Saudi firms optimistic on business expansion

The Kingdom will not be affected economically by the ongoing regional problems due to its strong economy with large financial reserves, Said Al-Shaikh, group chief economist of the National Commercial Bank (NCB), said here Sunday.

Al-Shaikh was speaking to newsmen at the launch of the D&B Business Optimism Index (BOI) survey for Saudi Arabia for Q1, 2016 at the NCB regional headquarters here. Sharihan Al-Manzalawi, associated economist of the NCB, attended the presentation.
The D&B Business Optimism Index (BOI) is widely recognized as a key measure of the pulse of the business community, serving as a reliable benchmark for investors, policy makers and other observers of the economy worldwide. As the latest addition to D&B's global series, the Business Optimism Index on Saudi Arabia, done in association with the NCB, is issued on a quarterly basis.
The survey pointed out that the composite BOI for Saudi Arabia’s hydrocarbon sector has touched an all-time low of -12 in Q1, 2016; the BOIs for selling prices and net profits remain in the negative territory. The non-hydrocarbon sector composite BOI retreats on a quarterly and annual basis to 28 in Q1, 2016, as most parameters weigh.
The transport segment is the most optimistic (composite BOI of 37), while the manufacturing sector is the weakest (composite BOI of 22) in the first quarter of 2016.
Competition and the impact of low oil prices continue to be the topmost concern for firms in Saudi Arabia. Despite lower optimism levels, both hydrocarbon and non-hydrocarbon sector firms are optimistic about investment in business expansions.
Commenting on the findings of the latest survey, Al-Manzalawi said: “The weakening of the global economy, largely influenced by the slowdown in the Chinese economy contributed to lower oil demand, which at a time of increased supply, led to the sharp fall in oil prices to below $40 a barrel for the first time since 2009. These developments impacted the economies of the oil countries that rely on oil revenues to support their budgets, and Saudi Arabia was one of those countries most affected. This implicated the hydrocarbon sector, as the hydrocarbon sector’s BOI declined to -12 points for Q1, 2016 compared to -4 in Q4, 2015.”
The outlook for the business environment is less optimistic in the first quarter of 2016 as 53 percent of the participants cited no negative factors compared to 49 percent in Q4, 2015, while hydrocarbon firms have improved their expectations in terms of business expansion plans as 33 percent of the sector’s respondents will invest in expansionary activities compared to 30 percent in the previous quarter.
“The continuation of lower oil prices will affect the government’s financial revenues, which is expected to reduce government spending this year compared to the level witnessed last year,” she added.
Accordingly, the BOI for the non-hydrocarbon sector has retreated from 33 points in Q4, 2015 to 28 points for Q1, 2016. The outlook for the business are slightly rather weaker in the Q1, 2016, as 52 percent of the companies expect no negative factors to impact their business operations in Q1, 2016, compared to 54 percent in Q4, 2015.
While Saudi Arabia’s businesses are modestly more optimistic with regard to investment in business expansion, as 44 percent of the firms intend to expand in the current quarter versus 42 percent in the previous quarter.
In a reversal of last quarter’s trend, SMEs are more optimistic than large companies in Q1, 2016, with their respective composite scores of 31 and 24. Both groups continue to have a similar outlook with respect to the business environment; 52 percent of SMEs and 50 percent of large companies do not anticipate any challenges hindering operations in Q1, 2016.
The foremost obstacle for SMEs is competition, while large companies are most concerned about the impact of oil prices.