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ANALYSIS

Mena confidence in global economy at new high

Dubai, May 26, 2014

The Middle East and North African countries' confidence in the global and local economies is at a two-year high, with 61 per cent saying the global economy is improving, up from 32 per cent six months ago, said a report.

About 74 per cent are seeing improvement in the local economies, the highest number in the past two years, according to E&Y’s Mena Capital Confidence Barometer (CCB).

The Mena CCB is a bi-yearly report which gauges regional corporate confidence in the economic outlook and identifying boardroom trends and practices for businesses to help manage their capital agendas.

The survey respondents are senior executives from large regional companies and the survey is conducted by the Economist Intelligence Unit (EIU).

Significantly, just three per cent say the economy is declining, down from 15 per cent six months ago and 14 per cent a year ago.

Phil Gandier, Mena head of transaction advisory services (E&Y) said: "As a blend of frontier and emerging markets, Mena countries possess a number of unique advantages. Cash levels in Mena businesses continue to remain high, this coupled with a diminishing valuation gap between buyers and sellers could lead to more deal closures over the coming months."

"Additionally, many Mena companies have promising deal pipelines which could be a catalyst for more transaction activities," stated Gandier.

Strong evidence that the recovery is real can be found among respondents’ perception of various financial indicators. Mena executives are substantially more upbeat about local market conditions than they were in October, with 78 per cent positive about corporate earnings - more than 20 per cent points higher than six months earlier.

Similarly, 60 per cent are optimistic about equity valuations - the highest number in the past year.

According to the report, the announced deal values in Mena region fell to $7.1 billion in the first quarter from $11.2 billion last year, a decrease of 36 per cent. In the first quarter, 90 deals were announced as compared to 109 deals last year.

"Due to boardroom agendas having an increased focus on cost optimization and operational efficiency, Mena executives report that acquisitions are expected to make up a smaller portion of revenue growth value for the current fiscal year," remarked Anil Menon, Mena M&A leader for E&Y.

"Mena companies are, however, still overwhelmingly upbeat about the outlook for M&A volume growth over the next year, with 75 per cent expecting to see an improvement in volume growth," he added.

Mena companies report a larger deal pipeline than their global counterparts, with 38 per cent reporting five or more deals on hand for the next year, compared with just 15 per cent of global respondents.

“When it comes to the propensity of Mena companies to engage in M&A, there are significant disparities across individual sectors. Companies in the automotive, life sciences and mining and metals industries report the highest appetite to acquire, while those in the oil and gas and power and utilities industries stated a lesser acquisition appetite,” said Menon.

Cash is clearly the preferred form of M&A financing for Mena companies, with 69 per cent saying it would be their primary source; this is significantly higher than the 36 per cent of global companies who prefer cash.

Over half of Mena respondents (53 per cent) say they are confident in credit availability at the local level, equivalent to levels a year earlier, and down from 59 per cent six months ago.

Yet, the number reporting a decline in credit confidence has also fallen steadily to 6 per cent in the current survey, compared with 10 per cent six months earlier and 12 per cent a year ago, he added.

Gandier said Mena region continues to demonstrate its prominence as a key liquid market where deal financing does not hold companies back when it comes to deal execution.

"Mena executives generally report stable access to credit, and strong liquidity levels make cash the preferred form of deal financing for a large majority of those surveyed. Encouraged by strong business and economic confidence locally, plus an increase in corporate earnings expectations, the outlook for Mena deal volumes remains optimistic," he added.-TradeArabia News Service




Tags: economy | Middle East | confidence |

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