Dr Said A Al Shiekh, National Commercial Bank’s Chief Economist has said the GCC could “expect an improved economic outlook largely driven by the oil sector”.
Al Shiekh – presenting a talk entitled ‘Vision for 2010: Where are we headed? Upcoming challenges in 2010’ at this year’s two-day CFO Strategies Middle East event at Raffles Hotel, Dubai, UAE – was one of several key speakers from the finance sector present at the event.
The theme of the 3rd annual event – held from November 22nd – 23rd, 2009 - was ‘Managing through a downturn’.
According to Al Shiekh: “There are tentative signs of improvement in 2010’s outlook with diversion between. Project financing will continue to be difficult through 2009-2010, however.
“The region’s headline growth figure will edge higher, largely due to an expected increase in hydro-carbon production.”
Al Shiekh added: “The GCC adopted timely and substantial policy responses to the global crisis, albeit at a relatively lesser magnitude due to the resilience of the region.”
Al Shiekh also touched on the decline in oil prices adding that although process - along with production - weighed heavily on current and fiscal balances in 2009, they were likely to recover modestly in 2010.
“Oil prices dropped to US$38-US$40 a barrel at the start of the year. Crude oil, in particular recorded a steep recovery of 126% in 2009 and expected to average US$58 to US$60 in 2009 and US$70 in 2010.This was due to a production cut, from 9.2 million barrels in 2008 to eight million barrels in 2009.”
He added: “Production is looking to pick up in Saudi Arabia in 2019 and should reach 8.2 to 8.3 million barrels a day.”
Taking a realistic look at the economy, the summit offered insights, strategies, case studies and in depth discussions on how to weather the economic situation and come out stronger, more resilient and responsive.
Speakers utilised case studies to assist attendees in understanding the need for change or development as well as how to go about achieving it.
According to a presentation by Ziad Makhzoumi, CFO, Arabtec Holding, when it comes to the current market, leadership and operations are to be taken seriously with “leadership in a downturn not just about cutting costs”.
Makhzoumi added that although senior executives needed to remain in tight control of company’s finances, de-layering, a flexible workforce and even outsourcing were complementary actions that could motivate people and strengthen their futures.
On the role of CFOs in a business, Makhzoumi explained: “CFOs must clearly demonstrate not only integrity and honesty but also leadership. The CFO should be a strategist, a navigator and a co-pilot, a businessman and a skilled finance professional. Above all the CFO must instill confidence within all of the stakeholders.”
Peter Steward, Head of Benchmarking from Chaucer Middle East Ltd, said in his presentation that benchmarking – described by Steward as “fact driven consulting to drive value creation” – was of utmost importance during the current climate, enhancing competitiveness by answering several important risk and cost questions.
Susanne Peter, Vice President Finance, IBM CEEMEA gave a presentation on ‘Delivering Performance Through Continuous Transformation – The IBM Finance Transformation’.
Using an IBM case study, Peter explained how, pre-1994, IBM Finance was “mostly decentralised and a maze of financial systems”. Peter explained that the shift in IBM came about through several changes in governance, organisation, process and technology.
In her talk Peter said: “It is essential to integrate with business functions, not the finance-only perspective. This requires strong executive support, clear targets and measurable objectives. It’s not easy.”
Emirates NBD’s Group Chief Financial Officer, Sanjay Uppal’s presentation featured ‘Banking: Emergence of a new post economic crisis model’. According to Uppal, the emergence of a new banking model is currently underway with customers, investors, shareholders and regulators being the main forces of change.
According to Uppal: “Shareholders and investors are sensitive to sound governance as well as disclosures and transparency. Customers are also demanding more transparency and security of their funds.”
Uppal said that “responsible banking, learning from history, adapting quickly, strengthening balance sheets and focusing to revert to core stakeholders” were main points to consider when coming out of the downturn.
Back on the topic of recovery, National Commercial Bank’s Al Shiekh said: “A moderate recovery is expected in 2010, yet economic growth will be uneven with modest growth in developed economies (1.3%) and strong growth in emerging economies (5.1%).”
He added that there was “no doubt the improved economic outlook and the role of public intervention have given confidence to the financial markets and contributed to rising stock markets - especially in emerging markets - with improved economic outlets being seen in China, India and even the GCC”.
Al Shiekh stated that “jobless recovery” was a challenging theme in advanced economies, with millions being unemployed in the US, despite equity rally and uptick in economic activities. Al Shiekh also said that the issue of the weaker dollar was creating challenges for many economies. He explained that this challenge was “especially true of countries like the GCC” and could “contribute to the return of an inflation rate similar to the one faced by the GCC in 2008.”
According to Al Shiekh, the challenge faced by monetary authorities was how to deal with rising inflation at the same time as expansionary fiscal policies in the GCC.
The region’s on-hold projects value had surged to US$458bn by the end of October. This out of the US$2.2trillion projects planned and under way.
In terms of the region’s debt, Al Shiekh revealed that “debt issuances reached US$25.5bn but was dominated by sovereign issuances (US$13bn in the UAE and US$3bn in Qatar) suggesting an easing in the corporate bond market.”
He added: “With respect to Sukuk, it fell sharply with the total amount issued by the region falling to just US$5.5bn, a 56% annual decline.” He added that Sukuk was likely to pick up in 2010.
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