Saudi business mood surges in fourth quarter

Business confidence in Saudi Arabia sharply rebounded in the fourth quarter of 2010 as local businessmen appear to have been buoyed by strong oil prices and the waning Greek debt crisis, according to a Saudi bank survey.

The survey by Banque Saudi Fransi (BSF) for the fourth quarter showed most of the 881 respondents sounded upbeat about the economy in the next two quarters and said they would resume hiring and investment plans.

The mood was also strengthened by a pick up in bank credit following a severe slowdown in the past year because of the global fiscal distress, regional debt default problems and slackening domestic demand for loans.

“Strong and steady oil prices in the third quarter and an upturn in domestic consumer demand led to a renewal in positive sentiment among Saudi Arabia’s business leaders who, while they remain wary, are taking more risks with investments and expecting higher revenues to come,” John Sfakianakis, BSF’s Chief Economist, said in the survey, sent to Emirates 24|7.

“Most of the 881 respondents to BSF’s fourth-quarter business confidence survey expect the economy will move further toward recovery over the next two quarters.

“Company executives have mainly set aside concerns over the euro-zone debt crisis that had hurt sentiment in the Q3 survey. They plan to increase production capacity, build inventories and hire new staff.”

Sfakianakis said evidence that bank credit momentum is building helped lift the overall BSF business confidence index to 100.2 points in Q4 from 99.8 points in Q3. The base value of 100 represents the third quarter of 2009, he added.

The survey, conducted quarterly, draws on the perspectives of top managers in finance, real estate and construction, information technology, petrochemicals, tourism, advertising and legal affairs. Respondents to the Q4 survey, conducted between September 25 and October 9, brought to light several themes.

“Steady or higher oil price outlooks among businesses underpin confidence that revenues will improve in the next two quarters. A firm 66.2 per cent of respondents expect their company's revenues will rise during the period, up from 53.8 per cent in the third quarter,” the survey showed.

“This is still vastly below the 88.6 per cent who responded the same in Q2, highlighting a continued sense of hesitation. Some 28.6 per cent of respondents are still anticipating that sales volumes will hold steady in the next six months, down from 35.8 per cent in Q3 and 3.5 per cent in Q2.”

The survey showed business executives in the kingdom are witnessing a gradual improvement in credit markets, with some 21 per cent of respondents describing banks' lending attitude as "not good" in the Q4 survey, far fewer than the 46.5 per cent who forecast the same in Q3.

The largest proportion of executives, 43.5 per cent, expect that bank lending will be "normal" over the period, while more than a third thought it would be very good or excellent, according to the report.

 It showed that an average oil price of more than $76 a barrel in Q3, in addition to continued stronger demand from clients in Asia, has sharply changed the energy outlook espoused by Saudi businesspeople in the Q4 survey.

In the last survey, more than a third of respondents thought oil prices would fall below $65 a barrel in the following months and the vast majority expected prices would fail to rise above $75.

“Contrary to expectations, however, not once in Q3 did prices fall below $70, a fact that has emboldened executives' oil market outlook. Only two per cent of respondents (against 35 per cent in Q3) expect crude prices will drop below a floor of $65 in the coming two quarters, with around 75 per cent assuming prices will range between $75 and $85 a barrel,” it said.

“This is promising for the state's fiscal revenues, more than 85 per cent of which are derived from oil exports, and should enable the kingdom to sustain foreign asset holdings at 100 per cent of GDP while supporting an expansionary spending programme. Net foreign assets held by the Saudi Arabian Monetary Agency (Sama) are 10-fold the level they were in 2002.”

Sfakiankis said the survey corroborates “anecdotal evidence” of a pickup in domestic demand as a greater proportion of executives expect stronger revenues for their businesses during the forecast period.

Over the next six months, 66.2 per cent of Saudi firms are forecasting greater sales (against 53.8 per cent in Q3), while 28.6 per cent think revenues will stay the same (down from 35.8 per cent in Q3), he said.

“For the next six months, slightly fewer company managers than in the Q3 survey (51.4 per cent versus 53.2 per cent) anticipate stronger bottom-line performance.

Fluctuations in the performance of the global economy as well as volatility in oil prices would have implications on consumer demand at home,” he said.

“As a result, respondents are vigilant with regard to the extent to which they plan to replenish inventories of goods. Some 37.2 per cent of business leaders plan to raise inventory levels in the next two quarters, up sharply from 13.5 per cent in Q3. But a majority of companies are still either planning to reduce inventories (31.3 per cent) or keep them at the same level they are now (22.2 per cent).”

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