World Economy

Optimism Among Mideast CFOs Slumps as Cheap Oil Bites

Optimism Among Mideast CFOs Slumps as Cheap Oil BitesOptimism Among Mideast CFOs Slumps as Cheap Oil Bites

The continuation of low energy prices is impacting both optimism and risk appetite in the Middle East, according to Deloitte, the largest professional services network in the world by revenue and by the number of professionals.

Its latest report said that with cheap oil, optimism among chief financial officers in the region fell to one of its lowest levels in recent years, with only a net 26% across the Middle East reporting positive prospects for their company, Arabian Business reported.

That is down from 47% in the previous survey, which was conducted just before the fall in oil prices.

Persian Gulf Arab nations did not remain unscathed from market conditions, with optimism in the UAE dropping to a 46% from 61% in previous survey.

According to Deloitte’s report, risk appetite in the Middle East has been curbed, with only 33% of CFOs believing it is a good time to take greater risk onto the balance sheet.

For now, the favored strategies are cost reduction and improving internal economics, the survey said, adding that CFOs did however expect oil prices to be higher in a year.

“In response to challenging market conditions and decreased risk appetite, Middle East CFOs appear to have concentrated their efforts toward performing as financial stewards and operators of their organizations rather than as strategists or catalysts,” explains James Babb, partner and CFO Program leader at Deloitte Middle East.

“The pivot is evident as high-priority business strategies over the next 12 months aim to protect and preserve the organization’s financial position via cost reduction (net 86%), organic growth (73%) and increased cash flow (66%).”

The Middle East CFO Survey also showed that predictions of private equity activity as well as M&A levels over the next 12 months have both decreased from the previous survey conducted for the second half of 2014.

It said that bank borrowing is perceived to be the most attractive source of external funding, with 65% of Middle East CFOs preferring bank loans over debt raised.

“Maintaining a focus on cost reduction and improving internal economics appears to be a prevailing position. As optimism and risk appetite seem to be directly correlated with energy prices, maintaining a holding position to weather the storm appears to be a popular strategy,” said Babb. “Fortunately, many CFOs believe energy prices will be higher in a year.”