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ANALYSIS

Saudi firms resilient ‘despite global risks’

Jeddah, August 9, 2012

Although business optimism levels in Saudi Arabia have lowered for the third quarter of 2012 due to aggravated global risks, a large portion of businesses still expect expansion of their businesses and new order activity, said an expert.

“The Business Optimism Index (BOI) survey for the third quarter (Q3) 2012 reveals lower optimism levels compared to those recorded in the previous quarter,” said Prashant Kumar, senior manager, Research & Advisory of Dun and Bradstreet South Asia Middle East, a leading business information and insight firm.

“The hydrocarbon index has dipped to 23 from 43 in Q2 mainly due to the selling price optimism which has plunged 30 points to 8 reflecting uncertainty for oil demand given fragile global recovery. The non-hydrocarbon index too has dropped to 37 from 52 in Q2 as all parameters have declined.”

“Businesses expecting a decline have cited a natural slowdown in business activity due to summer vacations and the holy month of Ramadan as primary reasons. Thirty per cent of the respondents in the non-hydrocarbon sector foresee factors such as the Euro region debt debacle, uncertain and uneven global economic recovery, negative spillovers due to trade linkage disruptions, etc. as factors impacting their operations in Q3 2012.

“Reflective of the high infrastructure spending by the Saudi government, the construction sector is the most optimistic among all the business sectors surveyed,” Kumar added.

Hydrocarbon sector

The BOI survey reveals that Saudi Arabia’s hydrocarbon sector optimism has weakened in Q3 2012. The overall BOI composite score for the sector is at 23 points, 20 points lower than the score in Q2 2012, mainly due to a drop in selling prices expectations.

Non-hydrocarbon sector

The survey shows that even though sentiments of Saudi business community have weakened in Q3 2012 compared to the previous quarter, overall the outlook still remains positive. The composite index for the non-hydrocarbon sector stands at 37 compared to 52 in Q2. The Saudi economy’s performance has been exceptionally robust and the economy is expected to remain resilient in the current year despite the weak global economic scenario.

Factors impacting business

The expectations towards the overall business environment in Saudi Arabia have improved in Q3 2012 compared to the previous quarter.

Forty-five per cent of the respondents in the non-hydrocarbon sector have said that they do not expect any negative factors to influence their business operations in the third quarter of 2012, as compared to 33 per cent in the second quarter of 2012. Around 30 per cent of the respondents who have cited adverse business environment as a key concern, attribute factors such as the global economic downturn, Euro region crisis and currency fluctuations to have an impact on their business operations in Q3 2012.

While 11 per cent of respondent businesses were found concerned about availability of skilled labor, another 3 per cent reflected concerns about availability of finance.

Sixty-two per cent of the non-hydrocarbon companies have said that they would invest in business expansion in Q3 2012 compared to 40 per cent in the previous quarter.

Dr Said Al-Shaikh, senior vice president and Group chief economist of the National Commercial Bank, said: “As the signs of dynamism in global economic growth and the effects of long-term financing operations provided by ECB seem to be fading away, 30 per cent of the firms surveyed in the Kingdom indicated that the business environment due the global economy will impact their business operations in the 3Q 2012.”

“While the substantial drop in oil prices weighed heavily on the selling price parameter and in turn on the BOI of the hydrocarbon sector, the lower reading of volume of sales on expectations of weaker demand in the holiday season has contributed to the drop in the non-hydrocarbon sector’s BOI in the 3Q 2012.

“However, despite weaker business sentiment relative to the previous quarter, 57 per cent of the firms still anticipate an increase in their sales. Meanwhile, reflecting continued positive economic outlook, 62 per cent of the non-hydrocarbon companies surveyed said that they would invest in business expansion in the third quarter compared to 40 per cent in the second quarter of the current year,” he added. – TradeArabia News Service




Tags: Saudi Arabia | National Commercial | 2012 | hydrocarbons |

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