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GCC mobile sales down 10% on VAT and KSA expat tax

Mobile phone sales fall 10% in Q1 2018 as VAT, job concerns and Saudi expat tax hit spending

Mobile phone sales in both feature and smart phones have dropped in the GCC.
Mobile phone sales in both feature and smart phones have dropped in the GCC.

Mobile phone sales in the GCC fell 9.9% from the end of 2017 to the first quarter of this year, due to VAT, job insecurity and expat taxes in Saudi Arabia, according to IDC.

The analyst company recorded a 19.7% drop in feature phone shipments, and a 4.7% decline in smartphone shipments from Q4 2017 to Q1 2018, with 5.9 million units shipped overall in Q1.

The slip in feature phone sales was particularly pronounced, reversing 23% growth year-on-year in 2017. Smartphone sales had already been in decline for two quarters in the GCC, in line with a global slowdown in sales, however it also marked the fourth consecutive quarter of decline for Saudi Arabia.

Poor job security and the introduction of VAT suppressed market sentiment in the region's two biggest markets, the UAE and Saudi Arabia, with the latter also feeling the effects of a new expat dependent tax that was introduced in 2017.

Total mobile shipments to these two markets declined 14.7% and 5.4% QoQ, respectively, in Q1 2018.

Looking at smartphones in isolation, shipments to Saudi Arabia fell for the fourth consecutive quarter in Q1 2018, contracting 7.5% QoQ. Smartphone shipments to the UAE were also down in Q1 2018, falling 4.6%.

"The size of the overall market in Saudi Arabia is expected to decline over the coming years as a direct result of the new expat dependent tax," said Kafil Merchant, a research analyst at IDC. "A significant portion of the local population is expected to leave the country due to the introduction of this levy, with the exodus expected to run into the millions. The full impact remains to be felt, however, as many expatriates are waiting for the school year to end before leaving."

"The UAE market is experiencing a significant shift in consumer spending as evidenced by the first-ever cancellation of the spring edition of GITEX Shopper, the largest bi-annual consumer electronics event in the country," said Nabila Popal, a senior research manager at IDC. "The true impact of this shift can be seen in the independent retail stores of Deira, the traditional trading and commerce centre of Dubai, where shops that were previously impossible to lease are now sitting vacant. Organized mall-based retail chains that focus exclusively on consumer electronics are also struggling."

The performance of the other GCC markets varied considerably in Q1 2018, with Kuwait seeing a 3.9% QoQ decline in smartphone shipments, while Bahrain and Oman bucked the regional trend to post respective growth rates of 3.4% and 6.0% for the quarter.

Nokia continues to dominate the vendor landscape for feature phones, garnering 87.0% share of the overall GCC market in Q1 2018. On the smartphone front, Samsung maintained its lead with 35.0% share of the region's shipments in Q1 2018, while Apple and Huawei ranked second and third with respective shares of 24.0% and 14.0%.

Cheaper second- and third-tier smartphone brands are benefiting from the depressed market sentiment, with global brands such as Oppo, Xiaomi, and Tecno, as well as local brands like Lava and Ibrit, all making slow and steady progress.

"Ibrit is a relatively unknown new brand, but it has made significant progress in the UAE in a short period of time and is aiming to expand its footprint across the region," said Popal. "While all these brands have adopted a different strategic approach, their low price points and high-end specs are key factors driving uptake of their devices."

Looking ahead, IDC expects overall mobile phone shipments to the GCC to decline 6.3% YoY in 2018. Given the prevailing market challenges, it will take some time for the market to adjust and for consumer behaviour to stabilize.