Financial distress in the GCC on the rise, finds Alvarez & Marsal

Business leaders across the Gulf Cooperation Council (GCC) region are expecting more pressure to transform or restructure their businesses in a market likely to turn volatile in the short term.

Around 75% of GCC business leaders are expecting a reversal or at least a slowdown in economic growth in the next year, according to a survey conducted by consulting firm Alvarez & Marsal. The survey features the views of CEOs, senior managers, and advisors on future market trends.

Most respondents believed that the biggest issues businesses are likely to face include less demand, higher cost of capital, more inflation, market volatility, and changes to taxing and regulation. In addition to that, a staggering 89% of respondents anticipated a rise in distressed businesses from now to 2024.

When asked about how specific industries may fare, 85% of respondents noted that retail is likely to be sector worst affected in the coming 12 months, followed by financial services and real estate.

Cash and liquidity management was forecasted to be the most important area to focus on in the coming economic headwinds, according to 89% of respondents. Cost reduction and capital efficiency were also high on the list of critical areas to focus on in the short term.

“Cash flow driven operations and decisions should be the formula for survival,” said one respondent to the survey.

Paul Gilbert, Managing Director and Co-Head of Alvarez & Marsal in the Middle East, warned that businesses in troubled waters should wait until it is too late. “With rising interest rates and inflation, many struggling businesses are seeking short-term solutions to their debt burden. Unless the underlying operational business issues are also fixed, then too often a restructured business will find itself in distress again further down the line.”

“Fixing a business’s underlying performance issues at the same time as carrying out a financial restructuring is the best way to deliver a longer-term and more sustainable turnaround.”

Notably, some observers have a different view: a report from earlier this year predicted that the GCC region would largely avoid the economic turmoil expected in the current year. The region enjoys booming consumer confidence, plentiful investment, and is increasingly showing initiative in diversifying their economies away from fossil fuels while reaping the benefit of high oil prices.

“The results of the survey are fascinating,” said Gilbert. “While a number of economies and sectors across the Middle East are bucking the trend, it is clear that respondents consider other sectors to experience further under-performance and liquidity pressures in the face of global economic headwinds.”