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CEOWORLD magazine - Latest - Special Reports - Middle East Retail Sector Faces Capital Constraints Amid Payment Delays – Views from S&P Global and PwC

Special Reports

Middle East Retail Sector Faces Capital Constraints Amid Payment Delays – Views from S&P Global and PwC

The retail and consumer sector in the Middle East continues to grapple with significant concerns over the availability of working capital, particularly in relation to more favorable payment terms, delayed receipts, and ongoing struggles within the retail industry. According to Katy Holmes, CEO of the British Chamber of Commerce Dubai, there has been a notable shift towards better payment conditions for suppliers across various sectors.

Holmes pointed out that companies are increasingly demanding substantial upfront payments before commencing work. She noted that this shift in liquidity has provided businesses with greater confidence to invest and expand, creating a positive ripple effect throughout the wider business environment and contributing to a more dynamic marketplace.

Working capital, a measure that includes day sales outstanding, days payables outstanding, and days inventory outstanding, has become a crucial factor in this landscape. A report from consultancy firm PwC Middle East revealed that the average time taken by companies to settle payments with suppliers, vendors, and creditors across the region has returned to pre-pandemic levels of 65 days, down from a peak of nearly 70 days in 2021.

The report also highlighted that the average days of inventory outstanding, which tracks how long companies hold stock before making sales, remained steady at just over 93 days. This trend is reflected in Qatar’s latest Purchasing Managers’ Index, which has shown continuous growth in output for over four years, with only brief pauses in January and December last year.

S&P Global’s report on the region indicated that while companies are accepting new contracts, they are also working to reduce outstanding orders, though at a slower pace than seen in previous months. The backlog depletion process has been ongoing for seven months, but the rate of reduction has begun to taper.

PwC’s report also showed that 54% of companies across all sectors improved their working capital performance in 2023, a slight increase from the 52% reported the previous year. Bahrain recorded the shortest working capital cycle at 44 days, a figure that has consistently declined over the past three years. Kuwait also experienced a reduction, with the cycle dropping from 91 days in 2022 to 74 days last year.

In contrast, while the UAE has maintained a consistent working capital cycle, Egypt, Jordan, Oman, and Qatar have seen their cycles increase. Saudi Arabia, despite showing signs of progress with a decreasing cycle since 2019, still holds the longest working capital cycle in the region.

Dr. Naim Maadad, founder and CEO of Gates Hospitality in the UAE, emphasized that more work is needed to address the country’s working capital issues. He remarked that payment receipt challenges persist, particularly in Saudi Arabia, where shrinking margins and rising competition have compounded the problem, especially in large-scale projects.

Further highlighting sector-specific concerns, Mo Farzadi, leader of business restructuring services at PwC Middle East, noted that the retail and consumer industries are facing the most pressure regarding working capital availability, followed by utilities, mining, and industrial manufacturing. Farzadi explained that in retail, the gap between when inventory is ordered and when it is sold can range from three to six weeks, creating additional stress on cash flow.

Farzadi also observed that while there is room for improvement across the Middle East, the region lags behind more mature markets like the UK or the US in managing working capital efficiently.

 

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CEOWORLD magazine - Latest - Special Reports - Middle East Retail Sector Faces Capital Constraints Amid Payment Delays – Views from S&P Global and PwC
Anna Siampani
Anna Siampani, Lifestyle Editorial Director at the CEOWORLD magazine, working with reporters covering the luxury travel, high-end fashion, hospitality, and lifestyle industries. As lifestyle editorial director, Anna oversees CEOWORLD magazine's daily digital editorial operations, editing and writing features, essays, news, and other content, in addition to editing the magazine's cover stories, astrology pages, and more. You can reach Anna by mail at anna@ceoworld.biz