2020 Middle East Working Capital Study

Act now to recover

The combined shock of the COVID-19 pandemic and the steep fall in oil prices have fundamentally changed the business environment this year in the Middle East. Companies have seen reduced cash flows, forcing working capital front-and-center in the mind of executives. The three main drivers impacting cash flow include:

  • Reduced consumer demand, leading to a downturn in corporate revenues
  • Slowing accounts receivable payments as customers delay payments due to their own falling revenues
  • Increased expenses to respond to remote working requirements and supply chain disruptions

These cash flow issues have been further compounded in the Gulf by significantly lower oil prices causing a significant decline in government and state-owned enterprise revenues. This, in turn, has led to payment delays to private sector suppliers. Non-oil exporting countries in the region also witnessed a delay of remittances, further impacting consumer spending.


Extraordinarily challenging market conditions struck when companies already had less cash on hand due to declining profitability trends since 2016 with an 11% drop from 2018 to 2019 alone . This is the background to our analysis that as much as $36.5bn (AED 134bn) of excess working capital is currently trapped on the balance sheets of the Middle East companies in our survey. This could be released through companies improving their working capital performance to the median level in their sector.

The challenge for companies across the region in the coming months is how to strengthen working capital management from a weak starting position. At the end of 2019, the average time to turn cash was 127.6 days, the lowest performance in five years, with a further deterioration in the first half of 2020 as the pandemic measures were introduced. This slide occurred while the average days payable outstanding (DPO) for payments to creditors more than doubled between the year end 2019 and first half 2020, from 65 to 139 days.

The surveyed companies also reported an average 20% rise in net debt between 2018 and 2019, producing an average net debt-to-EBITDA ratio of 2.6 for the region. This was the highest ratio in the past five years, increasing the pressure on net cash flows as the companies’ ability to generate free cash flow from pre-tax earnings is decreasing.

As local economies emerge from the initial lockdown periods, the road to full recovery is unlikely to be a smooth one and corporates need to be in good shape to fare well on this journey. Economic conditions will most likely remain challenging for the immediate future, therefore the focus on liquidity, including the task of optimising working capital has never been more critical.

Our other key findings underscore the urgency of accessing this working capital to increase liquidity as companies emerge from lockdowns and restart operations:


2020 Middle East Working Capital Study



Working capital trends

Average working capital efficiency in the Middle East deteriorated slightly between the end of 2018 and 2019 to 127.6 days, the lowest performance in the past five years. Net Working Capital (NWC) days deteriorated between 2015 and 2019 by a compounded rate of 2.7%, corresponding to around $9.94bn (AED 36.5bn)2 of additional cash tied up in operations by listed companies across the region.

In the first half of 2020 the average working capital performance deteriorated further during COVID-19 lockdowns to 156.7 days, as weaker credit policy controls slowed the rate of collections and shifting demand patterns coupled with rigid supply chain processes led to inventory build up. Net debt levels increased on average by 20% between 2018 and 2019.

Whilst, CAPEX by listed Middle East companies has decreased by an average of 41%  over the last 5 years, and dividend payouts stagnated last year, suggesting that debt has been widely used to fund other investments or to support inefficient operations.


DSO, DPO and DIO trends

COVID-19 severely impacted working capital cycles; Days Sales Outstanding (DSO) deteriorated to 123 days in the first three months of 2020 and was pushed to 189 days by the end of June 2020. Average Days Payable Outstanding (DPO) also rose sharply  from 65 Days Payable Outstanding (DPO) at the end of 2019 to 100 by the end of March 2020 and to 139 days by the end of the second quarter. Finally, the average time that companies held goods, Days Inventory Outstanding (DIO) rose to 107 days by the end of March 2020, and 134 days by the end of June 2020.

Liquidity coverage

At the start of 2020, most companies around the world had no contingency plans that could possibly have predicted the impact of the pandemic on their operations.

We have calculated the liquidity coverage on balance sheets as the cash on hand (COH) days, meaning cash and cash equivalents coverage based on total operating and interest expenses.

Average COH fell from 76 to 70 days between 2018 and 2019.

While around two months’ coverage might be a relatively safe level for most corporates, this figure needs to be set in context. Given the concentration of liquidity from our key findings, if we eliminate the top 10 companies holding 62% of total cash on hand the average coverage drops to 40 days at the end of 2019 for the remaining 423 companies in our study.

NWC development by company size

NWC performance in the first half of 2020, when COVID-19 triggered national lockdowns, was clearly linked to the size of the company. Very large corporates immediately stopped or slowed down payments in order to compensate for delays in debt collections caused by the pandemic.  They were also the only category that recorded a slight improvement (2%) in DIO performance. Large corporates used the same approach and on average stretched payables to more than 140 days to cover both inventory build-ups and slower debt collection. Similar attempts to delay payments to suppliers were made by many small and medium-size companies, but their average working capital performance still deteriorated by 39% and 18% respectively in the first half of 2020.

NWC development by country of origin

Last year, Saudi Arabia’s working capital performance improved significantly for the first time since 2015, falling from 171 NWC days in 2018 to 161 at the end of last year.

In the UAE and Qatar, NWC days have been deteriorating since 2015, with a compound annual rise of 12% and 17% respectively. Listed Qatari companies have suffered in particular from deteriorating figures for inventory and receivables, recording  compound annual deterioration since 2015 of 7% and 5% respectively. Similar trends were seen for UAE companies with receivables deteriorating significantly over the last 5 years followed by an inventory deterioration.

NWC development by industry

In total, twelve sectors had a broadly balanced year in terms of working capital improvement or deterioration, with the split ranging from around 50:50 for “improvers” and “non-improvers” to around 60:40. Encouragingly, sectors including Engineering & Construction, Retail & Consumer and Healthcare have improved performance in the last year becoming more balanced where in previous years have been struggling.

Key measures to improve working capital management during and beyond the COVID-19 crisis

In these uncertain times, with no immediate end in sight to the pandemic, companies can access cash from working capital and speed up the restart of their operations by following some simple operational guidelines and take advantage of other means to increase liquidity and reduce short-term cash pressures created by the unprecedented COVID-19 crisis. 

Above all, Middle East companies will need to assess their liquidity position and short term outlook swiftly to ensure that as the region recovers from the COVID-19 downturn, they can seize opportunities rather than lose precious market share or competitiveness because they lack sufficient cash.


How we can help

We are the largest dedicated Middle East Working Capital Management team consisting of industry practitioners and functional experts in logistics, supply chain management, finance, engineering, sales and marketing with significant experience across sectors e.g. energy, healthcare, retail and distribution construction.

We assist both government and private entities in cash and liquidity management, active working capital management and unlocking trapped cash.


Contact us

Mo Farzadi

Mo Farzadi

Business Restructuring Services Leader, PwC Middle East

Tel: +971 4 304 3228

Mihir Bhatt

Mihir Bhatt

Business Restructuring Services, Director, PwC Middle East

Tel: +971 50 900 9471

Dan Georgescu

Dan Georgescu

Business Restructuring Services, Director, PwC Middle East

Tel: +971 5 6418 9776

Kabir Dhawan

Kabir Dhawan

Senior Manager, Business Restructuring Services, PwC Middle East

Tel: +971 5 4793 3263

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