Published: Aug 28, 2014
Source: Saudi Gazette

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Saudi hydrocarbon sector outlook dim

The outlook for Saudi Arabia’s hydrocarbon sector turned bleak in the third quarter of this year,  the National Commercial Bank said in its “Saudi Arabia Business Optimism Index – Q3 2014” report released Wednesday. 

The Composite BOI for the hydrocarbon sector shrank from 49 in Q2 2014 to 25 in Q3 2014, reaching the lowest level since Q4 2012 as all constituent parameters reflected a downward trend.

The composite index for non-hydrocarbon sector registered a 14 points slide, partly due to the seasonal downturn during summer and partly on the back of expectations skewed toward a trend of stability.

Further, “The Composite BOI for the non-hydrocarbon sector registers a 14 points slide, partly due to the seasonal downturn during summer and partly on the back of expectations skewed towards a trend of stability,” the report said.

The SME segment holds a slightly stronger outlook with a Composite BOI of 38 compared to large company BOI at 34.

It further said 50 percent of non-hydrocarbon sector firms and 55 percent of oil & gas companies do not expect any obstacles to hamper business operations during Q3;   

Competition and government policies are key concerns for the non-hydrocarbon sector, while shortage of skilled labor and government policies are leading challenges for oil and gas firms.

Despite the investment outlook marginally improves for the hydrocarbon sector but inches lower for the non-hydrocarbon segment.

Even the non-hydrocarbon sector is not spared,  the report noted, with sectoral firms indicating a softening in the business environment outlook for Q3; 50 percent of the respondents (compared to 62 percent in Q2) do not anticipate any negative factor to affect business operations this quarter.

Competition, the impact of government policies & fees and the lack of skilled labor as cited by 16 percent, 15 percent and 8 percent of the firms respectively are the primary concerns of the non-hydrocarbon sector respondents in Q3.

Some 55 percent of the hydrocarbon businesses do not anticipate any negative factor to affect business operations in Q2 2014, compared to 53 percent in the previous quarter.

Lack of availability of skilled labor as a result of the country’s labor rules and government policies & fees are the top most concerns affecting businesses this quarter cited by 14 percent  of the respondents for each factor.

Forty four percent of the nonhydrocarbon sector businesses plan to invest in business expansion in Q3 compared to 47 percent in the previous quarter.

Construction sector firms are the most optimistic in their investment outlook with 51 percent planning to invest in business expansions. Fifty eight percent of the hydrocarbon businesses plan to invest in expansionary activities, compared to 55 percent in Q2.

Moreover, the Composite BOI for the finance, real estate & business services sector is at 5-year low of 30, losing 18 points q-o-q and 16 points y-o-y. The index has been weighed down by lower optimism on all five parameters.

The Composite BOI for the Finance sub sector has declined by 28 points from the previous quarter and is now at a seven quarter low of 24. The fall is due to a steep drop in the BOIs for all parameters 

The Composite BOI for the Real Estate sub-sector sector has once again moderated; the index is lower by 23 points from 38 in Q2 to 15 in Q3. A decline in all five parameters has weighed down on the Composite index.

The Business Services sub-sector has also recorded a weakening in outlook, with the BOI at 36 in Q3 compared to 51 in Q2, as all parameters weighed down.

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