JEDDAH — Outlook for investment in business expansion has weakened for the non-hydrocarbon sector, but has improved for the hydrocarbon sector in the third quarter of 2015, the Saudi Business Optimism Index (BOI) for Q3 of 2015 survey released by the National Commercial Bank on Wednesday revealed. The latest survey expressed lower optimism levels for the key sectors of the Saudi economy. The hydrocarbon sector outlook for the business environment conditions in the third quarter of 2015 is slightly firmer when compared to the previous quarter, with 53% of the firms indicating no negative factors impacting their operations in Q3, 2015 against 50% in Q2, 2015. The leading concern for this sector is the impact of oil prices as cited by 30% of the firms. 8% of the companies expect the shortage/cost of skilled labor to hurt their operations. A higher proportion of firms intend to invest in business expansion in Q3, 2015 (43%) compared to the previous quarter (40% in Q2, 2015). Respondents in the hydrocarbon sector are slightly more optimistic than in the last quarter as around 53% of the participants cited no negative factors in Q3, 2015 compared to 50% in Q2, 2015. The impact of fluctuating oil prices is the topmost concern impacting business operations amongst hydrocarbon sector firms followed by the lack of, and increasing cost of skilled labor (8%). Other hindrances include slow market conditions, low demand for products/services and competition as indicated by 3% of the respondents in each case. In terms of business expansion plans, 43% of the hydrocarbon sector firms will invest in such activities compared to last quarter's 40%. On the other hand, a higher proportion (50%) is cautious and will not undertake any expansion plans in the current quarter. Oil & gas firms in Saudi Arabia have further moderated their business outlook. The composite BOI has retreated to 9 for Q3, 2015 from 13 in Q2, 2015 and 25 in Q3, 2014. This is the lowest reading for the composite BOI since the third quarter of 2009, with the index for Selling Prices dropping below the 0 mark. 77% of the respondents expect their Selling Prices to remain unchanged, while 13% anticipate a drop and the remaining 10% foresee a rise, resulting in a BOI of negative 3 versus 0 in Q2, 2015 and 13 in Q3, 2014. Consistent with the decline in Selling Prices optimism, the forecast for Profits and hiring has also retreated. The Net Profits index is lower by 2 points q-o-q and 12 points lower y-o-y (23 in Q3, 2015, 25 in Q2, 2015 and 35 in Q3, 2014). The BOI for Number of Employees stands at 20 in Q3, 2015 versus 27 in Q2, 2015 and 40 in Q3, 2014. Meanwhile, the non-hydrocarbon sector's outlook for Q3, 2015 is at the same level as a year ago (composite BOI of 36), but lower than the optimism level recorded in the previous quarter (composite BOI of 43 in Q2 2015). When compared to Q2, 2015, all five parameters constituting the index have shown moderation in Q3 due to low demand, holiday/festival season, competition, no new projects and political tensions in the region. The BOI for Volume of Sales stands at 42 in Q3, 2015 against 53 in Q2, 2015, while the BOI for New Orders has dipped by 8 points to 47 in Q3, 2015. The index for Selling Prices has shown a marginal decline from 14 in Q2, 2015 to 12 in Q3, 2015. The profitability and hiring outlook is also weaker, with the BOI for Net Profits slipping by 10 points to 39 and that for Number of Employees decreasing by 4 points to 38. The non-hydrocarbon sector participants are positive about the business environment for Q3, 2015; 69% of the respondents compared to last quarter's 52% have cited no negative factors impacting business operations. Availability/cost of skilled labor (8%) and competition (7%) are the key concerns impacting business operations in Q3, 2015. Sentiments in the non-hydrocarbon sector have moderated as 37% of the participants intend to invest in business expansion plans in Q3, 2015, compared to 49% in the last quarter. Construction and trade & hospitality firms are very optimistic in this regard. Commenting on the findings of the survey, Mrs. Sharihan Al-Manzalawi, economist at the National Commercial Bank, said “with the continuation of lower oil prices, the level of optimism for the hydrocarbon and non-hydrocarbon sectors weakened, as the hydrocarbon sector's composite BOI has retreated to 9 points for Q3, 2015, which is the lowest reading for the composite BOI since 2009. However, the Kingdom of Saudi Arabia has maintained it production of crude above 9 million bpd level, rising from 9.9 million bpd in Q1, 2015 to 10.4 million bpd during Q2, 2015. The outlook for the business environment conditions and investment for the third quarter of 2015 is slightly firmer when compared to the previous quarter, with 53% of the firms in the hydrocarbon sectors indicating no negative factors impacting their operations in Q3, 2015 against 50% in Q2, 2015, with a higher proportion of firms intending to invest in business expansion in Q3, 2015 (43%) compared to the previous quarter (40% in Q2, 2015).” Meanwhile, the impact of the lower oil prices has been rather limited on the non-oil sectors, where the optimism level of non-oil companies is still at the same level recorded the year before, though it came lower than the level recorded in the previous quarter (43 points Q2 versus 36 points for Q3,2015). “With the government drawing down $59 billion from its huge reserves, and recently announcing its intention to issue Saudi Government Development Bond (SGDB) to finance budget deficit, and accordingly maintain economic growth, these policies contributed to lessening the decline in the optimism level of non-hydrocarbon sectors. The non-hydrocarbon sector participants are positive about the business environment for Q3, 2015, as 69% of the respondents compared to last quarter's 52% have cited no negative factors impacting business operations. But regarding investment in the non-hydrocarbon sector, it has moderated as 37% of the participants intend to invest in business expansion in Q3, 2015, compared to 49% in the last quarter.” — SG
