Gulf Businesses Face Declining Working Capital Perfomance

I'm working on some projects that require financing from the Middle East. It's undoubtedly more challenging than before to raise finance in that part of the world, as this article that was published on August 16, 2017 in Arabia Inc confirms.

Working capital metrics for firms have been weakening each quarter beginning from the fourth quarter of 2014.

The crash in oil prices and subsequent economic pressures have impacted the working capital performance for companies big and large, according to accounting firm PricewaterhouseCoopers (PwC).

According to a new report from the firm, working capital metrics for firms have been weakening each quarter beginning from the fourth quarter of 2014.

The study was based on an analysis of more than 400 companies from the region over a three-year period.

The firm found that working capital performance has deteriorated across all key economies in the region except for the UAE.

The key factor behind this deterioration has been the continued lower oil price environment and a decrease in government spending, which has caused regional firms to witness an overall decline in revenues.

Working capital days is defined as the average time duration that it takes to turn investment into cash and profit.

According to the report, while 2016 saw a 7% decline in working capital performance, the entire Gulf region has seen a total 14-day deterioration since 2014.

This deterioration is impacting liquidity and becoming a concern for both small and large companies, said PwC.

The firm noted that while smaller companies were initially impacted by the lower oil price environment in 2015, liquidity pressure has since spread to mid-market and large companies.

However, large companies have continued to outperform their smaller peers in better working capital management practices, the firm found.

While the UAE and KSA are the largest economies in the region, they also have the largest (on average) invested working capital days.

“Our study shows that while Saudi Arabia working capital deteriorated for 6 consecutive quarters since the third quarter of 2015, Kuwait has relatively the weakest net working capital performance across key economies with circa 30% deterioration from 2014 to 2016,” said Mihir Bhatt, director at PwC Middle East