Analysis by sector
Here is a review of the market dynamics by market sector:
Banking and financial services
The credit crunch and resulting global banking crisis has resonated throughout the GCC and has significantly affected recruitment and employment in the banking and financial services industry. The sector had expanded rapidly on the back of rising oil revenues and seemingly lucrative lending and project financing opportunities. International investment banks and asset managers moved into the region hoping to benefit from energy related growth. However, the region has suffered its own credit crisis with many banks cutting staff, reigning back lending and putting any expansion plans on hold.
Some local banks have been badly undermined by questionable property investments and by lending to family owned conglomerates on the basis of their reputation. In many instances their exposure remains unclear and a lack of transparency has undermined confidence.
For those banks forced into making cuts and redundancies, their internal audit functions have remained largely intact. Not surprisingly there has been no new recruitment. However improving corporate governance remains a priority as the growing sophistication of many products and the necessary risk control requires properly skilled and resourced audit departments. Compared with other international banking sectors, internal audit in the Middle East is immature. It is presently clear that Heads of Audit are keen to complete programmes to develop their functions but are held back by headcount freezes.
When these departments are able to recruit we expect demand for a wide range of specialist auditors, particularly with knowledge of areas such as investment management, treasury and capital markets. There is a limited supply of these locally and they are likely to be recruited from overseas. Whilst salaries will no doubt reflect the economic mood, we would expect attractive packages will need to be offered to interest these internal auditors.
Property, Construction and Real Estate
The property and real estate markets have struggled throughout the GCC. In some areas, most notably Dubai, it is clear that a sharp post bubble correction is underway. The collapse of off plan sales to fund development has caused serious problems. Nothing is happening on three of the most recently man-made islands and some foreign building companies have not been paid for months. Elsewhere in the GCC many investment plans have either been delayed or cancelled. There has been widespread redundancy in the sector, particularly in Dubai.
The knock on effect for recruitment has been negligible demand. Many companies are focussed on cash flow and survival. Not surprisingly there has been a significant increase in the number of internal auditors looking to leave the sector, particularly at more junior levels where those embarking on their careers would prefer more stable environments. Any recruitment has been for senior people with specific sector experience.
Although recent housing transactions in the UAE suggest the market is stabilising, there is a risk of further declines. Whilst there are still major projects underway across the region, particularly in Saudi Arabia and Abu Dhabi, the sector is likely to remain in a depressed state with minimal recruitment activity for the remainder of 2009.
Energy
The production of oil and gas remains the dominant industry throughout the GCC. After collapsing earlier in 2009, the price of oil has recovered and is currently stable at around $60 per barrel. Production has been cut, but investment in future capacity has not. There is major capital investment continuing throughout the region.
Most energy producers have an audit presence in the region and many subsidiary companies and related industries are building their functions. The sector will continue to be a major employer in the region, with demand increasing as the global economy recovers.
In terms of the availability of internal auditors, unlike other sectors, there is a well developed local market for more junior positions. However, there is still a shortage of high calibre auditors with relevant industry sector experience who are able to implement risk and audit frameworks. Companies are often reliant on bringing in auditors from overseas and even with attractive salary packages, are not filling their positions quickly. The sector is likely to be candidate driven for the foreseeable future.
Public Sector
The public sector is now a significant employer of internal auditors across the GCC. There have been a number of initiatives to develop the sophistication of their audit processes as accountability and transparency become more sensitive issues.
In public sector audit functions local nationals are most likely to be employed. This is often due to the attraction of a career in the public sector together with its related benefits. While this is encouraged and further nationalisation programmes are being put in place, the sector is actively seeking to improve audit standards and the calibre of the internal auditors it employs.
Historically a large proportion of auditors working in the public sector have been sourced from external audit organisations in Asia or elsewhere in the Middle East. This has caused a skills gap when new risk based audit methodologies have been introduced. There is now a focus on developing graduates and recruiting experienced internal auditors to develop more progressive methodologies.
State audit bodies are also taking a bigger role in reviewing public sector authorities and commercial companies where the state is an investor. As a result there has been demand for experienced internal auditors where major improvement programmes are still underway. This should underpin demand well into 2010.
Big 4 and other external audit providers
In the first half of 2009 the Big 4 and other consultancy practices did not recruit internal auditors. There were redundancies as their clients sought to control costs and limit expenditure on consultancy and outsourcing. There were a number of examples of internal audit functions being brought back in-house to reduce costs.
More recently there has been limited recruitment, with only Arabic speakers with previous practice experience in demand. The Big 4 have been able to retain staff as there have been few alternative opportunities. However, when the demand for internal auditors increases, the Big 4 will be a prime source of candidates, who will then in turn need to be replaced. Recruitment in the Big 4 always mirrors the fortunes of the wider economy and they will no doubt respond by returning to the recruitment market.
Commerce and industry
Together with the rest of the world, declining exports and a sharp downturn in sales has caused a slump in industry and commerce. The automotive and manufacturing sectors have been particularly hit by recession and many expansion programs have been postponed.
The need for internal auditors remains, but is generally on hold until a recovery is in place. There are some positives with, for example, significant new orders in the aeronautical industry. Although many US based companies have been badly impacted during the course of the last year, their internal audit teams based in the Middle East have not, as yet, suffered significant redundancies.
Arabic language skills are rarely required in commerce and industry, which provides a wider pool of potential internal auditors for companies to select from. However, despite the current limited demand, good risk based auditors with manufacturing experience remain in short supply.
