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Consumer Spending in Saudi Arabia (2022)

Intro

Consumer spending is a key indicator of economic development in the country. In this article we try to examine the evolution of consumer spending in Saudi Arabia over the years.

In the recent years, under the leadership of Prince Mohammed bin Salman; Saudi Arabia has been trying to reposition its image as a centre of commerce and tourism in the MENA region. The country is in process of pivoting from its decade’s old traditional stance of oil dependent economy to a vibrant, open country with high ease of doing business.

There have been numerous developments such as – recognizing identity of Israel and opening ties with the country, introduction of VAT, blockade on Qatar and subsequent lifting of blockade, introduction of stricter work permit (Iqama) regulations – which have impacted the consumer spending differently. Let us explore how-

 

 Consumer Overall Spending

[Note: In this article, we take the proxy of consumer spending as the total ATM withdrawals, Debit card spending, and MADA ecommerce spending]

Research Middle East has evaluated that consumer spending in Saudi Arabia grew significantly in the period ranging from 2007-2015 reaching $253 Bn in 2015 from $93 Bn in 2007. This translates to a CAGR of 13%. However, since 2015, the aggregate consumer spending has on grown at a meagre 1% CAGR until 2021. The total consumer spending in the country (excluding VAT) was $260 Bn in 2021.

The reduction in the growth rate was reinforced by exodus of expats owing to tightening of work permit eligibility, implementation of VAT and the effects of Covid. While VAT was introduced at 5% in the July 2018, VAT rate was increase twofold to 15% effective July 2020 further reducing consumer buying power.

Covid further slowed down consumer spending as businesses shut down, consumers lost jobs and those with consumers retracted spending from discretionary items such as luxury bags, watched and air travels. The closure of retail spaces such as malls, lockdowns and airspace closure also meant that spending got restricted.

However, in Q1’2022 consumer spending increased 15% over the same period last year. This is largely attributed to inflation, the war between Ukraine and Russia and the soaring commodities prices such as oil, food staples, steel etc.

 

Consumer Retail Sentiment

While overall retail market size (defined as consumer spending on Fashion, Electronics, Beauty & Personal Care, Grocery & Home) was stagnant over the past 3-4 years, 2022 is likely to see ~9% increase in retail market as estimated by Research Middle East.

This estimation is based off consumer market research as well as interviews conducted with industry experts, retail leaders in various companies of Saudi Arabia.

Ecommerce in Saudi Arabia will see a significant boost with the ecommerce retail market expected to touch $15 Bn this year. In contrast to 2018, when the market size was $4 Bn, this represents an annualized growth of ~40%. As consumers turn to ecommerce for their purchasing needs, retailers are tending to move online, or expand their offering base to consumers online.

 

Evolution of Payment Mechanisms

Consumers of 2022 like to have the option of paying by various methods. While Saudi has been big on Cash transactions- whether on online purchases or offlice, Cash s no longer the King as per later research from Research Middle East.

In a survey conducted by Research Middle East of 700 consumers across Saudi on ecommerce usage in the Kingdom, only 20% consumers prefer Cash on Delivery as their primary payment medium on their online purchases. 70% consumers prepay using credit and debit cards, while 2 % consumers have already adopted Buy Now Pay Later (BNPL) model.

In Q1 2022, value of MADA ecommerce transactions grew at 89% compared to the same period last year. On the other hand, cash usage declined by 7% indicating a mindset shift; and a welcome change by retailers.

 

Research Middle East is a leading consulting and market research firm in the Middle East. All research, market sizing and forecasts in the article is confidential and was prepared by Research Middle East solely for the use of its client. Not to be relied on by any 3rd party without Research Middle East’s prior written consent.

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