Saudi consumer spending set to take hit as reforms impact

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Mar 2, 2018

New research says spending will be subdued to 2020 with expats, higher earners hit most

Overall consumer spending in Saudi Arabia is expected to take a hit over the next couple of years as a result of the economic reforms being implemented in the Gulf kingdom, according to new research.

Al Rajhi Capital has calculated in a new research note that consumer spending is likely to remain flat until 2020, increasing just 3.8 percent over the period to reach SR977 billion, with expat spending hit the hardest.

It said that without reforms, the total consumer spending would have grown by up to 9 percent in the same period, reaching SR1,025 billion.

The government has rolled out multiple reforms over the last few months such as VAT, an expat levy, electricity/gasoline price hikes, the Citizen Account program and a cost of living allowance.

Al Rajhi Capital said despite the expected fall in consumer spending, the majority of Saudi households would be shielded from the impact of the reforms.

“Our calculations suggest that 70 percent of Saudi households
are shielded from the impact of reforms during 2017-2020, primarily due to the support of Citizen Account program,” it said.

The kingdom’s Citizen’s Account program is intended to ease the impact of belt-tightening measures and is a part of Crown Prince Mohammed bin Salman’s Vision 2030 plan to move Saudi Arabia beyond oil.

“Further, the bottom 50 percent of Saudi households (by income level) will have net benefit from the Citizen Account program with cash support higher than the likely increase in household expenditure due to reforms.”

The research added that the additional benefit from cost of living allowance (applicable only for 2018) means that 90 percent of Saudi households will be shielded this year.

However, while Saudi household spending to remain healthy; non-Saudi household spending to shrink, the research said.

Supported by government programs, Saudi household spending is set to grow 8.2 percent over 2017-2020 to reach SR811 billion in 2020 but withh no support program for expat households, their spending will decline 13.5 percent over the same period to SR166 billion in 2020, Al Rajhi Capital added.

It also noted that high income Saudi households which account for up to 40 percent of total consumer spending by Saudis, will be most prone to consumer spending decline, as they receive no government support.

Transport (mainly purchase of vehicles), recreation and
culture (package holidays), furniture and furnishings, and restaurants will be some of the hardest hit sectors in the kingdom, the research said, adding that pressure on margins in the retail sector could lead to industry consolidation.

This article was first published in  Arabian Business

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