JEDDAH: Although improvement in global business sentiments have boosted optimism, certain factors are impacting business, Rajesh Mirchandani, CEO, Dun and Bradstreet South Asia Middle East Ltd., said on Monday.
Releasing Dun & Bradstreet’s Business Optimism Index (BOI) for Saudi Arabia for Q3, 2009, in association with the National Commercial Bank at a press conference, he said: “Rising cost of raw materials and availability of finance have been the leading business concerns for Q3. Seventy percent of the manufacturing firms are most concerned about the rising cost of raw materials. Project delays remain the main factor that will impact the oil and gas segment, followed by discovery and development costs.”
In light of increasing signs of the global recession bottoming out, the outlook of the Saudi business community in Q3 is looking more positive, he said. The BOI for the overall profitability of the non-hydrocarbon sector has risen to 42 as against 12 in the previous quarter. This is backed by a surge in BOI for volume of sales, which currently stands at 49 as compared to 12 during the last quarter. He added that the impact of the global financial crisis was higher in the non-hydrocarbon sector as compared to the oil and gas segment. “Among the various sectors, manufacturing firms were most impacted by the financial sector downturn,” Mirchandani said.
The BOI survey shows that business optimism in the Kingdom has improved substantially in Q3, as compared to Q2 with all business parameters reflecting a marked improvement over the figures of the last quarter figures. The survey also reveals that despite global economic slowdown, the Saudi businesses have robust investment plans for Q3, as 36 percent of them plan to increase investment in business expansion while 42 percent are expected to maintain expansion expenditure at Q2 levels.
The trade, transport and finance sectors are most optimistic regarding a 2009 recovery for the global economy, while manufacturing firms are least optimistic. “Overall, 55 percent of the non-hydrocarbon respondents in our survey expect a recovery in 2010,” Mirchandani said. With the recent oil price rally, sentiments in the hydrocarbon sector have shown a marked improvement as the BOI for net profits now stands at 38 as compared to 23 in Q2. However, majority of the business units in the sector are uncertain on the sustainability of current oil prices as the BOI for level of selling prices for the hydrocarbon sector has retreated further to -23 as compared to -18 in the last quarter. “Project delays still remain the major concern for the oil & gas companies. As of this quarter, 70 percent of the businesses in the sector expect the global recovery to start in 2010 as opposed to the 38 percent who polled last quarter,” Mirchandani said. The BOI for Q3 was conducted in June, at a time when crude prices were on the march again, having doubled from this year’s low of under $34 per barrel reached on Feb. 12. Recovery in oil prices has been driven by expectations of global economic recovery, a weaker dollar and an increase in financial market activity as well as OPEC’s decision to maintain current output levels.
However, demand fundamentals continue to remain weak and according to IMF estimates, the global economy is expected to shrink by 1.3 percent this year, while advanced economies will decline by 3.8 percent. “Saudi Arabia’s economy is projected to contract by 0.9 percent in 2010,” he said, adding that oil sector real GDP is projected to slump 10.5 percent in the current year, after recording a growth of 5.3 percent in 2008.
“To help combat the impact of the global financial crisis, the Kingdom has undertaken various crisis response measures such as deposit guarantees, monetary easing and fiscal stimulus on the macroeconomic front to help domestic economy withstand the slowdown due to global recession,” Mirchandani added.
Said Al-Shaikh, NCB’ senior vice president and chief economist, said” “The results of the BOI for Q3 indicate an improvement in the sentiments of the local business community and depict a stronger confidence in the local economic climate for the three months to come. The positive connotations in these findings will reflect on the performance of the Saudi economy in the second half of this year.
