Market Overview
The world economy has experienced its sharpest contraction in growth since the 1930s. It is clear that globally interest rates were set too low for too long and the resulting expansion of credit allowed bubbles to inflate across any number of asset classes. The resulting illusion of wealth was transformed into income, which allowed consumer orientated economies to run substantial deficits with export led economies. Deleveraging is now underway worldwide. As demand has collapsed the economies of both consumer and export orientated countries have contracted. The global economy must ultimately be deleveraged and rebalanced, a process that may take many years to achieve.
Within the context of the wider world economy, countries of the GCC have been affected by varying degrees. Historically the economies of the region and corporate profitability have been significantly driven by the price of oil. However, more recently the emergence of sovereign wealth funds has enabled governments to maintain and even boost spending, despite falling oil revenues. Unfortunately the GCC is now more closely integrated into the global economy. The private sector has closer ties and is directly exposed to developments in the global economy, outside of the price of oil. Foreign direct investment has become common, as is investment by GCC counties in the rest of the world. It is clear that credit and leverage damaged some companies in the GCC as extensively as anywhere else in the world. Any hopes that the GCC was decoupled from the global economy now needs to be reconsidered.
Family companies are estimated to control over 80% of commercial activity in the GCC. Some, which were able to borrow on the basis of their name alone, have been found to be badly overextended. Lack of transparency has fuelled market uncertainty and there is increasing recognition that improved regulation and corporate governance is in the interests of the region.
The biggest casualties across the GCC have been the banks and property industry. Dubai, Bahrain and Kuwait have been particularly hit, with many companies forced to restructure and streamline their business plans. This has inevitably led to redundancies.
The downturn, however, has had a positive effect on inflation which was a serious issue for many GCC countries during the previous five years of record growth. The global recession has helped cool inflation and will ultimately allow growth to expand in a more controlled economic environment.
Oil prices have risen sharply from their low point and are currently stabilising at around $60 per barrel. This is a price that both producers and consumers are seemingly comfortable with and provides both the region and world economy with some timely stability.
Corporate Governance
Globally it is reasonable to assume that corporate governance functions, at least in the critical areas of the banking system, failed. Many banks were demonstrably unable or perhaps unwilling to responsibly manage the risks they were taking.
It is abundantly clear that mistakes were widespread across the world and management that might otherwise have been expected to protect the interests of stakeholders clearly did not.
Regulatory responses are currently being formulated in many countries and ultimately far greater international coordination will emerge. Whatever may become mandatory it is clear that managing risk and uncertainty is becoming an increasing part of corporate strategy. Companies are looking to reduce their risk profiles and surveys are indicating that companies both in and outside of financial services are planning to strengthen their corporate governance teams.
Like many other areas of the world, the demand for corporate governance staff in GCC countries, after booming in the first half of 2008, ground to a halt. Many banks and investment companies throughout the GCC were badly affected by the economic crisis, leading to widespread corporate restructuring and inevitable redundancies. While internal audit has not been entirely immune from this, redundancies have been far lower than in other corporate functions. Internal audit and corporate governance more generally is recognised as a key function. Many departments were already leanly staffed and headcounts could not be further reduced without materially affecting performance.
Supply and demand
The recruitment market for internal auditors in the GCC has historically been candidate led. For any given vacancy there has most often been a shortage of appropriately experienced candidates who in turn have been better able to dictate the terms of their employment.
This pattern was broken in the second half of 2008, as demand collapsed and remained subdued into 2009. Although many companies had vacancies, the budgets and authorisation to recruit was withheld. There were some notable exceptions, particularly in Qatar and Abu Dhabi, where oil industry related recruitment continued, along with parts of the public sector where major recruitment initiatives were already underway.
In the second quarter, from a very low base, there were tentative signs of improvement in demand. Management in some companies became more confident, as they were able to assess the worst extent of the recession. New businesses have been developing corporate governance structures and banks in the more buoyant economies of the GCC have undertaken limited recruitment. However, Dubai, once the biggest market, remains completely flat.
On the supply side there have been redundancies in a number of sectors, notably financial services, property and the accounting profession. This has led to an increased supply of candidates from these areas. However, the number has not been significant and is a testament to the improved profile and value that internal auditors enjoy.
There has also been an increased interest from overseas candidates. Much of this interest is due to a misconception about the current market conditions in the GCC. Redundancies and the lack of opportunities in other parts of the world has lead audit professionals to consider relocating overseas. The GCC has traditionally been recognised as a well rewarded location. Unfortunately, many of these potential candidates are not suitable.
Against this increase in supply, many internal auditors who might otherwise have looked for new positions, not unreasonably, prefer the security of their existing employment. The normal movement in the market due to internal auditors changing employers has disappeared.
Overall the balance of supply and demand is resulting in a vacancy led market. The recruitment process is driven by employers who have a greater choice of candidates and are more able to dictate salaries and terms of employment.
Factors affecting recruitment
There are two noteworthy factors affecting the current recruitment market.
Inflation and the cost of accommodation
Inflation has been a serious issue, with many countries in the region experiencing inflation rates at or above 10% in 2008. This is now falling and 5% is a more likely outcome for 2009. Rents in areas such as Dubai and Doha are falling, food prices are stable and the relative strength of local currencies is reducing the cost of imports. Overall this will make the GCC a more attractive region to work in.
Inflation and particularly high rents has often made it unattractive for internal auditors to move to the GCC, despite tax free salaries and a range of benefits. However, although property prices and rents in Dubai and other places have dropped dramatically, there are still problems finding affordable accommodation in Qatar and Abu Dhabi. As these locations are currently the most active in the recruitment market, employers are under pressure to ensure their salaries compensate for this, particularly if they wish to recruit the best candidates. The drop in prices in Dubai is a reflection of historic oversupply and a current lack of demand. For internal auditors who are able to renegotiate their rents and for those securing new positions in Dubai, their disposable income will be significantly enhanced.
Language skills
A feature of the recruitment market in 2009, particularly at senior levels, has been a requirement for candidates to have Arabic language skills. This is often requested whether it is essential for the position or not. No doubt this reflects a not unreasonable desire to promote the development of an indigenous skill base rather than relying on expatriates.
However, there is a shortage of Arabic speaking internal auditors with the experience to manage a modern risk based audit function. This has most often led to protracted recruitment campaigns which have rarely resulted in the recruitment of a suitably qualified Arabic speaker. Alternatively the requirement has been relaxed or frequently, and less satisfactorily, the position is left unfilled. Having undertaken numerous searches for Arabic speakers, and with the knowledge and experience of many other searches, we would observe that there are few Arabic speaking experienced internal auditors to be found. Employers should carefully consider the inclusion of this requirement before they commence their recruitment. Clearly, for those experienced internal auditors who are also Arabic speakers, there are more opportunities to enhance their career. |
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