While a majority of CFOs in the GCC expect to see some level of impact upon their business with the introduction of value-added tax (VAT), nearly half of them have only a “minimal understanding” of the impacts associated with the tax, a report said.
 
Further, 81 per cent are yet to incorporate VAT considerations into their strategic planning processes, added the report entitled “Global CFO Signals - Still reluctant to spend” from Deloitte, a leading provider of audit, tax, consulting, and financial advisory services.

Optimism stands at a net -2 per cent, which is down from +26 per cent the last time CFOs in the region were surveyed (Q2 2015), the report noted. What seems clear, however, is that optimism—as well as risk appetite—seems to be correlated with the drop in energy.

“A net 38 per cent do expect energy prices to be higher in six months, which might shift focus toward more strategic priorities for their Middle East corporations. However, oil prices are not returning to $100+ levels any time soon. That gives CFOs the opportunity to incorporate lower prices into forecasts. And combined with continued accessibility to capital, low interest rates, and solid demand, that might just give them the comfort to spend again,” said James Babb, partner and CFO programme leader at Deloitte in the Middle East.

In an effort to diversify revenues and lower dependence on energy-related income, GCC states have agreed to incorporate value-added tax (VAT) at a rate of 5 per cent in 2018.

Optimism fall and communal uncertainty

Collective scepticism has emerged among Middle East CFOs. Traditionally, perceptions are divided across the region, with GCC nations reporting higher levels of optimism when compared with countries in North Africa and the Levant. However, GCC states did not remain unscathed from current market and economic conditions.

Regarding their company’s financial prospects over the next six months, CFOs’ optimism has fallen to its lowest figure since the survey began in 2009 (net -2 per cent). These sentiments are largely driven by external factors, with 71 per cent of CFOs agreeing that the level of uncertainty in the Middle East is “high” or “very high.”

Economic growth/outlook overtook geopolitics as the factor most likely to pose a significant business risk over the next six months. Other areas of concern include reductions in demand (foreign and domestic) and currency fluctuations.

CFOs top strategies for the year ahead

Given the weakened economic sentiment across the region, CFOs are focusing on the business strategies that fall within the financial steward and operator domains. The top priorities for the next 12 months include cost reduction (net 91 per cent), increasing cash flow (net 76 per cent), and organic growth (net 52 per cent).

Further, risk appetite has been curbed, as 83 per cent of CFOs believe it is not a good time to add greater risk onto the balance sheet. The regional economic effects are mainly attributed to increased geopolitical concerns and decreased energy prices, typically a stalwart of GCC fiscal policy. – TradeArabia News Service