Industry Trend Analysis - MENA Autos: GCC And Egypt Weaken Sales Outlook - AUG 2017

BMI View: The MENA region will be one of only two regions in the world to register negative vehicle sales growth in 2017, along with North America. A weak GCC market and worsening sales outlook in Egypt will see aggregate sales decline 1.7%.

We forecast total vehicle sales in the Middle East and North Africa (MENA) region to decline 1.7% in 2017, a downward revision from our previous regional forecast. The ongoing financial pressures on the markets of the Gulf Co-operation Council (GCC) are keeping sales growth negative, which is weighing on the region as a whole. North Africa continues to be a bright spot, led by Morocco with double-digit growth forecast for 2017.

MENA Underperforms Again
Total Vehicle Sales Growth By Region (% chg y-o-y)
BMI calculation

On a segment basis we see the commercial vehicle (CV) segment massively underperforming as we forecast a decline of 9.0% compared with a 0.5% drop in passenger car sales. This is down to two major markets dragging on overall MENA CV sales: Saudi Arabia and Egypt where government spending on projects is stalled. The underperformance of the CV segment is not as pronounced in other markets in the region.

GCC States Still Struggling

The combined GCC markets will underperform the rest of the region as we have revised down our forecast to a contraction of 16.3%. Sales continue to decline in all markets, although we still expect to see some improvement in the latter months of the year as purchases are brought forward before the implementation of VAT in 2018.

The biggest decline is still in Saudi Arabia, where we have revised down our forecast to a 25% decline in total vehicle sales. While rising unemployment and wage cuts will impact the passenger vehicle segment, which we forecast to decline 20.0% in 2017, we expect the bigger impact to be in the CV segment with a 43.0% decline as government spending on major projects is cut back ( see ' Further Sales Declines From Increased Spending Pressures ' , April 25).

GCC States Under Pressure
Vehicle Sales Growth Forecasts (% chg y-o-y)
BMI forecasts

We will also be keeping a close eye on the situation in Qatar, which imports all of its new vehicles due to lack of domestic production. Although vehicles are imported by sea and should not be impacted by worsening diplomatic relations with its GCC neighbours, the market is already weak and the overall uncertainty in the country can be enough to prompt consumers to hold off on major purchases, particularly as the crisis could now be more prolonged than initially expected ( see ' Prolonged Gulf Crisis Looking Increasingly Likely ' , June 19).

Lebanon Looking Positive

Lebanon is one of the few Middle Eastern markets with a positive outlook for vehicle sales although we have revised down our forecast to marginal growth of just 0.1% in 2017. We still believe it will be a while for the gradual economic improvement to feed through to consumers and therefore forecast commercial vehicle sales to experience stronger growth than the passenger vehicle segment, as business confidence improves in line with the passing of the budget in March 2017. We forecast commercial vehicle sales to grow 8.0%, in contrast with just 0.5% for passenger car sales.

CVs To Recover Quicker
Lebanon Vehicle Sales Growth By Segment
BMI/National sources

Despite the CV outperformance, we still expect an uptick in consumer confidence in H217, as a consequence of the positive political momentum, which will be compounded by improved security perceptions of the country. A return to growth of the crucial tourism sector, amid a stabilisation of security conditions, will also be a boon for private consumption growth, supporting employment in Lebanon. This should also feed into greater demand for passenger cars and sports utility vehicles from car rental firms and minibuses and buses from travel companies. That said, it will take time for the growing economy to feed through into disposable household incomes. As such, we have scaled back our passenger car sales forecast for 2017 to just 0.5% growth, with a more lasting recovery not expected until 2018.

Egypt Market Conditions Worsen

While we still see North Africa as a largely positive area for growth within the MENA region, led by Morocco where we forecast 12% growth in sales in 2017, Egypt continues to lag the rest of the sub-region and the situation is worsening. The weak Egyptian pound, which we forecast to depreciate 45.8%to EGP18.57/USD in 2017, will keep vehicle prices elevated and unaffordable for the majority of consumers, as their budgetary constraints grow and they prioritise essential spending over making large purchases such as new vehicles. As a result, we forecast total vehicle sales to contract by 24.2% in 2017 ( see ' Currency Depreciation Will Steamroll Automotive Growth Drivers ' June 20).

Egypt Weighs On Growth Story
North Africa Vehicle Sales Growth (% chg y-o-y)
Local sources; f = BMI forecast

In contrast, our 12% forecast for Morocco is an upward revision from our earlier 8% projection. The ongoing taxi scrappage scheme is providing support to passenger car sales in particular, as well as the growing number of cheaper models available through increasing domestic production.