Business & Money | Sunday 14 February, 2016 5:00 pm |

Dun & Bradstreet South Asia Middle East Ltd (D&B) in association with the National Commercial Bank released the D&B Business Optimism Index (BOI) survey for Saudi Arabia for Q1, 2016. The survey reveals a moderation in the optimism levels for firms in Saudi Arabia.

Commenting on the findings of the survey, Ms. Sharihan Almanzalwai, Associated Economist of the National Commercial Bank, 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% of the participants cited no negative factors compared to 49% in Q4,2015, while  hydrocarbon firms have improved their expectations in terms of business expansion plans as 33% of the sector’s respondents will invest in expansionary activities compared to 30% in the previous quarter.

The continuation of lower oil prices will affect government’s  financial revenues,  which is expected to reduce government spending this year compared to the level witnessed last year. 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% of the companies expect no negative factors to impact their business operations in Q1, 2016 compared to 54% in Q4, 2015. While Saudi Arabia’s businesses are modestly more optimistic with regard to investment in business expansion, as 44% of the firms intend to expand in the current quarter versus 42% in the previous quarter”.

Hydrocarbon Sector

The survey for the first quarter of 2016 reveals that Saudi Arabia’s oil & gas firms are bleak in their outlook with the composite BOI falling further in the negative territory to record a low of -12 compared to -4 in Q4, 2015. 35% of the firms have indicated that they do not expect any factors to impact their operations during Q1, 2016 compared to 49% in the previous quarter. The top concerns of this sector include the impact of oil prices (30%), competition (21%) and government rules & regulations (7%). Oil & gas firms are bullish with respect to investments; 33% of the firms indicated expansion plans in Q1, 2016 compared to 30% in the previous quarter.

Non-hydrocarbon Sector

The current survey shows that the composite BOI for the non-hydrocarbon sector has slipped to 28 for Q1, 2016 from 33 in Q4, 2015 and 48 in Q1, 2015. Non-hydrocarbon sector respondents are slightly less confident about the business environment for Q1, 2016 as they were in the last quarter; 52% of the companies expect no negative factors to pose as an obstacle to their business operations in Q1, 2016 compared to 54% in Q4, 2015. Competition (12%), impact of oil prices (10%), and government rules & regulations (9%) have been cited as the key hindrances for the current quarter. Saudi Arabia’s businesses are modestly more optimistic with regard to investment in business expansion; 44% of the firms intend to undertake such investments in the current quarter versus 42% in Q4, 2015. 

Sector-wise Analysis

The composite BOI for the transport, storage & communication sector posted an 8 point gain to 37 in Q1, 2016, from 29 in the previous quarter. The outlook with respect to the business environment is also dented with 51% of the firms in this sector indicating that they do not expect any hindrances to their business operations during Q1, 2016 compared to 57% in Q4, 2015. The business expansion outlook has improved; 45% of the respondents expect to undertake such investments in Q1, 2016, up from 40% in Q4, 2015.

The trade and hospitality sector’s business outlook for Q1, 2016 has weakened with the composite BOI declining to 31 in Q1, 2016 from 40 in Q4, 2015 and 44 in Q1, 2015. Weaker expectations for Q1, 2016 are also reflected in the lower outlook for the business environment in Q1, 2016. 45% of the sector firms do not expect any negative factors to hinder business operations compared to 53% in the previous quarter. 48% of the sector firms plan to invest in business expansions in the current quarter compared to 40% in Q4, 2015.

The composite BOI for the finance, real estate & business services sector stands at 28 in Q1, 2016, down marginally from 32 in Q4, 2015. The business environment optimism has weakened from the level observed in Q4, 2015; 53% of the firms indicated no negative factors affecting business in Q1, 2016 compared to 59% in the previous quarter. Business expansion plans for the sector have firmed up with 47% of the participants intending to take up such activities versus 40% in Q4, 2015.

The construction sector’s composite BOI has moderated to 26 in Q1, 2016 from 31 in Q4, 2015. Lack of projects, slowdown in market conditions and uncertain economic conditions have impacted the sector. The business environment outlook has retreated compared to the last quarter as 43% of the firms do not expect any negative factors to impact operations in Q1, 2016 compared to 51% in Q4, 2015. Business expansion plans have become less bullish with 37% of the firms intending to invest in business expansion in Q1, 2016 (versus 43% in the previous quarter).

The outlook for the manufacturing sector for Q1, 2016 has retreated; the composite BOI stands at 22 in Q1, 2016 versus 31 in the last quarter and 50 in the same quarter a year ago. The moderation in the overall composite index is attributed to competition, a slowdown in market conditions, lower oil prices and lack of new projects. At par with the previous quarter’s expectations, 53% of the manufacturing firms do not expect to face any hindrances to their business operations in Q1, 2016. 44% of the firms hope to invest in business expansion in Q1, 2016, while 50% will not undertake such activities.

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% of SMEs and 50% 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.

Commenting on the findings of the latest survey, Assad Shaikh, Associate Director - Research & Advisory Services, Dun and Bradstreet South Asia Middle East Ltd. said:

“Sentiments in the region remain subdued as firms in Saudi Arabia witnessed lower optimism levels. The BOI score for the hydrocarbon sector is recorded at an all-time low of -12 in Q1, 2016 from -4 in Q4, 2015, as low oil prices continue to impact businesses this quarter. The current survey revealed that the composite BOI for the non-hydrocarbon sector dipped to 28 in Q1, 2016 from 33 in Q4, 2015. 

In line with the cautious outlook, the optimism with reference to the business environment has also weakened as 35% of the hydrocarbon sector firms have indicated that they do not expect any factors to impact their operations; the proportion stood at 52% for the non-hydrocarbon sector. 

Despite the lower composite scores, Saudi Arabia’s businesses are modestly more optimistic with regard to investment in business expansion in Q1, 2016.”

The D&B Business Optimism Index 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 National Commercial Bank, is issued on a quarterly basis. The next Business Optimism Index on Saudi Arabia will be released in April 2016.