Business & Money | Wednesday 10 August, 2016 2:45 am |

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 Q3, 2016. The survey reveals mixed sentiments for firms in Saudi Arabia.

 “Despite some recovery in oil prices towards the end of 2nd quarter, raising to middle USD40-USD50 a barrel range, the hydrocarbon sector BOI of 3Q’16 slipped back into negative territory at -2 points after recording 3 points in 1Q’16. The negative momentum impacted business outlook, as only 38% of the participants in the survey expect no hindrance to their business. Looking beyond hydrocarbon, the BOI of the non-hydrocarbon has maintained similar expectations to the previous quarter at 21 points , were only 56% of the participants were aware of the Vision 2030 and NTP 2020. The Vision 2030 and NTP 2020 seems to have brought some optimism, thus holding the BOI of the non-hydrocarbon sector from further deterioration. Moreover, sharp fall of contracts awards witnessed over the first half of 2016, recording approximately SR48.0 billion, not only impacted the construction sector BOI with a reading at 11 points and 12 points in the Q2’16 and Q3’16, but other sectors were also impacted with varying degrees. In turn, the Q3’16 BOI of Trade and Hospitality dropped sharply to 18 points from 32 points in  Q2’16. Reflecting the positive impact of the Vision 2030 and NTP 2020, approximately 30% of each of the non-hydrocarbon firms participating in the survey indicated their expectation to invest in expansion in Q3’16 ”.

Hydrocarbon Sector

The survey for Q3, 2016 reveals a bearish outlook for Saudi Arabia’s oil & gas sector, with the composite BOI slipping into negative territory in Q3, 2016 to -2 from 3 in Q2, 2016. With respect to the business environment 38% of the firms do not expect to face any obstacles in their operations, while concerns about the adverse impact of low crude prices have dominated sentiments as 43% of the firms think that this factor might prove to be a hindrance. 30% of the oil & gas companies have indicated plans to invest in business expansion in comparison to 55% that will not undertake such expenditure.

Non-hydrocarbon Sector

Saudi Arabia’s non-hydrocarbon sector has maintained its forecast for Q3, 2016 at the previous quarter’s level, with the composite BOI staying steady at 21. Regarding the business environment in Saudi Arabia, firms are more upbeat about the third quarter than they were for Q2, 2016: 51% expect that no negative factors will hurt their businesses in Q3, 2016 versus a corresponding 39% in Q2, 2016. Business sentiment is most dented by low oil prices (13% have cited it as a key hindrance), issues related to government rules & regulations (13%) and competition (7%). Further, 31% of the firms intend to invest in business expansion, while 52% have indicated that they will not.

Sector-wise Analysis

The manufacturing sector’s optimism outlook has bounced up from the series low seen in the first and second quarter of 2016; the composite BOI has improved to 27 in Q3, 2016 from 22 in Q1, 2016 and Q2, 2016. The demand, hiring and net profits BOIs have strengthened on a quarterly basis as businesses expect new projects from new clients and an overall increase in demand. Additionally, the business scenario has improved with 59% of them not expecting to face any obstacles to their operations in Q3, 2016 compared to 27% in Q2, 2016. 31% of the manufacturing companies intend to invest in business expansion in Q3, 2016 against 54% that have indicated that they will not.

The outlook for the finance, real estate & business services sector has reached a new low; the composite BOI has slipped from 24 in Q2, 2016 to 23 in Q3, 2016. While the BOI for volume of sales has edged up on a quarterly basis, the indices for the remaining parameters have turned lower. 48% of the firms in this sector have said that they do not expect any negative factors to adversely impact them during Q3, 2016. Additionally, 34% of the respondents expect to undertake investments in business expansion, compared to 45% who will not.

The trade and hospitality sector’s forecast for Q3, 2016 is at the lowest level recorded; the composite BOI has dropped to 18 from 32 in Q2, 2016. All five parameters comprising the composite index have registered declines. Even though the composite BOI has dropped, business environment expectations have improved; 53% of the firms do not expect any hurdles in Q3, 2016 compared to 36% in Q2, 2016. 31% intend to undertake investment in business expansion in Q3, 2016, while 38% will not.

The composite BOI for the construction sector has edged up by a single point from 11 in Q2, 2016 to 12 in Q3, 2016. The outlook for the construction sector remains weak as crude oil prices continue to remain low, which has suppressed new projects. However, the forecast for the business environment is stable: 40% of the construction companies do not anticipate any hurdles in Q3, 2016 compared to a corresponding 41% in Q2, 2016. 26% of the firms in the construction sector intend to undertake investment in business expansion in Q3, 2016 (66% will not take up these plans).

The transportation, storage & communication sector’s forecast in Q3, 2016 has increased from 7 in Q2, 2016 to 14 in Q3, 2016. On a quarterly basis the indices for volumes, new orders, net profits and hiring have strengthened, but that for selling prices has worsened. 52% of the firms in this sector do not expect any obstacles during Q3, 2016 (48% in Q2, 2016). 33% of the respondents hope to undertake investments in business expansion in Q3, 2016 versus 60% that do not intend to undertake such plans.

The current survey shows that SMEs hold a modestly brighter forecast than the large companies, with composite BOIs of 22 and 18 respectively. SMEs are more optimistic than large companies on all parameters. SMEs hold a modestly firmer outlook with respect to the business environment with 53% of them compared to 49% of the large companies expecting no obstacles to their operations in the coming quarter. For both groups, the leading concerns are the impact of low crude prices and government policies, rules & regulations.

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 are subdued with respect to firms in the Kingdom’s hydrocarbon sector. The BOI score for this sector is recorded at -2 in Q3, 2016 from 3 in the previous quarter, weighed down by lower scores for selling prices and profitability. On the other hand, the current survey revealed that the composite BOI for the non-hydrocarbon sector is firm at the previous quarter’s level of 21. 

The impact of low oil prices has dented the optimism with respect to the business environment which has turned lower for oil & gas firms as 38% have indicated that they do not expect any factors to impact their operations. The proportion stood at 51% for the non-hydrocarbon sector. 

With regard to investment in business expansion in Q3, 2016, sentiments of both groups are comparable (30% intend to invest in such plans for hydrocarbon firms versus 31% for non-hydrocarbon firms).”

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 October 2016.