|
Business Confidence Remains Robust in Saudi Arabia
Khalil Hanware, Arab News
Mounting inflationary pressures and increasing business costs are having a negative impact on businesses in Saudi Arabia. According to
SABB�s latest survey, business confidence is down to 105.4 in the second quarter as compared to 106.2 (calculated against a base value of 100) in the first quarter.
Saudi Arabia�s inflation rate rose to a 27-year peak of 9.6 percent in March against 8.7 percent in the previous month.
Despite the inflation levels and a slightly reduced SABB Business Confidence Index, 88 percent of businesses surveyed are optimistic about their business performance in Q3 and Q4, 66 percent are reporting a rise in production capacity as compared to 64 percent in Q1, 71 percent expect bank lending to be positive.
Dr. John Sfakianakis, chief economist of SABB, said the business confidence will remain strong during the coming two quarters. �From our survey of 729 companies across diverse industry sectors, 88 percent of respondents expect improved performance from their businesses in Q3 and Q4, a 1 percent increase over our Q1 results,� he said.
In the SABB�s Q1 survey, not a single survey respondent predicted weak business growth for Q2 and Q3, which is proof the �good times� businesses are anticipating.
Persistently high oil prices are viewed as a boon for business in Saudi Arabia. Oil prices hit a historic peak close to $120 a barrel yesterday. New York�s main oil futures contract, light sweet crude for June delivery, jumped to $119.93, beating last Thursday�s previous peak of $119.90. London�s Brent North Sea crude for June rose 22 cents to $116.56 yesterday after striking an all-time high of $117.56 on Friday.
According to the SABB report, 67 percent of those surveyed expect oil prices to continue their climb above $100 per barrel in the next two quarters, greater than the 54 percent in Q1 who expected prices to rise above $90 per barrel. Some 15 percent expect prices to fall below $90 whereas, in Q1, 13 percent anticipated the same. Only 17 percent of respondents expect oilprices to stay around $100, in contrast to the 33 percent in Q1 who expected prices to stay around $90 per barrel.
Sfakianakis said �Oil prices continue to surprise most analysts, including ourselves. In our initial forecast for crude oil in 2008, at the beginning of the year, we predicted an average oil price (WTI) of $78.50 per barrel for the year, which was amended in March to an average of $91.20. In both instances, we have been proven wrong as the oil price (WTI) to date is averaging slightly close to $120 per barrel.� Inflation will have a negative impact on business sentiment over the next two quarters. Price rises are a concern for 61 percent of all the businesses, compared to nearly 50 percent in Q1. Of those companies, 64 percent expect inflation to negatively impact on their businesses, compared to a much lower 48 percent in Q1.
�Our average inflation forecast for 2008 stands at 7.9 percent, given that it will be a year of high inflation buildup in the economy. Although the announced subsidies will have an impact in terms of cushioning incomes during a period of rising inflation, broader prices will continue their upward trend � while rent, followed by food, will continue to create inflationary pressures,� Sfakianakis added.
A majority of respondents, 77 percent, said they did not expect Saudi Arabia to revalue its currency in the next two quarters. About the unified currency due in 2010, 43 percent believe it will be pegged against the dollar, 15 percent expect it to be free-floating and 42 percent anticipate the common currency would be based on a basket of currencies.
The impact of rising real estate prices continues to be of concern to many Saudi businesses. Continuous and steep appreciation in real estate prices is also impacting negatively on business confidence. In the survey, 56 percent of respondents (63 percent in Q1) said they expect the cost of real estate to have a negative impact on their businesses in the next two quarters.
Labor shortages in the private sector are also of acute concern among businesses.
It is not surprising to note that companies are facing labor supply (41 percent in Q1) reported that their organizations do not have all the required staff and another 28 percent (26 percent in Q1) expect to be highly insufficiently staffed in Q3 and Q4. Only 30 percent (22 percent in Q1) of respondents see their businesses as adequately staffed � and although businesses are apparently becoming better staffed, demand for labor still outstrips supply, which is a challenge to private-sector growth.
Businesses are optimistic about the lending attitude of banks in the Kingdom. Seventy-one percent (down from 73 percent in Q1) of all respondents were sanguine about bank lending to the private sector over the next two quarters.
Businesses (37 percent) expect interest rates in Saudi Arabia to fall by more than 25 basis points over the next two quarters, while 27 percent anticipate a fall by more than 50 basis points and 26 percent expect no change.
�The overall message is that there are certain particular challenges, such as inflation, labor and real estate prices, but the economy is at a high growth path. It would be hard to imagine an economy growing at the high rate without any inflation. Growth with no inflation is difficult and in most countries unattainable,� Sfakianakis said.
Source: Arab News
|
