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Business sentiment wanes as Middle East economic outlook worsens

Optimism in the Middle East region’s business world has dwindled to its lowest levels in several years, if new survey findings are any indication.


The rising concern over uncertainty and economic growth in the region has dragged down the optimism levels of chief financial officers (CFOs) regarding their companies’ financial prospects over the next six months to a net –2 per cent in leading accounting and consultancy firm Deloitte’s latest report, Global CFO Signals – Still Reluctant to Spend.


The negative net optimism rate is the lowest figure since the survey began in 2009 and it compares with +26 per cent in the second quarter of 2015, when the CFOs in the region were previously surveyed.


Cheap oil and geopolitical concerns have overshadowed economic growth in the region, particularly in the Gulf Cooperation Council (GCC) economies, a major chunk of whose revenue comes from hydrocarbon exports. The grim economic outlook has triggered a decline in business sentiment, with 71 per cent of CFOs agreeing that the level of uncertainty in the Middle East is “high” or “very high.”


The region’s businesses have also been haunted by reductions in both foreign and domestic demand, and currency fluctuations, according to the survey.


Meanwhile, in the Middle East, risk appetite seems to be correlated with energy prices and 83 per cent of CFOs say now is not a good time to take on risk.


Strategies for survival

The survey showed that the CFOs are focusing on business strategies that fall within the financial steward and operator domains to deal with the weakened economic sentiment across the region.


The top priorities for the next 12 months include cost reduction (91 per cent), increasing cash flow (76 per cent) and organic growth (52 per cent).


“A net 38 per cent expect energy prices to be higher in six months, which might shift the focus towards more strategic priorities for their Middle East corporations. However, oil prices are not returning to $100+ levels any time soon. That gives CFOs the opportunity to incorporate lower prices into forecasts. And, combined with continued accessibility to capital, low interest rates and solid demand, that might just give them the comfort to spend again,” said James Babb, partner and CFO programme leader at Deloitte in the Middle East.


AMEinfo’s special report, titled 7 Strategies to Survive the Rest of 2016, released in late May, serves as a survival guide for businesses operating in the region, highlighting the main areas they need to focus on to survive and thrive during the rest of the year and beyond.


The seven strategies explored in the report are: Innovation, Diversification, Collaboration, Optimisation, Transparency, Talent Management and Agility. These survival tips are further strengthened through insights from the MENA region’s leading business players, thinkers and analysts.


You can download 7 Strategies to Survive the Rest of 2016 for free on the AMEinfo website here.