Saudi business optimism buoyed by high oil prices

Jeddah: Saudi Arabia's The National Commercial Bank, in association with Dun and Bradstreet South Asia Middle East Ltd (D&B), yesterday released the Business Optimism Index for Saudi Arabia for the first quarter of 2011.

The key findings of the survey are that Saudi Arabia's hydrocarbon sector optimism holds steady in the first quarter of 2011. The average price of the Opec basket was $88.50 (Dh325) per barrel in December 2010, the highest monthly average in two years.

As this optimism survey was conducted at this time, strong and steady oil prices have led respondents to predict the same trend in the short term. Forty-two per cent of the businesses expect prices to remain unchanged in the first quarter of 2011, while 53 per cent anticipate an increase. The net profits expectations of the industry players have also improved.

In the non-hydrocarbon sector, the survey shows that a surge in demand is expected in the first quarter of 2011.

The optimism for selling prices has increased in line with the rising inflationary pressures in the Saudi economy. Annual inflation stood at 5.8 per cent last November due to rising housing, food and transportation costs.

Leading concern

Raw material costs continue to be the top concern for non-hydrocarbon firms in the first quarter of 2011: 58 per cent of the respondents cited them as the leading concern. Shortage of skilled labour remains the second most important concern for the respondents, with 21 per cent citing it accordingly. Availability of finance will prove to be a worry for 13 per cent of the respondents, while higher property prices and rents will impact 8 per cent of the businesses.

Business expansion plans are improving in the first quarter of 2011 compared to fourth-quarter 2010; 45 per cent of the non-hydrocarbon companies said that they would invest in business expansion in the first quarter of 2011, the number has increased from 37 per cent in the fourth quarter of 2010.

Commenting on the findings of the survey Phil Strange, CFO of Dun and Bradstreet South Asia Middle East Ltd, said: "The vast majority of businesses surveyed in December are expecting increased orders, revenues and net profits with consequent increases in employment and stocks. These expectations are reflected broadly across all sectors of the economy."

Satisfaction

Dr Said Al Shaikh, Senior Vice President and Group Chief Economist of the National Commercial Bank, said, "The survey results broadly reflect the satisfaction of the Saudi business community with the kingdom's economic policies, especially the recently announced expansionary 2011's budget that continued to emphasise spending on social and physical infrastructure."

He added: "The improved business outlook was feeding more enthusiasm by companies in the non-hydrocarbon to invest in business expansion, as the results indicated, and accordingly, this should lead to more hiring."