Analysis by country
Here is an analysis of the current recruitment patterns in the different GCC countries:
United Arab Emirates
Dubai
Dubai is the GCC’s most international economy and has been the biggest casualty of the economic crisis. It is suffering from the twin perils of debt and falling property prices. However, whilst facing this difficult period it has become the services hub for the GCC and there are ultimately strong elements which will help maintain Dubai’s momentum. Jebel Ali is one of the world’s leading container ports, Dubai Airport is an important link in international travel and the trade zones such as the DIFC have employed western standards and regulations that have attracted many companies to base their regional centres there. Not least, Dubai has set itself up as being an attractive place to live for western professionals and for many it is still their preferred location.
Not withstanding the estimated 17% fall in the population of Dubai, the $100bn of government and associated company debt and the precipitous fall in property prices, there is every expectation that with the latent support of the UAE federal government, Dubai will weather the crisis intact.
The crisis is likely to spur the further development of the legal and regulatory framework which will ultimately be positive for internal auditors and the corporate governance profession. There have only been limited redundancies amongst internal auditors and many local groups and authorities would still like to further develop their functions. A revival is unlikely this year but the future potential for internal auditors in Dubai remains undiminished.
Abu Dhabi
Although development has been more restrained in Abu Dhabi than in Dubai, its wealth is built on significant oil resources. Budget surpluses built up during the oil price boom years are currently available to invest. While parts of the banking and property sectors are suffering, the government is currently investing heavily in the energy sector and it is estimated that it will award more than $27billion worth of oil contracts by 2010. They have also embarked on a range of infrastructure, property, tourism and cultural projects that will keep the economy growing for some years to come. They are continuing to build and the economic crisis has not been as obvious as in other GCC regions.
However, the recession did give pause for clarity as to how the economic crisis would affect the Emirate. During the first six months of 2009 this resulted in only limited internal audit recruitment. However, internal auditors are now in demand for many of the new projects and also through pressure from the government to enhance the quality of corporate governance and internal audit across the economy. With limited local resources this will increase the demand for ex-patriates with specific industry skills.
A limiting factor is the cost of finding accommodation in Abu Dhabi. It will be some time before major new residential developments are available. With rents still rising more workers are moving to Dubai and commuting.
Kuwait
The oil sector in Kuwait accounts for nearly 60% of GDP and the country is particularly dependent on the industry. The economy slowed during the first six months of 2009 and is forecast to contract by 1% in 2009 before expanding by over 4% in 2010.
Despite its vast oil reserves and $200bn sovereign wealth fund, Kuwait has been one of the more badly affected countries in the GCC. A number of Kuwait investment companies made highly leveraged investments on assets that have proven illiquid. This has impacted local commercial banks who had lent heavily to the sector. The government has been focused on rescuing the financial system, resulting in only limited demand for internal auditors from the oil and energy sector.
Kingdom of Saudi Arabia
The downturn in the energy sector has led to Saudi Arabia’s economic growth diminishing for the first time in a decade. The economy is forecast to contract by 1% in 2009 before expanding by 3% in 2010. However, the Kingdom has announced a sharply expansionary budget with $400bn worth of infrastructure projects over the next five years and it is investing over $70 billion to bring its oil production capacity up to 12.5 million barrels per day. Sustained government spending and the continuation of many large scale projects has enabled Saudi Arabia to overcome many of the difficulties faced by other GCC countries.
This increased government spending has resulted in recruitment for the construction, real estate and public sectors. However, the banking sector as in other GCC countries is likely to remain subdued for the remainder of the year. Recent developments at the Algosaibi and Saad groups and the potential scale of their debts are not helping sentiment. However, Saudi Arabia is relatively well developed in terms of internal audit and regulation. New projects and further development in audit methodology will ultimately lead to an increased demand for internal auditors.
Due to Saudi Arabia’s comparatively large population and economy there have always been a higher proportion of local nationals working in internal audit. For specialist and senior roles, however, there is still a need to recruit from overseas. It has traditionally been harder for Saudi Arabia to attract ex-pats and salary packages as a consequence have tended to be more attractive. This continues to be the case, although this may change with major developments in residential areas and amenities.
Bahrain
Whilst the Bahrain economy is forecast to grow in both 2009 and 2010 a subdued outlook persists. Exports have declined and this has combined with the turmoil in the financial sector, where direct investment has weakened. The banking and financial services sector which harbours ambitions to rival Dubai, has effectively stalled. To date there has only been very limited internal audit recruitment and this is likely to remain the case for the remainder of 2009.
As a country, however, Bahrain remains a viable alternative to the UAE as a chosen destination for many internal auditors. The banking and financial services sector still has great development potential in terms of corporate governance.
Qatar
Qatar is one of the richer countries in the GCC and the government has the resources to comfortably maintain high levels of spending and investment. The Qatari economy is expected to grow by 10% in 2009 making it one of the fastest growing economies in the world. With exports of liquefied natural gas forecast to increase by 50%, this growth shows little sign of slowing down.
For internal auditors Qatar continues to offer opportunities in the banking sector, oil and gas industry and with on going property development projects. Unfortunately the economy is not big enough to be a large scale employer of internal auditors. Arabic language skills are often a requirement in Qatar which limits the opportunities for ex-pat auditors. Inflation is a downside to the rapid growth of the economy. Accommodation costs in particular can be an issue for internal auditors wishing to locate there. Demand for internal auditors is likely to continue in 2009 and increase in 2010.
Oman
Oman has remained stable throughout the current downturn. It does not have the energy resources of its neighbours. Although the economy has slowed, the country has significant reserves that have allowed the government to invest $16 billion in a variety of projects. Tourism is high on the agenda with plans underway to double hotel room availability by 2015. The government is committed to economic diversity and this is likely to see a steady growth in the demand for internal auditors. The country currently utilises a relatively small number of internal auditors, but the development of corporate governance is likely to see this change. |
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