Over 80% of Chief Financial Officers (CFOs) polled in a survey in the Middle East say that now is not a good time to take on risk, as business sentiment in the region dwindles to its lowest levels in several years.
With risk appetite appearing to be correlated with energy prices, which have declined since mid-2014, 83% of CFOs are not keen to take on new challenges, according to Deloitte in its report, “Global CFO Signals – Still Reluctant to Spend”.
The rising concern over uncertainty and economic growth in the region has dragged down the optimism levels of CFOs regarding their companies’ financial prospects over the next six months to a net -2%, said the report. The region’s businesses have also been affected by reduced foreign and domestic demand, and currency fluctuations.
The negative net optimism rate is the lowest figure since the survey began in 2009 and it compares with +26% 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 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% of CFOs agreeing that the level of uncertainty in the Middle East is “high” or “very high”.
The survey showed that the CFOs’ top priorities for the next 12 months include cost reduction (91%), increasing cash flow (76%) and organic growth (52%).
“What seems clear, however, is that optimism – as well as risk appetite – seems to be correlated with the drop in energy,” the report said.
“A net 38% do expect energy prices to be higher in six months, which might shift focus towards more strategic priorities for their Middle East corporations. However, oil prices are not returning to $100+ levels any time soon. That gives CFOs the opportunity to incorporate lower prices into forecasts,” said Mr James Babb, partner and CFO programme leader at Deloitte in the Middle East.
Conducted in the second quarter of 2016, the survey included participation from 88 respondents, representing both listed and non-listed companies operating in eight countries: Saudi Arabia, the UAE, Qatar, Bahrain, Oman, Kuwait, Yemen, and Egypt.