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Sunday, April 30, 2017
The MENA region will be the “third fastest-growing” vehicle sales market globally in 2017, dampened by declines in key markets such as Saudi Arabia and Egypt, a new report by BMI Research shows. The Saudi market will see a return to growth in the latter months, however, as consumers pre-empt the introduction of VAT in 2018. BMI forecasts total vehicle sales growth of 3.5% in the Middle East and North Africa (MENA) region in 2017, ranking third globally behind Latin America and Asia. Within that aggregate forecast, the combined markets of the GCC will again underperform, but the introduction of a value-added tax (VAT) in 2018 will provide a short-term bump to sales. In terms of vehicle segments, BMI expects the marginal outperformance of the passenger car segment over the commercial vehicle segment to continue, as government spending on major projects, particularly in the GCC, is restricted, feeding through to dampened demand for heavy vehicles used in these projects. This is reflected in BMI forecast for 3.7% growth in passenger car sales and 2.1% growth in commercial vehicle sales. Given how far the market has fallen in the last two years, however, this mild growth will keep sales volumes below 20 14 . BMI does not forecast sales to return to meaningful growth — ie beyond previous highs — until at least 2019. One of the biggest factors to consider in determining consumer behavior over the next two years will be the introduction of a 5% VAT in the GCC states from 2018. Overall, BMI expects to see a mixed reaction to the introduction of the tax across the GCC, depending on the incomes and demographics of each market. “We expect the most notable impact to come in Saudi Arabia, where vehicle sales have suffered the most from austerity measures over the last couple of years. After sales declined by more than 20% in 20 16 as a result of several belt-tightening economic measures, we forecast another contraction in 20 17, somewhat milder at 3.2%, following the introduction of civil servant pay cuts and reductions in car allowances,” BMI said. Against this backdrop, where consumers are likely to have been putting off purchases for the last year or so, BMI believes the imminent introduction of VAT will have the most positive short-term impact as consumers see a window to make purchases before costs are higher. It expects the market to return to positive growth from mid-year onwards as the urgency to avoid VAT provides some momentum to sales in H2, 2017. Declines in the earlier months will, however, keep the total year’s sales negative. As BMI had already expected sales to return to mild growth in most other GCC states in 2017, the effect of VAT is likely to be more muted as there has not been such a marked drop off in sales to begin with, suggesting that there are not as many delayed purchases to be rushed through before the tax’s implementation. This is in line with BMI consumer team’s view that VAT will be largely absorbed without issue in the GCC, given the region’s above global average GDP per capita.
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