Economic confidence amongst CEOs in the Middle East and North Africa slipped in the final quarter of 2015 to a three-year low. The YPO Global Pulse Confidence Index for the Middle East and North Africa declined for the fifth consecutive quarter, falling nearly one point to 56.4, below the global confidence level of 58.0.
mena_confidence_4q15The drop in confidence was felt across most of the major economies within the MENA region, as low oil prices and political and social unrest in many countries continued to erode confidence. Economic confidence in the United Arab Emirates fell 7.2 points to 50.3, its lowest score in the six-year history of the index. Similarly, Saudi Arabia continued its alarming slide, plummeting 14.7 points to 39.4, following a 17.9-point decline in the previous quarter. Additional declines occurred in Egypt, Kazakhstan, Pakistan and Syria. In stark contrast, Lebanon reported an increase in confidence, climbing 4.7 points to 53.6.
“Low oil prices and civil unrest in the region continue to impact confidence levels amongst business leaders,” said Hatem El-Nazer, managing partner at HK Ventures and a member of the YPO Qatar and Cairo chapters. “Without a rise in oil prices or at least some control on production, it’s likely that most oil exporting countries in the region will face a particularly tough 2016. While not all countries in the region are oil exporters, CEOs across the region will remain somewhat risk-averse in the current climate, particularly in the GCC where governments are under pressure to cut spending and increase their non-oil revenue.”
The negative impact of falling oil prices can be seen quite clearly in the Gulf Cooperation Council sub-region of MENA among the major oil exporting countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Confidence amongst GCC countries has fallen 25.0 points since oil prices began to decline in October 2014 from 70.0 to 45.0. The drop in oil prices forces those governments to curtail spending, raise taxes or borrow since oil revenues finance government spending.
Globally, the YPO Global Pulse Index composite score remained unchanged at 58.0 in the last quarter of 2015, its lowest level since the third quarter of 2011, at the height of the global economic recession. Confidence in the United States slipped 0.8 point to land at 59.1, while Africa dropped 3.3 points to 51.0. The European Union remained almost unchanged, gaining 0.3 point to land at 60.5. Only Asia, which edged up 2.4 points to 59.7, and Latin America, which jumped 4.8 points to 54.4, recorded any material increase in economic confidence.
Key findings for MENA
Economic conditions set to deteriorate. When looking ahead, more than a third (36%) of YPO CEOs expected business and economic conditions to get worse in the first half of 2016, with 35% expecting little or change in the economic environment. Only 29% predicted an improvement.
CEOs still bullish about prospects for growth. Whilst all three component parts of the YPO Global Pulse Index (tracking sales, employment and fixed investment) dropped in the fourth quarter, business leaders in the MENA region remained relatively optimistic about the prospects for their own organisations in 2016.
Almost two-thirds (60%) of CEOs surveyed expected to grow revenues in the year ahead, compared to only 17% who predicted a reduction in turnover. More than a third (40%) expected to increase employee numbers within their organisations, versus 13% who expected to cut headcount. Finally, 48% of respondents expected to increase fixed investment, versus only 13% who predicted a reduction.