Mahmood Rafique
The positive economic climate being supported by strong public sector spending on infrastructure development backed by resilient oil prices has put the Middle East on the top in terms of optimism and growth prospects, according to the latest Deloitte global CFO survey.
“This feeling of optimism is reflected in the region generally with plans for growth moving ahead and GDP expected to continue to increase in the coming year,” said James Babb, partner and CFO Programme Leader for Deloitte.
According to survey findings Middle East chief financial officers (CFOs) are very optimistic compared to CFOs in the West. Although the general level of optimism dipped slightly from 55% to 52% compared to the first quarter survey, this is still quite high compared to the general level of optimism among CFOs of Western countries such as the UK and North America.
CFOs are now significantly less risk averse than any time in the past year. A net balance of 43% think now is a good time to take greater risk onto their balance sheets, compared to 36% in Q1 2010 and 27% in Q3 2009. Additionally, companies are not planning to reduce spending and investment as aggressively as they did in the previous quarters.
The latest global CFO survey shows that CFOs have become much more positive about debt levels and their debt repayment ability. Only a net balance of 29% of CFOs now think Middle Eastern companies are overleveraged compared to 42% in Q1 2010.
Despite a slight fall, bank borrowing continues to be the most attractive source of financing for CFOs. A net balance of 41% rate bank borrowing as attractive compared to 28% for equity issuance and 26% for corporate bond issuance. There has been a sharp rise in the attractiveness of the latter, increasing from net 10% to net 26%.
A majority of the CFOs are planning to take on more debt. Two thirds of CFOs plan to raise financial leverage over the next 12 months and are likely to issue debt or arrange new facilities in the coming year.
The majority of CFOs are positive on mergers and acquisitions (M&A) in the next 12 months, but this majority has shrunk since last year. 61% of CFOs now expect M&A activity to increase in the next 12 months, compared to 71% one year ago. Almost a quarter of respondents are considering M&A activity over the next 12 months, with 23% considering a strategic alliance and 21% considering a joint venture.