Feb 23 2012
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Saudi Arabia a bright spot in the emerging market consumer story
Two countries surveyed by
for consumer sentiment in the Middle East - Egypt and Saudi Arabia - showed diverse results. Egyptians were the most pessimistic about their financial prospects while Saudis were some of the most optimistic.
Consumers surveyed in eight countries - Brazil, China, Egypt, India, Indonesia, Russia, Saudi Arabia and Turkey - which together account for 3.5 billion people, expressed healthy optimism about their financial prospects for 2012. Of the over 14,000 adults included in the survey, 35% thought their personal finances would improve over the next six months while 9% expected some deterioration. Optimism on their financial outlook was strongest in Brazil, India and China.
However, comparisons with the previous year's results seem to suggest global economic headwinds have slightly dented emerging market consumer confidence. In Brazil, consumers expecting better financial prospects over the next six months fell from 59% in 2010 to 53% in 2011. In China, the same statistic slipped from 39% to 31% while in India it fell from 40% to 36%.
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Slowdown in discretionary spending growth
However, there were brighter spots: consumer penetration rates picked up for mobile phones, driven mainly by the rise in ownership across the lower income markets (India, Egypt and Indonesia). At the other end of the spectrum, higher income markets were key drivers of the rise in ownership of smart phones. Saudi Arabia topped the list with a penetration rate of 68% (a 22% increase on last year). Computers and internet access enjoyed strong growth in penetration rates, driven chiefly by Brazil and Saudi Arabia. Cosmetics demand also picked up marginally over the last year. In the education sector, a more significant proportion of respondents in six out of seven markets said they had allocated money to private education courses, compared to last year.
The Middle East - a study in contrast
Against the backdrop of the recent political events in the region, the two countries surveyed in the Middle East - Egypt and Saudi Arabia - showed interesting results. Egyptian consumers were the most pessimistic about their financial prospects while Saudi consumers were some of the most optimistic.
In Egypt, about 25% predicted a worse financial position over the next six months compared to 24% expecting some improvement. However, encouragingly, the poorest and middle-income earners in Egypt saw an improvement from the very negative perceptions a year ago, while the rich saw a corresponding decline, having arguably been the greater beneficiaries of the old regime. There was a pick-up in buying in lower-ticket discretionary items like fashion and cosmetics, reflecting the improved confidence among low-income earners. Property ownership, however, fell 13% to 57% on average. Also striking, were the major reductions in healthcare and education provision.
In complete contrast to Egypt, Saudi Arabia was the only market surveyed where there was a clear rise in wage expectations. About 37% of respondents in the country expected to see their financial positions improve in the next six months. The growth in real household income in the country was uniformly positive, and on average the highest in the survey. This, of course, reflects the increase in social spending programs and the rise in the minimum wage that the authorities have pursued in the wake of recent political events in other Middle Eastern markets.
The outlook for discretionary spending also remains very strong in the country. Smart phones, computers, property, cars and holidays saw more robust trends in activity than elsewhere. As many as 25% of respondents thought it was the opportune time to make a big-ticket purchase and intentions to buy cars and property rose across the income scale. Healthcare and extra educational spending were also stronger than the other markets.
The Survey results point to long-term opportunities in both Egypt and Saudi Arabia for international investors. Low spending levels make Egypt a structurally bullish story. Activity in almost every consumer sector is lower than other countries, which provides investors with growth opportunities in an ameliorating environment. In Saudi Arabia, despite high levels of income and a high savings rate of 15%, the savings culture is far from sophisticated, again pointing to significant opportunities for investors in what remains the Middle East's largest market.
© Zawya 2012
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