Whether such high confidence is well founded remains to be seen, but these companies are certainly starting from a position of strength. Regional economies are buzzing. High oil production and prices have pumped up the revenue side of all regional governments' budgets. Full coffers have allowed the prompt payment of accounts liable and renewed enthusiasm for greenfield industrial and infrastructure projects. Reassured by the wall of liquidity and spurred on by the broad requirements of fast-growing populations, GCC governments have been on a controlled spending spree.

This is, perhaps, most obvious in Kuwait, where the removal of the shadow of Saddam Hussein and the election of a new National Assembly (parliament) has reinjected energy into a number of capital-intensive initiatives (for our Special Report on political, economic and business developments in Kuwait, see next week's edition of MEED). For different reasons - mainly the sheer volumes of revenue generated by gas-related exports - Doha is also at the beginning of an extensive capital investment programme. MEED estimates that government expenditure will rise by over 16 per cent this year, and there is no shortage of quasi-governmental industrial projects in the pipeline.

Reforms

Given the structure of regional economies an aggressive fiscal policy is the main determinant of broad economic growth, and when spending is strong GDP tends to rise. The extent to which this stimulates the private sector has been magnified by recent economic reforms. From the capital markets law in Saudi Arabia to the initial public offering of Industries of Qatar, different steps are being used to encourage private-sector development. There are more important reforms pending - such as World Trade Organisation accession for Saudi Arabia, and the capacity of the authorities in Kuwait to deliver on Project Kuwait - but the momentum is building. And, perhaps most importantly, it is being built at a time of economic strength.

However, as the survey shows, recent progress has done little other than whet the appetite for more. There is strong demand for economic reforms to come faster and go further. The mixed reaction to a question on the extent to which regional governments have created business-friendly operating environments and effective bureaucracy is telling. Just under half of the respondents are broadly negative. Equally telling is the extensive and specific list of reforms desired. Among the most repeated demands were those for: the deregulation and reform of a number of regional banking sectors - calls were made for specific measures in Bahrain, Oman and Saudi Arabia; development of more effective educational systems; reform of capital markets legislation; implementation of legal reforms aimed at facilitating greater inflows of foreign direct investment (FDI); alterations to labour laws - Saudisation policies in particular are criticised; and more speedy progress on privatisation. One chief executive was particularly plaintive in his cry for 'the elimination of political interference in the day-to-day running of the company'.

The hunger for reform is not diluted by the rude good health of regional corporates. The private sector is already enjoying the simple but heady cocktail of robust government revenues, generous public spending and the promise of reform to come. As the MEED survey shows, this buoyancy is being turned into strong top- and bottom-line growth across a broad range of industrial sectors. More than 60 per cent of respondents are anticipating profit growth in 2003 that will be a strong improvement on last year. The recent surge on GCC stock markets suggests that investors too are feeling confident about corporate performance. The optimism has already been bought.

Investors should be reassured that profit growth rates should too be sustainable, if forecasts on turnover prove accurate. Only 4 per cent are expecting their top line to contract in 2004; 78 per cent are expecting 5-15 per cent expansion; and 13 per cent anticipate revenue growth of more than 15 per cent. This benign outlook on trading volumes has been used to support internal arguments for expansion. And it would appear that the debate has been won. Some 83 per cent of the survey's respondents are planning to increase their internal investment budgets either strongly or slightly in 2004. Perhaps more telling of the underlying confidence in the environment is the fact that only 8 per cent of respondents are considering even the slightest reduction in their investment budgets.

The survey also suggests that a considerable proportion of this investment is aimed at regional expansion. Just under three quarters of respondents anticipate that their cross-border regional trade will either increase strongly or slightly next year. Unsurprisingly, Iraq tops the list of markets to be moved into, followed by the UAE and Kuwait.

But for all the optimism illustrated by the survey, there was no shortage of concerns. The respondents were asked to name the two factors having the greatest impact on their business planning for 2004. One answer dominates: the challenges of the low interest rate environment. Of course, there are two sides to the coin. The banks are concerned by the ongoing squeeze on margins with their cost of funding already on the floor and the cost of lending declining in a competitive environment. Everyone else is working out the best strategies for exploiting the opportunities created by reduced debt servicing and the diminutive costs of fresh leverage.

Stability

The second most vocal concern is over regional stability. The political and military situations in Iraq and Palestine are affecting planning for next year. So are external perceptions of the state of law and order, and the dangers of terrorism in the Gulf. From insurance premiums to FDI, from trade flows to joint venture partnerships, the international view of stability in the Gulf continues to have a clear and direct impact on business thinking in the region. And it is far from positive.

However, even combined with reservations over the bureaucratic operating environment and impatience for economic reform, security concerns have failed to disturb soaring confidence. Almost 88 per cent expect the regional economic climate to improve next year. Whether or not such optimism is justified will become clear soon enough. n