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ANALYSIS

Regulations ‘helping business growth in Mena’

Dubai, May 27, 2013

Eighty-one per cent of senior executives in the Mena region believe that the current regulatory environment provides support for business growth, a report said.

Business confidence across Mena was broad based, with respondents positive on global economic growth, corporate earnings and employment levels, added the Ernst & Young’s eighth biannual Capital Confidence Barometer, conducted by the Economist Intelligence Unit (EIU).

The study also showed significantly more positive outlook on credit availability and improvement in short-term market stability since the last survey in October 2012.

The barometer gauges corporate confidence in the economic outlook, and it identifies boardroom trends and practices in the way companies manage their capital agenda. Survey respondents comprised of senior executives including C-suite executives at major corporations across the region.

Sentiment was also broadly positive for growth across Mena, with 90 per cent of respondents expecting the local economy to grow in the next 12 months and half of all companies surveyed 50 per cent believing that growth will exceed 3 per cent over the next 12 months.

The appetite for acquisitions globally and particularly in Mena is more positive than six months ago and is driven by the increase in number and quality of opportunities. Globally, 29 per cent of the respondents expect to pursue acquisitions in the next 12 months compared to 46 per cent in Mena.

Phil Gandier, Mena head of Transaction Advisory Services, Ernst & Young, said: “There is a clear positive sentiment amongst respondents in Mena on regional economic growth, particularly in regard to corporate earnings growth and short term economic stability.

“The favorable regulatory environment and improving confidence across the region could be possible drivers of the increased appetite for acquisitions and will hopefully encourage companies to create more jobs and to further grow their businesses.”

Ninety per cent of respondents in Saudi Arabia believed that the global economy was improving or stable and 97 per cent were confident in economic growth in Saudi Arabia. Local confidence in economic indicators such as corporate earnings, employment growth, short-term market stability and credit availability all improved over the past six months.

With regards to employment, 75 per cent of Saudi respondents expect their companies to create jobs or hire talent in the next 12 months.

In the UAE, the outlook for future growth in the country has improved dramatically with 64 per cent of UAE respondents believing that the local economy continues to improve, and 36 per cent believing it to be stable. Additionally, UAE respondents are also increasingly confident in improvements in employment growth, corporate earnings, equity valuations and stock market outlook.

However, perceptions of the local Egyptian economy weakened over the past six months with 40 per cent of respondents expressing confidence in the economy growing compared to 88 per cent in October 2012, the study said.

Confidence in the local Qatari economy also decreased over the last six months, with the number of respondents who believe the local economy is slowing down rising to 20 per cent compared to 10 per cent in Oct 12.

Preference for cash transactions

Mena respondents indicated they had high cash liquidity, with 53 per cent stating that they will use cash as the primary source to fund deals in the next 12 months (compared to 29 per cent in Oct 2012). In addition, only 16 per cent of Mena respondents plan to use debt as the primary source of deal financing over the next 12 months compared to 60 per cent six months ago.

The majority view credit availability as stable or improving by 47 per cent and 40 per cent, respectively.

For companies with excess cash, organic growth remains the top preference with 54 per cent which is an increase from 43 per cent last October. Respondents also stated that their top two drivers for organic growth strategy were increasing research and development/product introductions and more rigorous focus on their of core products.

“With the significant increased appetite for acquisitions in the Mena region coupled with the high number of respondents indicating the ability to finance with cash, we may see the Mena markets capitalizing on these opportunities,” Gandier said.

“It is encouraging to see that the Mena countries have the resources and confidence to help boost performance in their local transaction markets and now might be the right time for them to invest and focus on growth,” he concluded. – TradeArabia News Service




Tags: Ernst & Young | liquidity | Financing | Executives | cash |

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