Business optimism in Saudi hydrocarbon sector hits all-time low

JEDDAH — The composite BOI for Saudi Arabia’s hydrocarbon sector has touched an all-time low of -12 in Q1, 2016; with the BOIs for selling prices and net profits remaining in the negative territory, the “Saudi Business Optimism Index for Q1 2016” report by the National commercial Bank revealed Sunday. The non-hydrocarbon sector composite BOI retreats on a quarterly and annual basis to 28 in Q1, 2016 as most parameters weigh. The transport sector is the most optimistic (composite BOI of 37), while the manufacturing sector is the weakest (composite BOI of 22) in the first quarter of 2016. Competition and the impact of low oil prices continue to be the topmost concerns for firms in Saudi Arabia. Despite lower optimism levels, both hydrocarbon and non-hydrocarbon sector firms are optimistic about investment in business expansions. Hydrocarbon firms are positive with respect to investments; 33% of the firms indicated expansion plans in Q1, 2016 compared to 30% in the previous quarter. Sentiments in the non-hydrocarbon sector are modestly more optimistic with regard to investment in business expansion; 44% of the firms intend to undertake such investments in the current quarter versus 42% in Q4, 2015. Trade & hospitality sector firms (48%) are the most optimistic in this regard, followed by finance, real estate & business services sector firms (47%). Respondents in the hydrocarbon sector are less optimistic in Q1, 2016 as 35% of the respondents cited no negative factors compared to 49% in Q4, 2015. The impact of oil prices continues to be the topmost concern for this sector, followed by competition and government rules & regulations. Competition (12%), impact of oil prices (10%), and government rules & regulations (9%) have been cited as key hindrances for the current quarter. The composite BOI for the finance sub-sector has declined to its lowest level in the series to 23 in Q1, 2016 from 39 in the previous quarter. Double digit losses in most of the parameters weighed on the composite score. The composite BOI for the real estate sub-sector strengthened in Q1, 2016 to 43 over the previous quarter’s score of 34. Except for the hiring parameter, all other parameters posted gains. The outlook for the business services sub-sector has moderated to stand at 24 in Q1, 2016, an all- time low in the series. — SG