Complex Made Simple

Forget experts, businesses confident despite uncertainty

* 52 per cent of CEOs “likely or very likely” to make a sizeable capital investment in the next 12 months

* S&P has forecasted a combined fiscal deficit of $150 billion for GCC sovereigns in 2016


Barely a week ago, the International Monetary Fund (IMF) warned that economic activity in the GCC region is projected to slow down this year, despite continued expansion in hydrocarbon output. The fund said on Wednesday in Dubai that fiscal tightening and declining liquidity in the financial sector are projected to reduce non-oil growth in the region to 1.75 per cent in 2016, down from 3.75 per cent last year.

An hour later, the chief economist of online trading investment firm Saxo Bank, Steen Jakobsen, while sitting in his office in Dubai International Financial Centre (DIFC), where IMF just delivered the regional economic outlook, would predict a global recession in 2017 in the wake of higher cost of capital, more political uncertainty, low growth and productivity.

In addition, leading financial institutions, credit rating agencies and experts also have issued similar warnings in the recent past. S&P Global Ratings, for example, has forecasted that the GCC sovereigns’ combined fiscal deficit in nominal terms will reach $150 billion (12.8 per cent of combined GDP) in 2016 alone.

After all these forecasts and warnings, the sky over the Arabian desert is dark and it braves itself for a storm any soon.

But the findings of a very recent study suggest that business sentiment across the region remains broadly positive, despite the current challenging economic climate.


What do business leaders think?

As Oliver Cornock, Managing Editor for the Middle East at publishing and consultancy firm Oxford Business Group (OBG) points out, we need to forget experts at times and listen to those who run businesses to gauge the pulse of the economy and markets.

Nearly 200 business leaders from across industries and sectors who took part in Business Barometer: GCC CEO Survey, conducted by OBG in partnership with Saudi Hollandi Bank, recognize the challenges but they find it a period of opportunity.

Notably 52 per cent of chief executives surveyed said they were “likely or very likely” to make a sizeable capital investment in the coming 12 months.

Nearly half of the respondents said they found gaining access to credit “easy or very easy” amid reports of banks tightening lending for the businesses in the region.

Despite the hue and cry that the cut in government spending is hurting the growth in private sector, 57 per cent of CEOs estimate that public funding currently drives less than 40 per cent of business in their respective sectors.

“Despite global media reports that the region is in a period of economic turmoil, our GCC CEO survey results point to a wholly more positive outlook, with sentiment across the sectors far from weak,” says Cornock.

“Of course, there are significant challenges. However, what can be deduced from the results is that the region’s corporates remain broadly positive and are positioning themselves to be able to compete when stronger growth returns,” he adds.

Subject matter experts could be right or wrong but businesses don’t wait for sunny days.

When I asked Monir Lotfi, Director of Sharjah’s iMall, on Monday about how does he position the new mall in the market in these hard times when industry figures show that the consumer electronics sector growth has been slowing for some time now, he responds confidently:

“I believe that the consumer electronics/ IT sector will always have it swings from time to time just like any other industry. However, this sector in particular is a key driver of economic development on a global level, and can be driven with constant innovation. We just have to constantly keep up-to-date with the latest trends and changing consumer demands.”