Family businesses in Gulf region are confident about economic prospects

08 March 2018 5 min. read

Despite navigating a period of uncertainty, stability in the economy of the GCC region is being supported by the success of what is considered its backbone: the family business sector. A new study from KPMG reveals that a third of the family businesses across six GCC countries have seen revenue growth over the last year.

While the plummeting of global oil prices to a low $45 per barrel last year affected economies across the world, perhaps none were worse hit than countries in the GCC and North African regions, which are predominantly oil-dependent economies in terms of income.

However, the GCC region appears to have responded particularly well, through a combination of austerity measures from the government to restore the flow of finance, and proactive efforts to diversify the economies of the region. The GCC has demonstrated acumen for regional collaboration, which is expected to help with the current period of uncertainty.

One sector that has traditionally been vibrant in the region, perhaps more than anywhere else in the world, is that of family businesses. These units leverage their common values, their long-term motivations, as well as their agile structure that enables speedy decision-making, all to gain an edge over competition in the market place.

Prospects over the next year

As a result, contrary to the overall economic sentiment of anxiety in the GCC region, family businesses are fairly confident about their position over the next year. Big Four professional services firm KPMG conducted a survey among 40 professionals who hold key positions in family businesses across six countries, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE.

The survey found that 57% of these respondents are optimistic about the future, broken up into 24% who are ‘very confident’ and 33% who are just ‘confident.’ Another 24% are neutral about the next year, indicating cautious ambivalence, while 2% are not confident at all. On the back of the broad economic uncertainty, a sizeable portion, at 17%, expressed concern about the next 12 months.

The largely optimistic results can be attributed, in part, to the relative success and stability of the sector over the last year. 33% of the companies have experienced increases in revenues over the past 12 months, while 33% have steadily maintained their revenue levels. The remaining 29% saw dips in revenue.

Growth in revenue, staff, and overseas activity

Identical trends can be observed among other indicators of growth such as the expansion in staff numbers. 33% of those surveyed have seen their staff expand in the last year, while 38% maintained the same headcount as the previous year. Staff-sizes contracted among the remaining 29% of the firms. Overseas activity is another key indicator of prosperity, wherein 38% saw an increase in the last year, 33% remained stable. 10% saw a decrease in overseas activity, while 19% recorded none at all.

Challenges for family businesses

Irrespective of their successful business-models, however, these firms are operating in a challenging business environment, faced with a range of causes for concern. In recent weeks, fellow Big Four firm Deloitte released a study detailing the hindrances to growth for GCC family businesses in the present economic scenario.

The KPMG survey produced a large list of challenges as well, the most cited of which was ‘increased competition,’ by 48% of the respondents. In similar vein, the war over the talent in the market came in second, cited by 43% of the respondents, while a ‘decline in profitability’ was, rather intuitively, cited by 40% of the people.

Major concerns for family businesses

40% of the respondents also cited changes in regulations as a major cause for concern, while changes in taxes was almost equally concerning at 38%. Macro-level actors such as political uncertainty and oil prices were cited as causes for concern by 31% and 21% respectively, while increased labour costs came somewhere between them at 29%.

Declining revenues were a cause for concern for 26% of the respondents, and limited access to finance was an issue for 17%. Surprisingly, the rapid pace of advancement in technology was a concern for only 2% of the people, which demonstrates the confidence in the innovative capabilitites of the region. 4% of the respondents had other concerns; not specified by the firm.

Commenting on the report’s findings, Harish Gopinath, the Head of Family Businesses for KPMG in the Middle East and South Asia said, “On the whole, the picture for family businesses seems relatively optimistic. Well over half of respondents feel confident about their businesses’ prospects as they continue to adjust to the ‘new norm’ of lower oil prices and the impact of recent geopolitical developments. However, growth is still high on the agenda, with many businesses focusing on improving profitability, just over half on improving revenue and over two-thirds focusing on making investments as part of their strategy over the coming years."