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GCC corporates trail UAE peers in earnings

dubai - Corporate profits across the region recorded a combined average growth of 16 per cent to $66.7 billion

Corporates in the UAE outperformed peers in other GCC countries in earnings by a wide margin, with a growth of 62 per cent in 2017 compared to the previous year as corporate profits across the region recorded a combined average growth of 16 per cent to $66.7 billion, a study by a leading asset management and investment banking institution said.

The exceptional performance of the UAE corporates was on account of low base effect, while Saudi Arabia's earnings growth was largely helped by the positive momentum in its non-oil sectors, such as banking, telecommunications and utilities, and growth in Kuwait was largely helped by the positive performance in the commodities sector and its real estate sector, the study by Kuwait Financial Centre, or Markaz, said.

The UAE's overall earnings gained because of low base effect in 2016 when Abu Dhabi National Energy registered a loss of $4 billion in the fourth quarter on account of impairment of assets which dragged the overall earnings for the country to $11.4 billion.

"On account of low base effect, UAE's full year earnings improved substantially. Banks in the UAE increased their earnings by 21 per cent during 2017 while the other 2 major sectors of the economy - telecom and real estate - posted 2 per cent and 28 per cent decline in earnings during the same period," said the report.

Along with the UAE, only Kuwait and Saudi Arabia were able to register earnings growth in 2017. While Kuwait recorded 10 per cent growth in profits, Saudi Arabia's corporate earnings grew by 9 per cent, Markaz said.

In 2018, Markaz said it expects GCC corporate earnings to expand by 4 per cent over 2017 and reach $69.4 billion by the end of the year. The GCC governments are set to embark on an expansion mode following a year of fiscal consolidation and several austerity measures.

"Economic heavyweights of the region - the UAE and Saudi Arabia are expected to see their corporate earnings increase by 4 per cent and 7 per cent, while earnings in Kuwait are expected to remain flat at 1 per cent. The earnings for Qatar and Oman are expected to expand by 3 per cent, while, Bahrain is likely to contract by 1 per cent during 2018," said the report.

In 2017, on an aggregate basis, commodities, banking and construction-related sectors were top performers, with earnings growing at 29 per cent, 9 per cent and 6 per cent, respectively. The recovery of oil prices and improved interest margins helped the commodities and banking sector companies to post higher profitability. The improved profitability reported by the construction sector companies can be attributed to lower base as several companies reported losses during 2016, said the study.

The growth in its overall earnings in Saudi Arabia was largely prompted by the earnings increase in its commodities and telecommunications sector. Saudi Arabia's commodities and telecom sector witnessed 28 per cent and 23 per cent increase in its earnings respectively in 2017 compared to 2016.

"The banking sector witnessed a 9 per cent gain in earnings and all the banks in the country witnessed positive earnings growth during 2017 compared to 2016. Construction related and real estate sectors slumped on the back of a weak economic environment."

- issacjohn@khaleejtimes.com