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Excess working capital currently locked up on Middle Eastern corporate balance sheets

Listed businesses in the Middle Eastern region have experienced a strong rebound since PwC’s last Middle East Working Capital Study. “Revenues have risen above pre-pandemic levels, due to the strong response by the region’s governments to COVID-19, combined with the regional boost provided by the increase in oil prices, the positive impact of EXPO 2020 (held in Dubai from October 2021 to March 2022) and the upcoming football World Cup hosted by Qatar”, according to the PwC 2022 Middle East Working Capital Study.

This year’s review included 386 publicly listed companies in the Middle East and covers five years (2017-2021) of key working capital trends, using data sourced from Capital IQ and analysed by PwC Middle East. The PwC study outlines the underlying regional trends impacting companies in the Middle East and explains how these organizations can start addressing working capital efficiency.

Higher costs for imported raw materials, goods and services trickling through balance sheets

Throughout 2021 and the first half of 2022, Middle Eastern corporations continued to experience supply chain disruptions due to the pandemic and global macroeconomic and geopolitical events. This resulted in rising inflation, albeit this was less severe in the region than in other parts of the world. However, given that the Middle East imports large amounts of raw materials, finished goods and services, this meant having to pay higher prices for its imports. Higher costs decreased the region’s corporations’ margins, increasing the working capital tied up in their business operations.

“There have also been continued delays in receiving orders, resulting in products being out of stock and lost sales, or companies planning strategic buffer stocks to anticipate volatility, which also ties up working capital. Lastly, higher interest rates, which are likely to rise further in the short-term, are increasing the cost of the working capital financing,” observed the study. 


Source: PwC 2022 Middle East Working Capital Study

The study mentions that $35.5 billion in excess working capital is currently trapped on the Middle East’s corporate balance sheets, while Middle Eastern businesses have seen short-term debt steadily increasing since 2017 at an average annual rate of 6%, with the rate rising steeply by 10% between 2020 and 2021. Alongside their deteriorating working capital performance, this reveals that the region’s companies have taken on more debt to support their daily operations, rather than looking at sustainable ways to reduce the baseline of working capital required to run the business.

The report also highlights a 25% average increase in revenues between 2020 and 2021 and a 2% average annual decline in EBITDA margins combined with a continued increase in capital employed between 2017 and 2021. This indicates that shareholders have received overall a reduced return on capital employed (ROCE).

Commenting on the new study, Mo Farzadi, Partner, Business Restructuring Services Leader at PwC Middle East, said, “The focus for many businesses has shifted from 'stabilise and survive' to recovery and growth. However, headwinds such as inflation, interest rates and operational disruptions are heightening the pressure on working capital. There are still many ‘hidden treasures’ locked up on balance sheets of businesses which could be released to fuel growth and build resilience in the face of continuous global disruption.”

Small improvement in working capital efficiency

Net working capital (NWC) days – the number of days required to convert cash paid out into cash collected or working capital into revenue – is a critical measure of a company’s financial health.

Working capital efficiency across publicly listed companies in the Middle East, measured as average net working capital (NWC) days, slightly improved in 2021.


Source: PwC 2022 Middle East Working Capital Study

As per the PwC report, between 2017 and 2021, NWC days increased on average by five days for listed Middle East companies. This increase corresponds to an additional $14.5bn tied up in working capital by the businesses in the study, which they could not invest elsewhere, compared with 2017. In this connection, “It is worth noting that the 3% improvement in NWC days between 2020 and 2021 is solely due to the increase in the average amount of time companies take to pay their creditors”, the study explains.

Working capital performance by country

“Companies in most Middle East countries, apart from Oman and Bahrain, managed on average to improve their working capital performance during 2021. While the deterioration in Bahrain was marginal, the performance of listed companies in Oman worsened on average by 12% last year, predominantly because of an increase in inventory holding times”, notes the report.


Source: PwC 2022 Middle East Working Capital Study

UAE companies delivered a significant year-on-year improvement in their average working capital performance in 2021. However, this was purely driven by a stretch in creditors’ terms or extensions of the time taken to pay suppliers, which concealed a general decline last year in their working capital cycles. The report states that this can be attributed to the fact that UAE corporations have the slowest average collection performance across the Middle East, and one of the longest cycles to pay their suppliers.

Unlike UAE, corporations in Qatar performed better year-on-year in 2021 across all working capital cycles, possibly because of a reduction of around 26% in the average inventory holding time (DIO) to 46 days. This drop in DIO probably shows that some companies in Qatar are beginning to feel the effects of global supply chain bottlenecks, with inventory falling below optimal levels.

Despite continual improvements in working capital performance, the Kingdom of Saudi Arabia (KSA) continues to have “The longest cash conversion cycle (NWC days) across the region, with 156 days in 2021. Saudi companies also have the longest inventory holding period in the Middle East, with an average of 125 days last year”, notes the report. “These challenges stem to a large extent from historic public sector payment times”, which Saudi Arabia’s government is working to improve, the report further added.

Given the challenges facing global supply chains, Saudi businesses may need to invest more of their funds in working capital, which could become a strain, particularly because of rising inflation, geopolitical risks and global economic uncertainty.


While Middle Eastern corporations have initiated steps to improve their working capital performance, they will need to adopt working capital as a strategic pillar to strengthen their resilience in turbulent environments.

To do so, PwC’s latest study recommends that companies should take certain actions to ensure they manage their working capital as productively as possible: revisiting their working capital operating model, embedding a cash culture across all layers of the organisation, defining clear rules for trade-offs between cash and costs, leveraging data analytics and optimising their internal processes.



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