Gulf business confidence grows

Dubai: Confidence is growing among business people in the Gulf Co-operation Council (GCC) about their outlook for their companies in the third quarter.

In general, people were confident in most aspects of their business, including turnover, profit margins and meeting targets, according to the HSBC Gulf Business Confidence Index.

Around 34 per cent predicted growth in revenue in the next three months, up from 29 per cent in the second quarter.

Thirty per cent see an increase in profit, with only 13 per cent predicting that profits will fall going into the end of the year.

About 26 per cent expect higher investment levels, compared to 22 per cent in the second quarter.

The third quarter survey is based on answers from 1,641 business people in the six GCC countries.

According to the report, only 16 per cent expect their workforce to be cut in the next year, compared to 25 per cent who report job losses in the last 12 months.

Optimism

"The mood of optimism in the region has increased steadily since its low point at the start of the year. All the indicators are pointing in the same direction and these indicators echo the sentiments of our clients who tell us that the feeling is that the worst of the slowdown is behind us but it is too early to declare victory over the global economic recession," cautioned Simon Vaughan Johnson, regional head of commercial banking, HSBC Middle East.

And 54 per cent expected business to improve overall, compared to 42 per cent in first quarter 2009.

Saudi Arabia registered the highest score and the UAE, the lowest, a fact that Johnson attributes to the UAE's globally integrated economy, making it much more open to what is going on globally.

It is possible that the UAE will improve its position in the next quarter due to its diverse economy which includes property, trade and finance. In a report last week the UAE was shown to be one of the top three most confident countries in the world based on trade activity and growth. In general, confidence is back across the entire GCC and even more so in the most affected country, right here in the UAE due to a return of offshore institutional investors and the continued rise in oil prices.

"We have seen a return of offshore institutional investors both on the debt capital market as well as on the equities, while the Credit Default Swaps [CDS] have substantially narrowed across the board with Dubai's CDS decreasing by 70 per cent since their highs of early this year, translating the foreign investor diminished perception of Dubai's riskiness as a sovereign," said Philippe Dauba-Pantanacce, senior economist, Middle East and North Africa, Standard Chartered.

The constant rise in the trend of oil prices has pushed crude oil to a year-to-date record and represents a 130 per cent growth since the lows of January.

"A timid stabilisation of the real estate market seems to materialise and anecdotal evidence of a pick up of activity post Ramadan has been witnessed in various sectors of the economy. This can only contribute to a lifting of the prospects for the various economic actors in the region," Dauba-Pantanacce told Gulf News.

Sadiq Jafar, managing partner of the Dubai office of UAE law firm, Hadef & Partners, said a level of confidence has been returning in some sectors but there has not been a general recovery because of some specific considerations.

"For example, businesses with broad national and regional diversification may still be doing reasonably well, whereas businesses that were narrowly focussed are likely to be facing continuing challenges. There is also flight to quality and value, meaning that some businesses are performing better than others even within the same sector," Jafar said.

The firm has also seen an increase in litigation and arbitration not least because creditors are seeking payment of long outstanding overdues.

Though confidence in Dubai is improving gradually, more wide-ranging economic recovery is unlikely to be witnessed until deep into 2010, said Jafar.