Middle East Business Optimism Down

Business sentiment wanes as Middle East economic outlook worsens . . .

AMEinfo  published this article on 6 June 2016 where Middle East Business Optimism Down, is believed to be dwindling to its lowest levels in so many years.

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.

Further reading is advised on AMEinfo produced PDF, excerpts of which are reproduced here.

If we are not ready to embrace change when it happens, we will be merely reacting to the global events that are taking place, adding more to the economic, social and security concerns we are seeing today.

In January, oil prices dropped to $27 per barrel and, although this number has picked up since, many economies, especially in the Gulf region, have been – and still are – hugely dependent on oil. For some, 90 per cent of the revenue comes from oil and 60 per cent to 85 per cent of their economic activities are driven by governments, rather than the private sector.

It is very clear that oil-producing countries want to keep market share. Cost, especially on-shore cost, is very low for big producers, such as Saudi Arabia, the UAE and Iran – a country not to be forgotten about. Iran is increasing its oil production levels from 300,000 barrels per day to eventually reach four million a day. With all of the extra supply, the global economy, as a whole, will continue to face a downturn rather than an upturn.

Shale oil is also going to have its long-term effect on oil-producing countries. As technologies improve, extraction costs will be reduced – this is a new reality that needs to be accepted.

Such economic concerns, coupled with the unfolding geopolitical events in Yemen, Syria, Iraq, Libya and Egypt, have created an additional uncertainty in the region. Yet, when it comes to solutions, we tend to complicate rather than simplify.

This is largely due to us, as individuals and nations, shying away from our problems and not addressing them properly, creating further complications.

Arab countries have generally been rentier states, operating through subsidies and handouts, only allowing for one form of social contract between the regimes and the people.

In Dubai, for example, we can see a meritocracy, but only in controlled spheres.  The notion is almost non-existent in other countries of the Arab world.

This makes effective innovation and genuine entrepreneurship very difficult to achieve, as it is very hard to nurture an ecosystem of innovation and entrepreneurship when there is no environment of critical thinking or of allowing people to think outside the box.

By and large, Arab countries lack such environments; hence, we are kidding ourselves.

The whole world, from Europe to the US, Brazil and elsewhere, has its problems, but our problems are much more acute, either because we don’t allow ourselves to think outside the box, or because the systems don’t allow for such a space.