Restored faith: MENA's executive confidence in the region hits two year high
Executive confidence in the Middle East and North African (Mena) economies is at a two-year high, according to a biannual EY report.
EY’s Mena Capital Confidence Barometer (CCB) found that 74 per cent of respondents are seeing an improvement in the local economies, which is the highest confidence level in the past two years.
The report, which is conducted by the Economist Intelligence Unit, surveys senior executives from large regional companies. It gauges regional corporate confidence in the economic outlook and identifies boardroom trends and practices.
“Cash levels in Mena businesses continue to remain high, this coupled with diminishing valuation gap between buyers and sellers could lead to more deal closures over the coming months,” stated Phil Gandier, Mena Head of Transaction Advisory Services at EY.
However, announced deal values in the Mena region dropped from $11.2 billion in the first quarter 2013 to $7.1 billion in the first quarter this year, a 31 per cent decrease. There were 19 less deals announced in the first quarter 2014 than the same period last year.
Mena-based executives are also seeing an improvement in the global economy with 61 per cent of those surveyed confident in the resurgence. This is up from just 32 per cent six months earlier.
The executives are also bullish on the local market conditions in the Mena region with 78 per cent positive on corporate earnings and 60 per cent are optimistic on equity valuations, which is the highest number in the past year.
“Encouraged by strong business and economic confidence locally, plus an increase in corporate earnings expectations, the outlook for Mena deal volumes remains optimistic,” stated Gandier.
Cash is the primary and preferred method for mergers and acquisition financing among companies in the Mena region. Of those surveyed, 69 per cent said cash would be their primary source for mergers and acquisitions. This is compared to 36 per cent of global companies that prefer cash.
While the Mena executives prefer cash, 53 per cent did say that they are confident in credit availability at the local level, though this is slightly down from 59 per cent six months ago.
“Mena continues to demonstrate its prominence as a key liquid market where deal financing does not hold companies back when it comes to deal execution,” stated Gandier.
While confidence among Mena executives is at a recent high, they are still far more concerned about the impacts of political instability on their business than their global counterparts. More than half (53 per cent) said they were concerned regionally versus the 30 per cent of global counterparts that are concerned.
Confidence levels in the Middle East and North Africa continue to be impacted by the instability in Egypt and civil war in Syria. Elections in Iraq as well as political disputes among Gulf countries have also been a cause for tension this year.