The emerging economic recovery in the GCC

14th December 2020

2020 has been a hell of a year. Right now it feels probably more than 365 days, and with good reason. There’s definitely no need to recount what we’ve all lived through; and certainly no need to recount the reasons that 2020 has been a forgettable year; it would nonetheless be an understatement to say the economic impact has been significant.

At D/A, we’ve been using the power of Sila, our proprietary data warehouse & social intelligence tool, to help our clients navigate COVID-19. During this time, our Senior Data Scientist, Diego, worked on some amazing natural language processing models; this enabled us to see deeper into the workings of the Arabic-speaking population; this is done using dialect-based sentiment models in what we believe is a first for the GCC.

If it could be applied to specific categories; we figured, it could just as easily be applied to a wider data set; to get a true indication of what the public was feeling towards the economy, and consumer confidence moving forward. Here’s what we found.

UAE: green shoots emerge after a long summer.

From the start of November we noticed one remarkable thing – positivity increased beyond anything that 2019 and January 2020 indicated. Meaning, pre-COVID, negative sentiment was already the dominant factor.

Economy Sentiment

While it’s similar to the Mt Everest of negativity in May; the above chart for the UAE clearly shows we were worried about the economy in January; finding little positive to say until around October this year. Since then the positive talk has steadily grown.

More important, the negativity has fallen away to negligible numbers. The conversation has also dropped away – a clear sign we’ve got other things on our mind.

There’s two factors at play:

  1. We love bad news: negativity always performs better than positive messages. Why? There’s a lot of theories about this, but largely, our media culture means we share bad news, fast and wide (just think of ever RIP post you’ve seen). The less bad news, the less negativity.
  2. We’ve gone through a 2-3 year re-set in consumers minds’ in about 6 months. Recessions in the UAE and KSA are often masked by oil sector buoyancy. Even when oil-related growth is low, it adds significantly to the economy; dragging the private sector through low-growth periods without seeing an uptick with the real data often buried. This time, everything got hit (remember the day oil went negative?). This, with the outflow of talent, sucked the breath out of the city for the summer. That’s what Apple might call a ‘hard reset’.

So, was this the recession we had to have?

The below chart shows just exactly how negative the UAE economy was prior to COVID-19 gripped the world, and just how strong the rebound in optimism is. The take-away is largely COVID-19 was an accelerant of a malaise facing the UAE since well before what went down in Wuhan in late 2019 was ever at play.

UAE sentiment chart - 2020

We also took a look at people’s confidence in employment – this result is probably more striking for its sudden, almost to the day, rise in concern in the UAE:

UAE employment sentiment

There is a slow, noticeable increase in positivity – and it should be said, it never left. It was just made more obvious by the COVID-19 restrictions that came in March.

Our take-away is: the UAE as a whole is bullish on the recovery, and the true indicator of spending, the job market, is rebounding. With the negativity still at play, big ticket items may well be still off the agenda for most consumers – but we have to be aware, a lot of non-travel expenditure means there’s probably significant opportunity in tapping into positive consumer sentiment.

Saudi: the sleeping giant begins to emerge

The largest economy in the GCC has probably felt the shock a little more than the more diversified UAE. The heavy reliance on the oil sector, coupled with the Kindom’s rapid plans for diversification based on those inflows, has made some progress difficult in Saudi.

KSA Economy Sentiment

We can see here that a similar pattern emerges, with a rise in negativity coming slightly later than the UAE, and the return to positivity (last seen in 2019) still elusive, but getting close through November.

If we look at the same data in a different way, the trend becomes more obvious:

KSA Economy Sentiment

There’s still a groundswell of negativity, but that is starting to subside, and so too is the negative conversation.

Employment is following almost the exact same trend as the UAE, but the growth has rebounded slightly sharper; but, the overall conversation is still negative and may take some time to get back to the January/February level of optimism.

KSA Employment Sentiment

The KSA sentiment suggests that the recovery will be a little slower; if not potentially larger in impact than the UAE given the size of the economy. That recovery will be built off consumer confidence in the non-oil sector; and this in turn will rely on international tourists beginning to come back to the Kingdom as they had just started to do in 2019.

If you’re marketing in Saudi, then being mindful of this more careful recovery will do wonders with reaching an audience who may be uncertain; but who do know the worst is behind them, at least from a COVID-19 perspective.

Ground-truthing the data – IHS Markit’s PMI.

IHS Markit – the leading intelligence firm publishes every month it’s Purchasing Manager’s Index (PMI) for KSA, the UAE and Dubai (there are two, mainly given Dubai’s outsized private, non-oil sector compared to the rest of the country which is oil-sector dominated).

While the UAE and Dubai PMI for December was not published at the time of writing, we do have access to the Saudi PMI. So, do a handful of purchasing managers and decision-makers in large businesses in KSA reflect the general public?

Yes.

In a win for our analysis, the PMI for December is in its third successive rise (above 50, so net expansion for those businesses). While still below 2019 levels, this is showing a rebound in action.

KSA PMI

The question may then be asked – a core group of decision-makers are bullish about growth in KSA for 2021, and in December 2020. But, does this mean the general population lags behind this enthusiasm, waiting to see if that optimism is unfounded? Or is it more of a case of the majority waiting to see how the start of 2021 works before they get too positive? The answers to these questions aren’t clear, but what is clear, our Sila sentiment trackers have proved themselves again!

Wrap-up

These are recovery times, make no mistake.

The speed and trajectory in 2021 is anyone’s guess, but reforms have helped the UAE rebound faster, and stronger; and we fully expect consumer confidence to return to stronger than 2019 levels by the mid point of 2021. A rebound in confidence following a COVID-19 vaccine or other breakthrough will simply accelerate that.

Things are more uncertain in Saudi Arabia, so empathy is the call of the day. Get to know your consumer, understand how they can be supported and how you, as a brand, can help support the nation’s trajectory to a recovery in 2021.

This article was published on LinkedIn, by CEO and Co-founder of Digital Ape, Paul Kelly.