Dubai: Many companies in the Gulf Cooperation Council (GCC) region could be feeling the impact of declining oil prices and strengthening of the US dollar, with overall corporate earnings falling by seven per cent in the first half of the year.
The latest report from Kuwait Financial Centre “Markaz” showed that among the hardest hit are businesses in the financial services, construction, commodities and telecommunications sectors, as well as conglomerates.
Company profits declined across the region, except in Qatar. The ones that suffered the most were businesses and multinationals in the oil-rich Saudi Arabia and Kuwait.
Raghu Mandagolathur, senior vice president for research and managing director at Markaz, said the general decline in company profits can be attributed to the decline in oil prices and strengthening of the US dollar.
While profits at some companies like banks - which account for nearly half of corporate profits in the region - look good, many other businesses, like those in the commodities sector, failed to keep up “due to lower product realizations following the fall in global oil prices.”
He said the telecom sector, which they think is already saturated, was affected by a number of factors, including falling average revenue per user, as well a stronger US dollar, which has eaten into foreign operation earnings. Telecom firms also had to deal with “company-specific issues.”
“Earnings of construction firms also deteriorated due to delayed payment cycle from contractors and intense competition prevailing in the sector. Very few companies in the region have evolved as world-class competitors. The closed nature of the economy has dis-incentivized domestic companies from innovating and competing at the highest level,” Raghu told Gulf News.
The good news, though, is that companies operating in the real estate and banking industries in the region have stood strong, with earnings rising by 44.5 per cent and nine per cent, respectively.
Companies in the telecom sector saw their overall profits falling by 35 per cent in the first six months of year. Those in the commodities industry suffered a 20 per cent decline, while financial services posted a 35 per cent contraction. Construction-related firms posted a 20 per cent negative growth, while conglomerates saw profits dropping by 34 per cent.
Overall, companies in the UAE and the rest of the region managed to register a total of $34 billion in profits between January and June this year.
Corporate earnings for the whole year are forecast to register a 0.3 negative growth compared to last year and reach $69.7 billion by the end of 2015.
However, companies in the UAE, Qatar and Bahrain are likely to recover and post a robust growth at 8 per cent, 6.2 per cent and 6 per cent, respectively, for the full year of 2015 compared to 2014.
