Optimism among Middle East CFOs weak due to political uncertainties

by  — 3 December 2013

The recently released edition of Deloitte’s Global CFO Signals report finds that Chief Financial Officers optimism during the third quarter of 2013 has weakened over the past year in the Middle East due to the ongoing political uncertainties; A net 41 percent of Middle East CFOs feel optimistic about the prospects for their companies, this compared with a net 54 percent recorded 12 months ago.

The purpose of the Deloitte Global CFO Signals report is to provide highlights of recent CFO surveys results by Deloitte practices across the world.  “The case of the Middle East is one of mixed optimism,” said Deloitte Middle East CFO programme leader, James Babb, “while CFOs in the region reported improved expectations for revenues, capital spending, and hiring over the coming 12 months, the number reporting so is 38 percent less than a year ago, reflecting less confidence in their outlooks”.

 “The sample of 156 Middle East respondents to the Q3 2013 Deloitte Middle Eastern CFO Survey expressed decreased optimism from the prior year, due in most part to the ongoing political uncertainties in the region,” elaborated Babb. “Although uncertainty has become a constant companion for many quarters now, the general feeling remains one of mixed optimism”.

Gulf countries reported relatively higher levels of optimism compared with the surrounding North African and Levant countries. Optimism among surveyed CFOs in Syria understandably fell by 13 percent, while finance chiefs in the UAE reported a net 75 percent increase. Only a net 2 percent of CFOs reported their companies are carrying higher cash balances compared with a year ago, when a net 23 percent reported the same last year. While 75 percent of CFOs were predominantly concerned with market risk last year, that number has declined to 39 percent, with strategic, operational, and financial risks all becoming a prevalent concern, reflecting the general uncertainty in the environment.

Moreover, when asked about their companies’ business-continuity plans, one in four CFOs in the Middle East said they still did not have a plan in place despite the increased instability in the region. Middle East CFOs were also found to favour expansion in their own region over other parts of the world.

Highlights from the Q3 2013 Middle Eastern CFO Survey:

Focus on organic growth, cost reduction

Over the next 12 months, CFOs are turning more inward, focusing on organic growth, cost reduction, and increasing cash flows. While many are still seeking strategic alliances, the expectations for M&A have dropped 25 percent over the prior year.

The MENA region is still favoured in terms of geographic expansion over other parts of the world, which is consistent with the previous year.

Only 22 percent of CFOs would consider an IPO at present, compared with 34 percent a year ago.

Improved balance sheets

A net 61 percent of CFOs surveyed believe their balance sheets are appropriately leveraged, up from 46 percent a year ago. CFOs reported the cost and availability of new credit have improved over the past year.

A net 24 percent of CFOs believe that equity markets indexes will increase over the coming 12 month, versus 42 percent a year ago.

The same CFO sentiment exists for government bond values, where a net 2% see an increase in values in 12 months compared with a net 23 percent a year ago.

Facing continued uncertainty

65 percent of CFOs surveyed would not take greater risks on their balance sheet at this time.

Top three board themes at companies were found to be growth, profitability and improving cash flows.

One in four CFOs in the Middle East said they still did not have a business-continuity plan in place despite the increased instability in the region.

61 percent of companies that have business-continuity plans are reviewing and updating their plans at least once a year. 

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