Strong Growth in Middle East Businesses in 2023 and Optimism for the Future

Middle East businesses experienced significant growth in 2023, with a combined revenue increase of 6.2% year-on-year. This impressive performance was primarily driven by the energy sector, alongside strategic investments from private equity and sovereign wealth funds, particularly in the UAE and the Kingdom of Saudi Arabia. Reflecting this positive market environment, 73% of respondents in a 2024 CEO survey expressed optimism that the region’s growth will continue.

Resilient M&A Market

The region’s M&A market also demonstrated resilience, as highlighted in the 2024 TransAct Middle East report. The Middle East maintained a relatively active deal market, especially when compared to other regions more affected by higher interest rates and recession fears.

Working Capital Trends

A recent study, based on data from 450 publicly-listed and private companies and analyzed by PwC, revealed key trends in working capital performance from 2019 to 2023. The average Net Working Capital (NWC) days improved from 121 days in 2020 to 108 days in 2022, indicating increased efficiency across all working capital cycles. However, 2023 saw a slight decline, with a marginal year-on-year deterioration of 0.5 days in NWC days.

Factors Influencing Working Capital Efficiency

The improvement in NWC days since 2020 was largely driven by a reduction in Days Sales Outstanding (DSO). In 2023, DSO improved by 0.7 days year-on-year, but this was countered by a 1-day reduction in Days Payable Outstanding (DPO). The average Days Inventory Outstanding (DIO) remained largely unchanged during the year.

Despite these improvements, the average short-term to long-term debt ratio remained above pre-pandemic levels. Enhancing overall working capital cycle efficiency is crucial to reducing reliance on external financing. By freeing up cash and cutting debt financing costs, companies can provide better returns to shareholders or reinvest in their businesses.

Challenges and Opportunities

Many Middle East companies are working to improve their working capital efficiency after seeing a decline during the pandemic. However, there remains a heavy reliance on short-term measures, such as extending payment terms with suppliers, targeted collection efforts, or liquidating inventories. While these tactics may offer temporary relief, they do not address the underlying process inefficiencies or system limitations that continue to affect working capital performance. For lasting improvements, companies must focus on refining internal processes and systems.

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