CFOs to focus on organic growth
Traditionally, CFO perceptions are divided in the region with Gulf nations reporting higher levels of optimism.
Middle East financial gurus will focus on cost reduction and organic growth in the next 12 months as falling oil prices badly impact both optimism and risk appetite in the region, according to the survey findings of Deloitte's latest report.
With oil at $53 a barrel at the time of the survey, Chief Financial Officers (CFOs) optimism fell to one of its lowest levels in recent years, with only a net 26 per cent across the Middle East reporting positive prospects for their company. That is down from 47 per cent in the previous survey, which was conducted just before the fall in oil prices.
Traditionally, CFO perceptions are divided in the region with Gulf nations reporting higher levels of optimism when compared with the surrounding North African and Levant countries. Nevertheless, Gulf nations did not remain unscathed from market conditions; risk optimism in the UAE dropped to a net 46 per cent from net 61 per cent in the previous survey.
The report, which includes results of the second-quarter 2015 CFO surveys from Deloitte CFO Programs across the Americas, Middle East, Europe and Asia-Pacific, said risk appetite in the Middle East curbed, with only 33 per cent of CFOs believing it is a good time to take greater risk onto the balance sheet. For now, the favoured strategies are cost reduction and improving internal economics. However, CFOs are optimistic about at least one thing: they expect oil prices to be higher in a year.
"In response to challenging market conditions and decreased risk appetite, Middle East CFOs appear to have concentrated their efforts toward performing as financial stewards and operators of their organisations rather than as strategists or catalysts," explains James Babb, partner and CFO programme leader at Deloitte Middle East.
"The pivot is evident as high-priority business strategies over the next 12 months aim to protect and preserve the organisation's financial position via cost reduction (net 86 per cent), organic growth (net 73 per cent) and increased cash flow (net 66 per cent)," adds Babb.
The weakened sense of optimism is evident within several financial forecasts. Predictions of private equity activity as well as M&A levels over the next 12 months have both decreased from the previous survey conducted for the second half of 2014.
Despite market conditions, new credit is considered to be easily available and at one of its lowest cost levels. High-priority business strategies for the next year revolve around Middle East CFOs' operator and steward roles.
Net 66 per cent of Middle East CFOs predict that energy prices will be higher in a year.
Bank borrowing is perceived to be the most attractive source of external funding, with a net 65 per cent of Middle East CFOs preferring bank loans over debt raised.
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