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issue: January 2009 APPLIANCE Magazine

Appliance Industry Forecasts: The Middle East
Web Exclusive: No Immunity for the Middle East


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Diane Ritchey, News Editor

Middle East Forecast

The Middle East, which has been among the fastest-growing economic regions in the world, has not been immune to the global economic troubles. In late 2008 it began to feel the impact of falling oil prices, tightening regional liquidity, and investors fleeing from plunging equity markets.

In spite of the changing landscape, the area still has good earnings growth potential and buying opportunities. “Return on equity and growth in the Middle East and North Africa is superior to other emerging markets currently,” said Amr Seif, portfolio manager for the Middle East and North Africa at Investec Asset Management, in a Financial Times report. “Companies in the region have more growth in their earnings than peers such as Russia and Eastern Europe,” he adds.

A report from IMF said that growth for the area will tail off slightly this year because of lower oil prices, but that it would be largely resilient to the global economic turmoil. IMF forecast GDP for the Middle East and North Africa to be 5.9% in 2009, from 6.3% in 2008.

The Institute of International Finance (IIF) added that although the ripple effects of the global financial crisis had hit the oil-rich Gulf, the region would confront the turmoil from a position of strength.

For example, based on the current $56 oil price forecast, the IIF estimates that the budget surplus of the Gulf Cooperation Council countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and—will decline only between 3% and 5% of GDP, down from more than 20% of GDP in 2008.

Saudi Arabia, the world's largest oil exporter, needs a $51 per barrel price to balance its budget, it said, while the United Arab Emirates break-even oil price is just $36.

“The GCC region is facing the current situation from a far stronger position than in the past,” said George Abed, director of the IIF’s Africa and Middle East department. “Nevertheless, the GCC authorities need to take policy measures to address the expected growth slowdown, financial stress in certain segments of the banking sector, and the sharp correction in the property market.”

Even if half of the planned property and infrastructure projects were cancelled or postponed because of the credit crunch, there would still be $1.0 billion (€791 billion, £679 billion) of projects over the next five years, said the IIF. Accumulated wealth—foreign assets of governments and banking institutions are at about $1.5 billion—provide governments with enormous resources to fund projects.

Since taxes are low and public sector spending high, the countries are essentially living what Abed called “a fiscal stimulus on a continuous basis.”

One plus for the region is technology, according to a Consumer Electronics Association (CEA) report, which said that technology is a key component to a higher quality of life in the Middle East, resulting in high ownership and intent to buy rates. CEA’s Consumer Technology Trends in the Middle East Study found that 85% of online consumers believe technology helps them better communicate with friends and family, while 71% say it brings friends and family closer together. They also believe technology makes life more fun (79%) and more productive (75%).

“Middle Eastern consumers place a high value on technology and consumer electronics,” says Tim Herbert, CEA’s senior director of market research, who presented the research study at the International CES/hometech in Dubai, United Arab Emirates (UAE). Herbert said the Middle Eastern CE market would account for roughly 4.5% of the worldwide total of consumer electronics shipments.

Perhaps even good news for the area, according to Grant Bailey, Dubai-based chief executive of ING Investment Management in the Middle East, is that a significant part of investor attraction to the Middle East has been its lack of correlation to Western markets. “There are a lot of investors in the Middle East that are bringing their funds back home because they do not like what is happening in Europe, in North America, and are looking at alternatives to invest in the Middle East,” Bailey said in a Reuters report. “I would still think that people are comfortable with the Middle East story, that there will be increased allocations to the region.”

Some of those manufacturing investments in 2008 included LG Electronics’ new television in Middle Eastern markets that includes the Koran installed as a digital text.  The model comes in 42- and 50-inch panels and lets viewers read all 114 chapters of the Islamic holy book on screen by controlling its menu, LG said. “We came up with the model after realising that faithful Muslims read the Koran on a daily basis,” said Park Jong-Seok, vice president of LG's plasma display panel division.

Also in 2008, Carrier Kuwait Air Conditioning made plans to broaden its portfolio of air-conditioning products in Kuwait to meet enhanced market demand. Shahid Malik, general manager, Carrier Kuwait, said, “Carrier will enrich its product portfolio to meet Kuwait’s diverse demands for air conditioning and refrigeration.

As part of its expansion, the company will introduce highly energy efficient condensing units. The new products, combined with the existing range, will further strengthen Carrier’s premier position in Kuwait’s cooling sector. Carrier’s new products will be sourced from its regional facility, the Saudi Arabian Manufacturing Company (SAMCO), which is among the Middle East’s largest manufacturing plants. SAMCO supplies a significant product range to Carrier’s Kuwait market, including window units, condensing units, rooftop packages, and central station air handling units, among others. The units are designed to meet the extreme, high ambient environment in the Gulf, where temperatures touch 55°C.

And LG Electronics Inc. began production at its newly-built air-conditioner factory in Saudi Arabia. The $35 million plant has an annual output capacity of 250,000 units and LG plans to invest an additional $20 million by 2012 to double output. According to LG, the Saudi Arabian air-conditioner market, which stands at around $450 million, is expected to expand to $700 million by 2011.

 

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