Saudi Arabia Auto Market under performed any expectation in the 2018 hit by the VAT introduction and by a slower than expected economic recovery, with the price of oil dropped back again. Full year sales at 420.701 light vehicles felt down 22.8%.
Saudi Arabia economy appears to have ended 2018 on a solid footing, while prospects for this year are quickly deteriorating. This is predominantly the consequence of oil production cuts agreed in December among OPEC+ countries, which will drag on GDP growth this year. That said, the oil production caps have started to boost oil prices, which should shore up government revenues somewhat.
Despite greater fiscal support, the economic recovery is likely to lose some steam this year as an uncertain global oil outlook, oil production cuts in compliance with the OPEC+ deal and negative spillovers from the Saudization policy are expected to hit economic activity. Moreover, key economic reforms appear to have stalled, which threatens long-term economic growth in the country.
Back in June 2016, all six Gulf Cooperation Council (GCC) member states signed the Common VAT Agreement. It was agreed that each GCC Member State would introduce a VAT system at a rate of 5%.
On January 2018 a Value Added Tax (VAT) has been introduced in Saudi Arabia and the United Arab Emirates for the first time, breaking a milestone, if considering Gulf states have long attracted foreign workers and capitals with the promise of tax-free living.
But governments want to increase revenue in the face of lower oil prices and a 5% levy is being applied to the majority of goods and services. For “technical reasons” other members of the Gulf Co-operation Council – Bahrain, Kuwait, Oman, and Qatar -, also committed to introduce VAT, have delayed plans until at least 2019.
Saudi Arabia vehicles market is enveloped in the deepest crisis ever. Indeed sales improved fast until the 2015, before that the country entered in recession, due to the fall of oil price in the international market and the measures taken by the government reduced further consumers spending, hitting the industry. In the 2016 the market fell 15.3%, but it was just a step in the prolonged crisis in place.
Indeed, 2017 started very slow with first half sales down 16.1% at 304.000 units, but the second half was even worse, losing near 30%. Just at the end of the year the market recovered with December booming up 26.2% (probably just to anticipate effects of VAT introduction, from January). Furthermore, the 2017 ended with the worse score in this decade with light vehicles sales at 544.721, down 23.9%.
The effects of VAT introduction had been sharp in both KSA and UAE with car markets hit despite signs of fast recovery in the primary oil sector while the reform which allowed women to drive vehicles, did not sort any effect for several reasons, not last the mentality and the culture, which will change only in middle terms starting from young middle class.
Indeed in the 2018 the market has been again negative. Indeed, the double effect of VAT introduction and anticipated sales to Q4 2017 in foreseen price increase has severely hit the first quarter, with sales down a huge 28.3%. The market has ended the year with 420.701 units sold (-22.8%), falling for the third consecutive time.
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Brand wise, the 2018 market has been dominated by Toyota, represented in the country by the oldest importers in the World, which sold 130.474 light vehicles (-23.3%) with market share at 31%. On the podium Hyundai and Nissan, with a wide distance from the top.
The 2019-2025 Outlook is finally back in positive and we expect the market will recover the great part of volume lost in recent years, fueled by robust investments, growing population (thanks to immigrate), evolution of demand towards green vehicles and other factors.
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