Survey: Middle East CFOs most optimistic worldwide

CFOs in the Middle East were optimistic about their companies’ prospects in the second quarter – more so than counterparts in North America, Europe and India. But that optimism was tempered by concerns that social unrest and the euro-zone crisis had raised unemployment and slowed economic activity in the region, a Deloitte survey suggests.

Fifty-two per cent of Middle Eastern CFOs said they were at least somewhat or more optimistic about their companies’ prospects compared with the first quarter. That’s up from the fourth quarter of 2011, when about 20% felt somewhat or significantly more optimistic. But it’s still below the level registered during the first half of 2011, when 72% of Middle Eastern CFOs felt somewhat or significantly more optimistic.

Meanwhile, optimism dropped amongst CFOs in North America (11%, down from 48% in the first quarter) and in India (31%, down from 47% in the first quarter). And CFOs in Europe were downright glum in the second quarter. With the number of optimists equalling the number of pessimists, Dutch CFOs were the most upbeat of European CFOs.

“Globally, pessimism amongst CFOs is growing,” said James Babb, Deloitte’s Middle East CFO programme leader. “Continuing worries associated with the euro-zone debt crisis, fears of potential slowdowns in China and India, and renewed concerns about the US economic situation have collided to make CFOs rethink their positive vibes. The main exception of the 11 geographies surveyed is the Middle East.”

In the Middle East, manufacturing and assembly hubs could spring up that tap a rapidly growing labour force, low production costs and rising exports, especially to Russia and Asia, according to Ernst & Young. But for this to happen, infrastructure investments are needed and small and midsize companies need continued support.

For now, Middle East CFOs remain cautious about risk, which is having an effect on their future expectations, according to Deloitte. Like other CFOs worldwide, they are “focusing on defensive strategies, such as cutting costs and bolstering cash flow – and making contingency plans for whatever happens next, particularly in the Eurozone,” the report says.

Austerity measures have dampened European imports from the Middle East, and European banks pulling funding out of the region has hurt Middle East businesses, according to KPMG. At the same time, political instability has affected tourism, a key economic driver in many Arab Spring countries, according to the International Monetary Fund.

Other findings from Middle East CFOs:

• Seventy-four per cent rated the general level of external financial and economic uncertainty above normal, and 72% said now was not the time for them to take on risk.

• Sixty per cent expected mergers and acquisitions to increase in the region. That was up from 43% a year earlier. But respondents projected much of that deal flow in countries where they were already doing business. Only 38% of Middle East CFOs said they expected to make acquisitions in a new geographical region.

• Thirty-five per cent of Middle East CFOs expected free cash flow to increase by up to 10%, mostly through revenue increases.

• Forty-five per cent expected total debt on their balance sheets to increase a little over the next three years, but they also expected their ability to service their debt to increase slightly. Most planned to use cash reserves, asset sales and equity issuance to reduce their debt.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.