Crisis? What crisis?

The advertising sector has faced more than its share of challenges during the Iraq crisis, but senior industry players stress that this is a short term setback for an industry that is really still in its infancy.

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By  John Irish Published  May 14, 2003

|~||~||~|As the ramifications of war on Iraq begin to become clearer, it seems that although the Middle East’s advertising industry has taken a short term hit, the long term impact may prove limited. A media frenzy to present every minute aspect of war, a cautious decision by advertisers to adopt a wait and see attitude and a prevailing global economic downturn, may have sufficed to dampen the industry’s spirits.

But far from an industry in turmoil, the advertising sector in the GCC, Levant and Egypt is showing signs of stepping up its operations with the objective of putting itself firmly on the global advertising map.

Industry insiders are seeing this period as a crossing point. Traditionally, the region’s advertising ethics, standards and profit margins have all been seen as well below international standards and averages. The industry is still yearning to reach full maturity. Consequently, as an emerging market, the emphasis appears to be less on how to increase ad spend, but more on how to become a responsible, mature industry, as a result of which greater advertising spend will follow.

For many years, multinational companies did not invest much in advertising in this part of the world. Two factors were really key to this viewpoint. Firstly, particularly in the GCC, carefree consumer spending meant that there was less need for widespread advertising campaigns. However, Ramzi Raad, CEO and chairman of TBWA, Middle East says that multinationals are now increasing their spend, as consumer trends have changed.

“We have passed a certain historical period when this market was a sellers market, where people used to buy a blue car, drive back home, the wife didn’t like the colour, so the consumer would put it in the garage and buy the same car, but in red,” he says.

Additionally, the media dynamics have also altered. Whereas in the past, the opportunity to advertise was limited by the size of the region’s media, its expansion over the last few years, be it television, newspapers or magazines, has multiplied opportunities for larger expenditure.

However, in the aftermath of war on Iraq, instability in the former Baathist state’s cities and Washington’s language towards Damascus, where does the industry go from here? Iraq’s neighbours were the biggest to suffer in the first quarter. As war began, Saudi Arabia, which has the largest advertising market in the Middle East, saw advertising campaigns freeze immediately, as was the case in Kuwait.

With Jordan’s increasingly vociferous Palestinian population and its reliance on Iraqi oil, advertising in the Hashemite Kingdom became a sensitive issue during the war period. Lebanon, one of the largest per capita ad spenders regionally witnessed its worst March and April since the civil war ceased in 1990, according to the World Advertising Association.

However, since the first Gulf war, the region’s advertising industry has gradually moved forward. In 1992, total ad spend in the GCC was $528 million, but by 2002 that had grown 450% to $2.4 billion, according to the GCC Advertising Association. Clearly, the industry is headed in the right direction.
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However, in a region that comprises approximately 330 million people (nearly as much as the US and Western Europe put together), who speak a common language, this still appears insufficient. Jean-Claude Boulos, IAA (International Advertising Association) world president and vice chairman for MEMEAC, Ogilvy & Mather SAL, claims that if advertising expenditures per capita in the Arab world were to reach $15 — in certain states around the world they already reach $40 — then the Middle East would be biting into a $4 billion pie.

“There would be enough money to feed all the pan-Arab media, who are fighting today to get the largest part of a tiny cake,” explains Boulos.

The trends before the conflict abated, both in the Middle East and abroad, were not surprising. The recent Bellwether report, published by the Institute of Practitioners in Advertising (IPA), stressed that 1 in 5 advertisers had cut their budgets and only 1 in 8 had increased them.

Advertisers cited global economic worries, heightened by the war in Iraq and weak profits, as their concerns. However, this survey only covered the January to March period, before the real impact of the war began to weigh on advertising budgets.

Unlike 9/11, where many high-profile companies such as Microsoft or Virgin changed entire advertising campaigns at the eleventh hour because of local sensitivity, the situation this time round has differed. Advertisers have had the time to prepare themselves for the conflict, identify contingency plans and wait to see how drawn out the crisis would be.

Admittedly, efforts were made to persuade companies to build on their advertising brands during the war, so that their names would stay constantly in the media’s eye. But, for fear of appearing too insensitive and detached from reality, many advertisers opted for the guarded approach, temporarily freezing budgets.

However, as the IAA’s Boulos states, “just after the situation calming in Iraq, major advertisers like Unilever and Nestle gave the green light, to resume campaigns that they had stopped when war broke out.” In the developing Middle East market, advertisers weathered the storm by adopting a cautious strategy.

Rather than wholesale cancellations, although some did occur, companies were more prepared to postpone and revise their operations, as was the case in the luxury goods sector. However, they also placed more emphasis on direct marketing and PR activities, where results could be assessed more quickly.
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Khamis Al Muqla, chairman of Saatchi & Saatchi, Middle East stresses that it is crucial for PR and marketing activities to support the traditional advertising campaigns in times of crisis, while some of the ad spend is moved to other times of the year where it can get maximum benefit from the dollar expenditure. The crux of his argument is that these advertisers should be investing in the long term.

“Advertising should be a long term investment and we shouldn’t respond to a short term situation, unless it is consumer-related tactical advertising. Companies should continue their contact with the consumer at all times, even in times of trouble, but this can be done tactically through re-alignment of annual budgets.”

At this stage the waters appear murky, but the industry can now forge ahead, bearing several crucial factors in mind. Firstly, the geopolitical situation inevitably plays a key role in all the region’s industries, advertising more so. If a period of stability follows, then the industry has the room to hone in on the issues holding it back, such as training, ethics and practices.

Secondly, certain countries may benefit more in the post-war period than others. Take the UAE as a standing example. Much like the post-1990 period, the UAE is preparing itself for the post-Iraq reconstruction period. Irrespective of what happens elsewhere in the region, the Emirates’ position as one of the more open business hubs in the region will attract the attention of a new brand of advertiser sooner rather than later.

Thirdly, from an advertising perspective, the ripple effect that was seen globally after 9/11 was not as strong in the Middle East, because the industry was and still is playing catch up to the rest of the world. In many ways, the region has built up an immune system to crises and conflicts, which TBWA’s Raad suggests has developed a “resilience that is driven by the problems surrounding it.”

This is an argument supported by estimates of the region’s first quarter advertising spending. According to the GCC Advertising Association, expenditure across all media was $530 million in Q1, growth of around 7% year on year. It looks like strong spending in January and February made up for a soft March, although the figure doesn’t give an idea of how individual sectors fared. For example, print media, according to IPSOS-STAT’s research (see overleaf) fared rather badly in March.

Ultimately, although war has had an impact, the Middle East’s advertising sector continues to have the same long term challenges as it did in previous years. Like many emerging markets, this latest knock is one in a long line that it will face as it matures.

Yes, TV channels replaced advertising with 24 hour news and, yes, newspapers and magazines saw revenues fall. But this also forced advertisers to tune into alternative strategies, such as targeting local markets through festivals, sales or special offers. The real test will come in the next few months. The conflict hit the industry at its peak period, so how quickly it recovers will depend on whether companies and consumers choose the traditionally quieter summer months to increase spending.

“We are in the middle of reassessing everything, I would assume that things would gradually get back to normal one way or another, whether we’re talking TV stations, newspapers or magazines,” says Raja Trad, CEO, Leo Burnett Middle East and Africa.

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