QATAR. Dun & Bradstreet South Asia Middle East Ltd (D&B) in association with Qatar Financial Centre (QFC) Authority released the D&B Business Optimism Index for Qatar for Q2 2011.

Background to the Survey

The survey for the Business Optimism Index for Q2 2011 was conducted in March 2011 in an environment of developing risks threatening the global economic recovery process.

The disaster in Japan has led many economists to expect that a return to technical recession is likely for the country. The economic disruptions in Japan have cascaded into disruptions in the global supply chain. Many of the world’s largest cargo shipping companies have imposed restrictions on their ships from calling on ports in Japan due to radiation concerns, which is causing delays in getting goods in and out of the country.

Japan is China's biggest source of imports, which include high-tech products used in the manufacture of electronics and autos. Resurgent worries over Euro zone sovereign debt levels have also put a dampener on the recovery process.

The Portuguese government collapsed after the country's parliament refused to back a fourth austerity package. It has increased the likelihood of Portugal becoming the third Euro zone nation to seek a bailout to help meet debt repayment obligations after Greece and Ireland.

Rising inflationary pressures in emerging markets have raised the risk of aggressive policy tightening and thus a potential slowdown in these countries. Meanwhile, global growth prospects are being threatened by higher oil prices resulting from ongoing tensions in the Middle East and North Africa.

According to the IMF, Qatar’s real GDP growth in 2010 rebounded to 16%, up from 8.6% in 2009. The economy is expected to grow by 20% this year on the back of gas exports and government spending. The hydrocarbon sector posted a real growth of 22.7% in 2010, driven mainly by a 38% increase in LNG production.

As hydrocarbon prices recovered in 2010 and volume of exports increased, the current account is estimated to record a surplus of US$ 22 bn (17.3% of GDP) in 2010, compared to US$ 10 bn (10% of GDP) in 2009. Projected real growth of the hydrocarbon sector in the current year is 29.5%, as LNG production is expected to jump from 50 million tons in 2010 to 70 million tons in 2011.

Commenting on the findings of the survey Phil Strange, CFO of Dun and Bradstreet South Asia Middle East Ltd. said: ‘It comes as no surprise to see the optimism levels of businesses in Qatar decline in this Q2 2011 survey.

The backdrop to the survey was one of political unrest in a number of Middle Eastern countries, the unfolding of the terrible events in Japan and continued Eurozone sovereign debt worries. The non-hydrocarbon sector, whilst registering a 19 drop to 42, is still showing strong optimism and in fact remains more optimistic than any of the 2010 readings in the index; demonstrating strong resilience in the face of the negative regional and global factors that have recently occurred.

The 29 point fall in the hydrocarbon sector to 1 is perhaps a little surprising given the fact that supply fears owing to Middle Eastern tensions is driving the oil price so strongly up.‘

Hydrocarbon Sector

The D&B BOI survey reveals that 60% of the respondents in the hydrocarbon sector predict that prices will remain at current levels in Q2 2011. 25% expect prices to go up while 15% expect a decline.

The BOI for Level of Selling Prices stands at 10, and is 15 points lower than the score in the previous quarter. This is because prices are expected to remain at current levels with a possible increase if the situation in the Middle East worsens. The Net Profits expectations of the industry players have shown a deterioration, the BOI for which is recorded at -5 as against 50 in the last quarter.

The BOI for Number of Employees has also worsened; it stands at -10 in Q2 2011 compared to 18 in Q1 2011.The overall BOI composite score for the sector has thus dropped to 1 as against 30 in Q1 2011 due to a lower BOI score for Net Profits and Number of Employees.

Non hydrocarbon Sector

The BOI survey shows that the composite index for the non-hydrocarbon sector stands at 42, which is 19 points lower than Q1 2011, as businesses demonstrate caution across the Middle East and move into ‘wait and see’ mode .

Despite the dip, optimism levels are still robust, with the composite index being higher than the scores in all four quarters of 2010. The global economic recovery is continuing and crude prices are at two and a half year highs.

However, the emergence of risk factors to this scenario has dampened business sentiment for the short term. The Qatar exchange index lost over 9% of its value during February amid high volatility and risk aversion in the market. The stock market has however trended upwards during March as positive corporate earnings data brought investors back to the market.

The BOI for five of the six parameters have dropped in Q2 2011 compared to Q1 2011 levels. The BOI for the Volume of Sales parameter has decreased by 21 points to 55 in Q2 2011, while the BOI for Net Profits is down by 33 points to 43. The BOI score for New Orders stands at 48, falling from the previous quarter’s reading of 72. At 39, the BOI for Number of Employees has decreased by 20 points from the Q1 2011 figure.

Scoring 33 points, the BOI for Level of Stocks has declined by 15 points from the Q1 2011 score of 48; still suggesting strong optimism, as 43% of the firms anticipate a need to replenish stocks. The BOI for Level of Selling Prices is recorded at 24, a marginal gain of 4 points from the score of 20 in Q1 2011. Inflation in Qatar is showing an upward trend, as rents stabilize due to a gradual narrowing of the current excess capacity in real estate, while non-rent inflation is inching up due to the rise in food prices and the recovery in international commodity prices.

Factors Impacting Business

Among the issues expected to adversely affect operations of the non-hydrocarbon companies in the second quarter of 2011, availability of finance has been ranked by 25% of businesses as the primary influence on their business.

In Q2 2011, availability of skilled labor is the second most important issue which is likely to influence business operations. Inflationary pressures are slowly building up in the economy and are a key concern for 16% of the respondents.

Business expansion plans have been steady over the past few quarters for the non-hydrocarbon companies. 39% have said that they would invest in business expansion in Q2, the number was 41% Q1.

In the oil & gas segment, inflationary pressures and availability of finance are leading concerns, but for 35% of the respondents there are no negative factors that could adversely impact business operations in the second quarter.

Shashank Srivastava, acting CEO of the Qatar Financial Centre Authority said: “It is encouraging to note that optimism levels remain robust for Qatar's non-hydrocarbon sector - indeed this index reading is more optimistic than any of the quarterly readings for the 2010 non-hydrocarbon index.”

“Qatar’s stability and resilience stands out despite recent regional political turbulence and global economic fragility. This is further evidenced by March's positive corporate earnings announcements made to the Qatar Exchange”.

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 July 2011.

Notes:

Dun and Bradstreet is the world’s premier financial data and business information provider, and widely recognized as the world’s leading business knowledge provider. Established in 1841, the company owns and maintains the world’s largest commercial database containing more than 140 million business records, and provides business information solutions to the world’s business community.

Dun and Bradstreet South Asia Middle East (D&B) was established in 2003 and offers a suite of information solutions across the region and our services are used extensively by Banks, Financial Institutions, Government Departments, Multinationals, Corporate Entities, Small and Medium sized Enterprises, Exporters and Importers.

The Qatar Financial Centre (QFC) is a financial and business centre established by the Government of Qatar and located in Doha. It has been designed to attract international financial services institutions and major multi-national corporations and to encourage participation in the growing market for financial services in Qatar and elsewhere in the region.

The QFC Authority is the commercial, administrative and legislative body responsible for driving the commercial strategy of the QFC and for developing relationships with the global corporate community and other key institutions both within and outside of Qatar.

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