World Economy

VAT, Saudization Impair Mobile Sales in (P)GCC Markets

VAT, Saudization Impair Mobile Sales in (P)GCC MarketsVAT, Saudization Impair Mobile Sales in (P)GCC Markets
The UAE market continues to struggle, with speculation rife that Dubai is experiencing a secret recession that no one is openly talking about

Economic diversification efforts have been spreading through the region like wildfire, as the six Persian Gulf Arab states are constantly reminded that they cannot forever rely on oil revenues to boost their economies, following a period of tumultuous oil prices.

The implementation of VAT, along with nationalization schemes such as Saudization, has caused the economies of countries such as Saudi and the UAE to undergo some difficult and unprecedented changes, AMEinfo reported.

The side-effects of this have been wide and varied: Inflation of prices across the retail sector, a drop in rent prices in Dubai, and now, a major slump in mobile phone sales in the entire (P)GCC (United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait).

  5 Quarters in a Row

According to the latest quarterly mobile phone tracker report by the International Data Corporation, Q2 2018 brought another quarter of decline, with overall shipments falling 9.9% year-on-year and 2.1% quarter-on-quarter compared to the previous quarter, tallying up to 5.8 million units.

According to the report, “the market’s poor performance stemmed from a fifth consecutive quarter of decline for the smartphone segment, with shipments of these devices down 3.4% qoq and 14.3% yoy.”

However, IDC data shows that shipments of less-advanced ‘feature phones’ saw a mild growth of 0.9% qoq and 1.4% yoy.

  VAT Affecting

“Many new brands are also focusing on the feature phone space as these devices are reliable volume movers. This attention, combined with existing high demand for these cheap devices, is helping to spur the feature phone segment,” IDC continued.

As for phone brands, Samsung maintained its lead in Q2 with 34.2% share. Apple and Huawei followed with respective shares of 24.3% and 16.5%.

“The (P)GCC mobile phone market is already going through many significant challenges outside of VAT, due to various ongoing social, political, and economic developments, and VAT will only compound this dire situation,” Nabila Popal, a senior research manager at IDC, had explained late last year.

“Indeed, many industry experts feel this is the worst possible time that VAT could have been introduced, with demand already faltering due to consumers no longer being enticed by the ‘amazing’ new features advertised by vendors as they try to push their latest devices.

  In the Red

In the UAE, smartphone shipments were down 10.9% qoq in Q2, with the country’s overall mobile market declining 8.8%, the report explained.

“The UAE market continues to struggle, with speculation rife that Dubai is experiencing a secret recession that no one is openly talking about,” says Popal. “This is not only true in the mobile space but across large swathes of the UAE retail sector. Indeed, traditional shops in the heart of old Dubai that used to be the center of trade and commerce are shutting down faster than the temperature is rising.”

Elsewhere in the (P)GCC, overall mobile shipments were down 2.8% in Qatar, 5.4% in Bahrain, 5.6% in Oman, and 0.5% in Kuwait (all qoq). Surprisingly, nationalization schemes such as Saudization have finally relented their grip on the mobile phone sector in the oil-rich country. For the first time in four quarters, smartphone shipments in the kingdom saw a 0.9% growth qoq, while overall shipments were up 1.7%.

“This growth primarily stems from the implementation of a new import policy that requires all phones to carry IECEE certification,” says Kafil Merchant, a research analyst at IDC.

“A consequence of this policy is that there has been a significant reduction in gray shipments to the kingdom, with a subsequent increase in official shipments to meet demand.”

  Mass Exodus of Expatriates

Yet, the mobile phone sector is not entirely out of the woods. “With the introduction of a dependent tax causing millions of expats to make plans to leave the country, vendors targeting the Saudi market will continue to face a significant challenge.”

According to the directorate general of passports in Saudi Arabia, more than 811,000 expatriates have left the kingdom over the past 18 months. This has surely left a dent in many markets; the mass exodus causes many businesses to lose access to hundreds of thousands of customers.

Looking ahead, IDC expects 2018 to be a very tough year for the industry, with overall mobile phone shipments to the (P)GCC forecast to decline 12.9% yoy for the year as a whole. Given the prevailing market challenges, it will take some time for the market to adjust and for consumer behavior to stabilize.

  Abraaj Offered $1

Private equity company Abraaj, which used to handle around $14 billion at its prime, filed for liquidation earlier this year following a health care fund controversy.

The company received many offers, such as American firm Cerberus Capital Management LP’s $25 million offer a couple months back for Abraaj’s asset-management platform, which was the lowest they had received yet.

It seems Abraaj wasn’t too happy about the meager sum, as Cerberus pulled their offer soon after while they reconsider another bid. Abraaj is knee-deep in debt, and $25 million was most likely not the number they had in mind when they filed for liquidation.

Now, however, Bloomberg reports that one British company is bringing an even lower offer to the table: an unbelievable $1 bid for the Abraaj Fund Unit.

It is still not clear what Abraaj’s reaction will be to the shocking offer, but it’s clear there’s more behind this bid than immediately apparent.

The concept of a $1 offer is shockingly not too rare in the world of business. What’s possibly being offered here is the acquisition of the assets of the Abraaj Fund Unit for $1, in exchange for taking on the equity firm’s debt and liabilities.

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