High oil prices lift Saudi business mood

Saudi Arabia’s business mood maintained its upward trend, buoyed by expectations of higher corporate revenue because of strong oil prices and an increase in the Gulf Kingdom’s crude output, a key bank said on Tuesday.
 
Private sector companies are also planning to intensify hiring of new employees following new government rules to recruit more Saudis but this would unlikely put much pressure on their finances because of rebounding profitability, Banque Saudi Fransi (BSF) said in a study sent to Emirates 24/7.
 
A substantial 82.4 per cent of business executives polled by BSF said they expect to be hiring in the next six months, up sharply from 58.9 per cent in the bank’s survey for the second quarter of 2011. Executives are confident in being able to afford the higher human resources costs, it said.
 
“Saudi Arabian companies are gearing up to hire new staff this summer as the kingdom implements the Nitaqat employment strategy aimed at boosting the number of nationals working in the private sector,” BSF said.
 
“The recruitment outlook of Saudi business leaders was the strongest in two years after the government gave companies until September to comply with employment quotas as BSF’s (Q3) survey of business confidence revealed.”
 
The survey of 693 executives showed elevated oil prices above $90 would boost corporate revenues and profits in the coming two quarters.
 
“Business leaders in the Kingdom remain cautious about their investment strategies, with a slight majority continuing to favour holding bonds and cash in the short term over equities and real estate,” it said.
 
“The BSF business confidence index edged higher to 101.9 points in Q3 2011 from 101.7 points in Q2 2011, continuing along an upward course that began in Q4 2010. The base value of 100 represents the third quarter of 2009, which marked a period of economic weakness following the global financial crisis.”
 
According to BSF’s chief economist John Sfakianakis, the Q3 survey drew on perspectives of top managers across various sectors: finance, real estate and construction, information technology, petrochemicals and industry, agriculture, tourism, advertising and legal affairs.
 
He said key findings of the survey showed that some 88.6 per cent of business executives expect their companies to report improved bottom-line performance in the next six months, up from 84 per cent in the second quarter as sales rise due to a combination of higher oil prices, better economic growth and renewed private consumption.
 
A substantial 88.2 per cent of managers see the Saudi economy performing “much better” in the next two quarters, he added.
As for credit, which has been stagnant over the past two years, respondents’ bank lending outlook fell for a second straight quarter, reflecting a prevailing view that credit extensions are unlikely to grow quickly over the survey period.
 
The number of respondents describing the lending attitude of banks as “very good” or “excellent” fell to 38.9 per cent, down sharply from 78 per cent in the second quarter. A greater number of respondents also said that banks had tightened requirements for loan approvals “substantially”.
 
The survey showed that views on the equity market improved only cautiously in the third quarter. Only 27.1 per cent of executives anticipate positive performance in the stock market over the forecast period, up from nearly18.8 per cent in the second quarter but still sharply below the 74.7 per cent who were bullish on shares in the first quarter.
 
The report showed Saudi economy’s performance would be “much better” in the next six months as a result of the positive energy price environment, in addition to the likely revenue boost Saudi Arabia will get from raising production.
 
“The remaining respondents said the economy would perform better….. the Saudi economy is likely to grow 5.5 per cent this year, with the government posting twin fiscal and current account surpluses, according to our forecasts.”
 
Sfakianakis said most of the growth would come from the oil and government sectors, while private sector expansion should remain below trend levels.
He said the positive oil price environment would make it easier for the government to finance a near SR500 billion, multiyear public investment programme unveiled by the king in the first quarter to support various social initiatives by creating jobs, building homes, raising wages, and paying out bonuses and unemployment benefits.
 
“A one-time bonus paid out in the first half of the year to state and many private sector employees was initially expected to have wide implications on short-term inflation in the kingdom, although thus far their affect has been muted,” he said. He cited government data showing inflation in May fell for a ninth month to 4.6 per cent, mostly due to reduced pressure on rents and lower food inflation.
 
Prices still have the potential to pick up toward Ramadan, he added.
 
“Among respondents, some 47.9 per cent said they expected inflation to rise over the forecast period (versus 52.8 per cent in Q2), while 28.6 per cent expect the rate of inflation to stay the same (against 24.1 per cent in Q2),” the report said.
 
It showed the number of executives who anticipate inflation will fall was virtually constant at 23.5 per cent (versus 23.1 per cent in Q2), reflecting a view that price pressures could pick up in the second half of the year.
 
“Following a slight pick up in expectations for currency reform in the Q2 survey, an overwhelming 87 per cent of respondents said they do not expect the government to change the riyal exchange rate in the next two quarters.
 
The remaining respondents were not sure about future currency policy.”
 
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