Qatari business optimism higher for Q4 2012 as sales volumes and profitability rise sharply

Background to the Survey

The survey for the Business Optimism Index for Q4 2012 was conducted in September 2012. The recovery of the global economy continues, but it has weakened over the past two quarters. Emerging market economies have also registered a slowdown, which has been much greater because of the decline in trade flows attributable to the deteriorating situation in the Euro zone and the lagged effects of prior tightening in domestic policies to quell inflation pressures. However, growth in emerging economies is expected to remain solid.

Qatar’s economy is to some extent vulnerable to fluctuating hydrocarbon prices, but the risk is lessened by most of its LNG exports being sold under long-term contacts. The government has also built up large financial cushions to moderate the impact of lower export revenues caused by a fall in hydrocarbon prices. In addition, Qatar’s exports go mainly to emerging market economies. Qatar’s economic prospects therefore remain robust amid the weak outlook for the global economy.

However, growth in Qatar’s hydrocarbon sector has slowed down considerably after the completion of large scale increases in hydrocarbons productions, particularly LNG which reached its maximum 77mt/y capacity in late 2011. Recent data from the Qatar Statistics Authority show that the mining and quarrying sector recorded a GDP of QAR 96.81 bn in Q2, an increase of 8.2% over the GDP a year ago. In real terms, Qatar’s mining and quarrying sector grew just 0.8% in the same period. Qatar is planning to reverse the decline in its oil output. The country plans to redevelop the three oil fields with a view to boosting capacity above one million bpd.

Sheikh Mohamad Bin Faisal Bin Qassim Al Thani, Qatari Businessmen Association representative, said: “Qatar’s business community is dedicated to the economic advancement of our country under the wise guidance of His Highness The Emir, Sheikh Hamad bin Khalifa Al-Thani. The rise in optimism across sectors and parameters recorded by the Business Optimism Index shows that businesses are investing in, and looking to, the future with confidence.”

Commenting on the findings of the survey Prashant Kumar, Associate Director – Middle East, Dun and Bradstreet South Asia Middle East Ltd. said:

“Rising sales volumes and profitability are conspicuous in the increase in the Qatari business community’s optimism for Q4 2012 even as the global economic scenario remains fragile. The recovery of the global economy has weakened over the past two quarters. Although Qatar’s economy is to some extent vulnerable to fluctuating hydrocarbon prices, this risk is lessened by most of its LNG exports being sold under long-term contacts. The hydrocarbon sector optimism registered a 13 point increase in Q4 2012. The non-hydrocarbon sector optimism too has improved in Q4 2012. The transport & communications sector is the most optimistic, while Manufacturing and Construction reflect robustness in their business outlook for Q4 2012.”

Hydrocarbon Sector

The BOI survey for Q4 2012 reveals that the composite score for the hydrocarbon sector stands at 17 versus 4 in Q3 mainly on account of a 56 point spike in the profitability parameter. The BOI for the Net profits parameter for Q4 2012 stands at 48 compared to Q3’s -8. The hiring outlook too has improved by 10 points to 40 in Q4 2012. The sector holds an uncertain selling price outlook given the weakness in global economic recovery and uncertain demand. The BOI for Level of Selling Prices is recorded at -10 versus -3 in Q3 2012.

Non hydrocarbon Sector

The BOI survey shows that the composite index for the non-hydrocarbon sector stands at 38, which is 11 points higher compared to the value in Q3 2012. The outlook has improved reaffirming the faith of the business community in the nation’s economy even as the global economic scenario remains fragile. The BOI scores for five out of the six parameters have improved while one of the parameter has tracked sideways. The BOI for the Volume of Sales parameter has increased by 23 points to 56 in Q4 2012, while the BOI for New Orders is at 50 compared to 40 in Q3 2012. The Level of Selling Prices parameter has increased by a single point whereas the Net Profits parameter has soared by 23 points to 40 in Q4 2012. The CPI for the month of August was recorded at 111.4, showing an increase of 0.3% from July 2012 but a 2.3% annual increase. The BOI score for Net Profits has jumped 23 points to 40 in Q4 2012 in line with improved sales, demand and an optimistic pricing outlook. At 38 points, the BOI for Number of Employees is just a shade lower than the Q3 score of 39 points, indicating no major change in the segment’s hiring outlook. The BOI for Level of Stocks has increased by 5 points from the Q3 2012 score of 21.

Factors Impacting Business

Among the issues expected to adversely affect operations in Q4 2012, 36% of the non-hydrocarbon sector respondents do not anticipate any negative factors impacting business operations in Q4 2012. Another 29% of the respondents anticipate other factors such as lack of new projects, competitive market conditions, increase in raw material costs, demand fluctuations, payment delays & cash flow issues as well as a slowdown in business due to market conditions. Access to cheap finance and availability of skilled labour are cited as the topmost concerns by 16% and 15% of the sector respondents respectively. Only 4% of the respondents have identified inflationary factors as a concern for their business operations. Sentiments related to investment in business expansion remained steady compared to the previous quarter. 44% of the non-hydrocarbon companies have said that they would invest in business expansion in Q4 2012; the corresponding number was 46% in Q3 2012. 34% of the respondents said that they would not invest in expansion, whereas 22% remained unsure.

In the hydrocarbon segment, 42% of the respondents do not foresee any negative factors impacting business operations in Q4 2012. Another 32% of the respondents have identified other factors such as market fluctuations, working capital issues, lack of new projects and project delays as their top most challenges. 13% of the respondents have cited availability of skilled labour as a concern while 8% of the respondents are concerned about access to finance. The remaining 5% of sector respondents expressed concerns on adverse inflationary pressures. 

Akshay Randeva, Director, Strategic Development, QFC Authority said: “This latest Business Optimism Index underlines the resilience and strength of Qatar’s economy. The QFC Authority has a mandate to help the development of the country’s financial sector and the diversification of the economy along the lines laid down in the Qatar National Vision 2030. The rise in the optimism of the non-hydrocarbon sector is therefore particularly significant for us.”

Business optimism indices are commonly used to get a better understanding of the growth expectations of the business community and its response to current developments within an economy. Issued quarterly, the D&B’s Business Optimism Index for Qatar is based on an extensive survey conducted amongst the Qatari business community. The next Business Optimism Index for Qatar will be released in January 2012.