UAE, Saudi Business Confidence Dips

Business confidence in the UAE and Saudi Arabia dipped ahead of the launch of VAT due to concerns over increased consumer costs, according to a new survey.

The survey of global CFOs and finance professionals conducted by the Association of Chartered Certified Accountants and the Institute of Management Accountants found a challenging outlook for the Middle East region, but with opportunities for growth too, Arabian Business reported.

Lindsay Degouve de Nuncques, head of ACCA Middle East, said: "At the moment confidence is lower in the UAE than usual, while confidence in Saudi Arabia is in negative territory.

"Both countries have adopted VAT this month, which may be causing some serious concerns around increased consumer costs this quarter. Once the initial implementation period has waved, we might see consumer confidence return and therefore a rise in sentiment.”

Business confidence in the UAE has fallen to its lowest level since the first quarter of 2016, according to the latest survey. It showed that the performance was dragged down by capital expenditure and unemployment in the UAE.

"Preparations for the 2020 World Expo should also help to support the UAE’s economic prospects,” said Lindsay Degouve de Nuncques, head of ACCA Middle East in November.

De Nuncques added: “In the UAE, the capital expenditure and employment subcomponents were both very weak. Despite the UAE having one of the biggest non-oil sectors in the Persian Gulf, this will be related to the lower oil price.

In Wider Mideast

In the wider Middle East Arab region (UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait), the survey showed that confidence is not absolutely stable. Hanadi Khalife, director, MEA & India Operations of IMA said: “There is a challenging and mixed outlook for the region, caused by the drop in oil revenues, fiscal austerity, higher inflation rates and continued political uncertainty.

"While these factors are likely to continue to weigh on the region’s prospects in 2018, governments in the UAE and Saudi  have started taking measures to ease austerity and boost private sector activity in an effort to improve the business confidence outlook.”

Nuncques added: "Positively, there has been an improvement in government spending across UAE, which reflects its strong fiscal position compared with the rest of the region and the likelihood of its fiscal austerity easing slightly in 2018, along with an increasing non-oil dependent sector.”

Meanwhile, the fall in oil prices continues to hit business confidence in the Middle East Arab countries hard, creating sharp declines in export and fiscal revenues, the survey said.

It said that lower oil prices have caused many governments in the region to cut back heavily on key spending projects, resulting in 51% of firms reporting that they feel less confident about the future.

De Nuncques said: "This is particularly noticeable in Saudi Arabia, where the weakness of the government spending index has been the main driver of falling confidence. With the need to stabilize finances as well as raising interest rates to keep up with the US Fed’s tight monetary policy is placing considerable pressure on state investment."

Moritz Kraemer, global chief rating officer for S&P rating agency, said: Saudi Arabia’s prospects depend more on government reforms becoming “irreversible” than the price of oil.

He said: “If oil went to $100 per barrel again there would be a risk of undermining the reform momentum—and helping those campaigning to maintain the previous status quo."

Meanwhile, Jordan on Saturday increased the price of bread by up to 100% after lifting subsidies on the staple in a bid to redress its debt-riddled economy. The move is expected to affect low income Jordanians, for whom flat pitta-like bread is an essential part of meals.

Some Arab countries’ budget gaps are still expected to shrink this year. The latest poll predicts a Saudi deficit of 7.2% of GDP, down from 8.9% in 2017 but only a small improvement from the previous poll’s forecast for 2018 of 7.5%. That would leave the deficit unsustainably high in the long run.