Q4 2009. The improved optimism for the upcoming quarter is also driven by the surging oil price which has now crossed USD 80 per barrels mark in the international markets. However, we should take this improved optimism with utmost caution as the recent oil prices rally is not necessarily backed by demand fundamentals.

The report for the Q4 2009 reveals that most respondents in Saudi Arabia are encouraged by the early signs of global economic revival and domestic economy and the same is reflected in the increase in optimism in the Volume of Sales, Level of Selling Prices and Net Profits parameters. Among the non hydrocarbon sectors surveyed, the manufacturing sector is the most optimistic with respect to four parameters including sales, new orders, selling prices and net profits. In the hydrocarbon sector, the BOI has shown an improvement for two of the three parameters - selling prices and net profits.

The business community in Saudi Arabia has polled raw material cost as their top concern with 51% of respondents citing this as a major factor impacting their business. The manufacturing sector, followed by the trade sector is most concerned about increase in raw material costs, while availability of skilled labour is the top concern for transport & communications firms. In the oil & gas segment, project delays is the chief factor impacting business, while transport and development & discovery costs are also important issues.

As the latest addition to D&B's global series of Business Optimism Indices=, the Business Optimism Index on KSA, done in association with The National Commercial Bank, is issued on a quarterly basis and is one of the most effective ways to keep track of where businesses think the Saudi economy is moving. The next Business Optimism Index on Saudi Arabia will be released in January 2010.