Middle East firms have $31 bln in ‘trapped’ liquidity: PwC

Working capital has improved by nearly 50 percent year-on-year for companies in the Middle East since 2013, but sustainable working capital improvement continues to remain “elusive” for majority of them, consultancy firm PwC said in a recent report.

Only seven percent of companies decreased net working capital days for three consecutive years, and a mere two percent for four consecutive years, it added.

While dividend payouts and capex spend have fallen to the lowest points in the past five years, the consultancy believed that $31 billion (AED 112 billion) could be released from the balance sheets of Middle East companies across three areas of working capital -inventory, receivables and payables.

The new liquidity may help companies increase their capex spend, improve their dividend payouts and support a more efficient capital structure by reducing debt.

“Smarter working capital management enables companies to pay for more capex, continue to fund dividends and unlock cash to enable future growth,” said Mihir Bhatt, deals advisory, PwC Middle East.

“Technology-enabled solutions using real-time data, coupled with fundamental process changes are enabling companies to redefine their working capital cycles.”

Companies in all key countries in the region besides the UAE have seen their average net working capital days deteriorate in 2013-2017.  The deterioration has been driven by "days sales outstanding" in Saudi Arabia and Oman.

The report, however, said net working capital performance for large companies in the Middle East have declined by 40 percent since 2013, due to liquidity crunch and cash collections processes coming under pressure.