Against a backdrop of economist and analyst predictions of a global economic slowdown, global trade tensions, Brexit uncertainty and global trade and economic stumbles, we see how optimistic executives in the Middle East and North Africa (MENA) region are about the economy, their growth prospects and their appetite to pursue M&A.
According to the EY Global Capital Confidence Barometer, 87% believe the global economy is improving; 82% share a similar sentiment about their domestic economy.
According to a recent World Bank report, growth in the MENA region has improved and is projected to strengthen over the next few years. Further, almost all MENA countries have moved to reduce or eliminate energy subsidies, identify new sources of non-oil revenues and expand social safety nets to shield the lower-income class. The World Bank also noted that economic growth in MENA is forecasted to reach an average of 2.6% in 2019 and 2020. In more encouraging economic news, oil prices are on the rise once more, giving oil exporting countries in the region a boost.
Based on their confidence across the macroeconomic landscape, 67% of MENA executives say that they anticipate revenue growth rates of between 6% and 15%. Interestingly, no respondents forecast negative growth.
Despite their optimism for growth, MENA executives are aware of the risks that lie ahead
Our M&A report suggests that MENA executives are keeping an eye on the risks. For one-third (33%) of MENA executives, slowing economic activity poses the greatest external risk. Executives in the Kingdom of Saudi Arabia (KSA) and Egypt express greater concern for this risk than their peers in other geographies.
Within their own organizations, concerns are divided among new market entrants, slowing demand and increased production costs. The UAE’s ongoing ease of doing business, including tourism efforts, continues to draw new entrants from across the globe. This could be affecting the growth of domestic entities.
Across the region, consumer-facing businesses are experiencing a new normal as demand has reduced, particularly for high-end products. At the same time, cost structures have risen.
Executives step up reviews as they look to reshape their portfolios
Many companies across the region are experiencing pressures around liquidity and financing. As a result, MENA companies are finding innovative ways to raise capital.
This may explain, in part, why companies in the MENA region have stepped up the frequency of their portfolio reviews — 61% of MENA executives say their companies are reviewing their portfolios every quarter or more frequently — more often than global executives (46%). The UAE and Qatar appear to be more aggressive than others, with 68% of UAE companies reviewing quarterly (and 16% say they review continually), and 77% of Qatar companies reviewing quarterly or more.
With more frequent portfolio reviews as one of the key factors, it’s inevitable that dealmaking appetites remain healthy. It explains why, based on their last portfolio review, 28% of MENA executives say they identified assets to divest.