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ANALYSIS

Saudi spending potential narrowly based

Dubai, February 25, 2014

Consumer optimism has dropped in Saudi Arabia with just 18 per cent expect to see improvements in the state of their personal finances, a report said, noting that this is the second consecutive drop in optimism seen within the region.

The fall in optimism goes hand in hand with a decline in income, added the fourth annual Emerging Markets Consumer Survey, a detailed study profiling consumer sentiment and its drivers across the emerging world against the current backdrop of investor scrutiny of emerging markets, published by the Credit Suisse Research Institute.

The study provides a timely insight regarding the sentiments and consumption patterns amongst emerging consumers and their role in driving global growth.

Saudi real household income growth over the next 12 months is only positive for the upper half of earners, with the wealthiest expecting around 3 per cent growth. The picture is less rosy for the lowest earners, and even with the growth in higher income brackets, when averaged across the sample, household income growth is flat in real terms (a drop of 2 per cent since this time last year).

Against this backdrop of income pressure, discretionary spending looks challenged.

Smartphones, Internet access, computers and healthcare stand to suffer in 2014, according to the report. While these categories registered positive momentum last year, this was again most likely driven by the wealthy “local” population. The holiday/travel market also displays potential growth and is most likely driven by the aspirational value attached to it by wealthier consumers.

One key theme this year was the deportation of illegal workers in Saudi Arabia – amounting to over 500,000 people. Worries as to whether this would have a negative effect on consumer demand are unfounded, given that in reality these people generally belonged to the very low income bracket.

However, this certainly has had an effect on the cost side for some consumer companies utilizing this cheap labor and which may now have to pay more for legal labor. The question is whether the extra cost is going to be passed to the consumer or not, the report said.

Turkey: Underlying potential remains

On the broad gauge of optimism we use across the survey, reflecting future confidence in the consumer’s financial position, Turkey remains at the lower end of Credit Suisse’s rankings. The political backdrop doesn’t help. However, this fact conceals some positive underlying messages in Turkey, which are in keeping with the degree of optimism our analysts and economists hold with respect to Turkey’s macro outlook.

Expenditure on more discretionary items continues to beat spending on more essential goods, such as carbonated soft drinks, dairy products and alcoholic drinks. Low-income consumers are the drivers of the latter trend and higher-income earners drive the former development.

The recent political developments in Turkey will likely yield another cautious consumer environment. However, we continue to believe the underlying drivers of Turkish consumer spending (particularly for underpenetrated discretionary items) will remain strong.

Spending appetite should quickly turn into actual sales once the political visibility improves. In terms of the spending mix, smartphones, computers, internet access, holidays and (despite the high base of previous years) autos have recorded some of the strongest gains. The modest level of auto, smartphone and holiday penetration suggests further scope for growth.

To undertake the project, Credit Suisse has again partnered with global market research firm Nielsen to conduct nearly 16,000 face-to-face interviews with consumers across nine economies. These include: Brazil, China, India, Indonesia, Russia, Saudi Arabia, Turkey South Africa and, for the first time, Mexico as it progresses its reform agenda.

The research is unique in benchmarking consumer behavior across these countries in a consistent and detailed manner; posing more than 120 questions to help establish a detailed profile  of consumers’ spending habits, future intentions, and the factors that influence them.

Stefano Natella, global co-head Securities and Analytics Research at Credit Suisse, said: “Our survey provides a unique and detailed analysis of consumer sentiment in the emerging world.

“While many are actively scrutinizing the macro outlook for emerging markets amidst the current volatility, the granular bottom-up analysis in our survey provides a reminder of how mismatched top-down views alone can potentially be. Understanding them both is key for both companies and investors.”

Giles Keating, Credit Suisse’s global head of Research for Private Banking and Wealth Management, said: “The survey is particularly timely given the currency and stock market pressures some of the Emerging Markets surveyed are currently experiencing.”

“Against this backdrop, having a detailed analysis of consumer sentiment on the ground in important markets ranging from China to Mexico provides information that is not accessible anywhere else about the drivers of local consumption,” Keating concluded. – TradeArabia News Service




Tags: Saudi Arabia | Credit Suisse | Spending |

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