Growth targets: Middle East CEOs name Saudi, Egypt as leading foreign markets for 2019 expansion

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Middle East CEOs are more cautious about regional growth looking into 2019, in comparison to last year, but they see Saudi Arabia and Egypt as the most important foreign territories for their companies’ growth, according to PwC’s 22nd CEO Survey, launched at the recent World Economic Forum Annual Meeting in Davos.

“It was interesting in this year’s CEO survey that CEOs are looking closer to home for growth,” Stephen Anderson, head of PwC Middle East’s clients and markets division, told Zawya in an email interview.

When asked which territories are most important for overall growth prospects over the next 12 months, 28 percent of CEOs cited Saudi Arabia, followed by 15 percent naming Egypt, then India (13 percent) and Iraq (10 percent).

Egypt stands out this year among preferred territories for expansion, as it did not feature highly in last year’s survey. (Read more here).

“Egypt is obviously a huge potential market, particularly in the consumer sector, with a population of just under 100m projected to reach 140m by 2050, but has been blighted by insecurity and the devaluation of the Egyptian pound in recent times,” Anderson said.

“Our CEOs are cautiously optimistic that stability is returning to Egypt, the economy grew at 5 percent last year and we predict GDP growth next year of over 5 percent making it one of the fastest growing economies in the region,” he added.

Egypt floated its currency in November 2016 and has since implemented reforms as part of a $12 billion bailout deal with the International Monetary Fund. (Read more here).

Last week, the International Monetary Fund’s managing director Christine Lagarde said that she will recommend approval of the next tranche of a loan to Egypt that would unlock a $2 billion disbursement. She also commended the country’s reforms, which have tightened its budget deficit and curbed unemployment to its lowest rate since 2011. (Read more here).

On the main factors that placed Saudi once more this year as the top foreign territory for growth among regional CEOs, Anderson said: “As in the prior year, CEOs recognise that Saudi is the largest economy in the region, and with the ongoing transformation of the country under Vision 2030 (this) means, for many, it is the most important market in the region.

“The consumer end of the market has been challenged as foreign workers have left the Kingdom, but with a more stable outlook generally for oil and continued infrastructure investment it remains the most attractive market in the region,” he added.

The introduction of a levy on expatriates’ dependents and other new taxes led to thousands of foreign workers leaving the kingdom, but the Saudi government has set a record budget spending of 1.1 trillion Saudi riyals for 2019, the highest in the history of kingdom. (Read more here).

Investment in mega-projects in Saudi is also set to stimulate growth with projects like NEOM and Qiddiya gaining momentum.

This week, Saudi Arabia announced the creation of a closed joint-stock company for NEOM that will develop the $500 billion economic zone, with the first area of the project expected to take shape this quarter. (Read more here).

Meanwhile, the multi-billion entertainment ‘Qiddiya’ project is set to finalise its master plan by the end of first quarter of 2019, according to Thomson Reuters Projects. (Read more here).

Job cuts and disruption

More than two thirds of CEOs put operational efficiencies at the top of their list of planned activities to drive profitability in the next 12 months.

“CEOs recognise that the region is moving into a slower growth mode over the medium term and are looking to drive a more sustainable model, leveraging technology going forward,” Anderson told Zawya.

“I don’t expect the dramatic cost cutting and headcount reduction that we saw in 2015-2017 to be repeated for now, but more a strategic look at efficiency,” he added.

Regional CEOs cited changing customer behaviour and technological change as the most significant threats to their businesses, according to the survey.

“Digital disruption, that has hit many places round the world over the past 10-plus years, has finally come to the Middle East, and at rapid pace,” he said.

“For example, e-commerce penetration, which has been very low in our region, is starting to move towards global norms - this will happen in the space of 2-3yrs here as opposed to 10-15yrs in Europe and North America. The recently announced Amazon marketplace is another step in this direction,” he added.

Amazon plans to launch a new marketplace targeting Middle East countries Saudi Arabia and UAE, CNBC reported this week, as the e-commerce giant looks to expand its international presence and eyes the potentially lucrative market of the Middle East.

Nevertheless, only 13 percent of CEOs in the region felt the quality of their data, the fuel for digital transformation, was adequate for assessing customers’ preferences and needs, according to Anderson. And some 61 percent of CEOs also cited lack of analytical talent as the primary reason that they do not have adequate information.

“Clearly regional CEOs feel they are underprepared. There is hope, however, as our region has a young, extremely tech savvy and increasingly well-educated resource pool to draw on. CEOs who can recruit, invest in upskilling and inspire this talent can make a significant bottom-up, or what we call citizen-led, impact on their business,” he added.