https://arab.news/r4tnv
- Twin blows of coronavirus disease and weakened oil prices may see many companies opt for caution to keep costs down
RIYADH: Gulf companies exposed to the the coronavirus disease (COVID-19) and weak oil prices may delay investments and keep costs down, according to a report from S&P Global Ratings.
Firms will have to wait at least a few quarters to see recovery, while focusing on managing money and preserving cash flows as new investments take a back seat.
“We are generally seeing a weaker macroeconomic picture, negative employment trends and consumer spending, and a softer 2020 across the board, with a focus on preservation rather than growth”, the report said.
Since mid-March, region-wide lockdowns as well as the drop in oil prices have put most business sectors in the Gulf Cooperation Council (GCC) area under pressure.
Aviation, tourism, real estate, hospitality, non-staples retail, and oil and gas are among the sectors that are most exposed to disruption while telecommunications, utilities, and food retailers were seen to be “relatively protected from deteriorating conditions.”
The credit rating agency said it expects a mid-to-high single digit real GDP contraction for most rated GCC sovereigns in 2020, and operating conditions to remain weak over the next few quarters.
It also expects to take several quarters for international passenger and tourism numbers to normalize.
BACKGROUND
The credit rating agency said it expects the negative effects from potential foreign population outflows to be more pronounced and create performance issues across a larger number of sectors.
S&P said that travel restrictions “will significantly weigh on Dubai’s tourism and hospitality sectors”, in addition to negative impacts on occupancy rates of hotels in Saudi Arabia due to the suspension of Hajj and Umrah.
While the telecom sector has so far fared comparatively well, it too will feel some impact from the pandemic, largely because of the departure of hundreds of thousands of expatriates who will no longer be buying phones and data packages.
The credit rating agency said it expects the negative effects from potential foreign population outflows to be more pronounced and potentially create performance issues across a larger number of sectors, particularly in Dubai, where expats form the majority of the population.
“Potential negative population trends should also mean some weakening of demand and revenue generation for otherwise more resilient sectors such as telecoms, utilities, and food staples.” S&P said.
Major companies across the region have already announced unprecedented job cuts as they seek to control costs. The jobs cull has extended from the aviation sector to energy with a number of national oil companies in the region slashing costs and laying off staff.