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Home News Cars Automechanika Dubai: State of the market post-COVID-19

Automechanika Dubai: State of the market post-COVID-19

Although the last few months have shown how reliant countries are on the fleet and transport industries, they thrive best when the economy is booming.

The impact of the COVID-19 pandemic may have sent the global economy into a spin but there is hope that the GCC and the wider Middle East can be among those who come out in better shape. In fact, the signs are already there according to Subash Joshi, VP – Mobility and regional head (ME), Frost and Sullivan. In a wide-ranging overview of the market on behalf of Automechanika, however, he says that operators and those that supply should be preparing for a new normal where services are key.

“We have done a comparison of GCC with the Eurozone, 11 countries in Asia, BRIC and NAFTA country. So, if you look at the Eurozone and NAFTA that are declining but if we compare Asean, GCC and BRIC countries, the GCC is among the fastest growing,” he notes.

“In the entire Middle East region, the GCC is the fastest growing. It used to account for about 5.9 percent of the world GDP share back in 1990 and by 2030 we’re expecting it to be 2.1% of the market share. Definitely, there is a short-term blip but in long-to-medium period, the GCC will bounce back and we are expecting it to become a $2.8 trillion economy by a 2030.”

Part of this bounceback will be powered by the economic diversification that is underway in the GCC.

“(Look at) Saudi – they are creating a multi-sector economy by year 2030 and it’s all to become more self-resilient and self-dependent. Oman is already way ahead of many countries in the GCC region and we will see a lot of development happening in the sector,” adding that other governments remain determined to stick to their plans to develop their economies.

“The Covid-19 period has impacted it in a short term and implementation has been delayed. However, we are talking about 2020-2030 and implementation will get back to normal in a year or a year and half time once we move towards the new normal,” he says.

“A lot of people were from the region will agree with me that it’s not about setting the vision anymore. It’s about implementing that vision.”

From house buying to running a business, location is everything and Joshi suggests that the GCC, at least, will continue to benefit from its unique geographical importance, particularly to a China, emerging from its own crisis.

“The GCC has a strategic location when it comes to the world map and it’s experiencing increasing trade due to the Silk (Belt and) Road and the 21st century Maritime Silk Road. In fact, China by amount is the most important exporter with the UAE,” he remarks.

“Chinese banks are also entering UAE along with Chinese companies that contact us like transport, logistics and tourism. And even in the automotive industries, we have seen that brands like Changan in Saudi Arabia. They are among the top 10 brands and one of their models was listed in the top seven selling models in Saudi Arabia in the last quarter of 2019. We have already seen that influence coming and that change in behaviour of the local consumer has come in.”

Another major trend that will shape the region is the development of what he calls: a heterogeneous society.

He explains: “When I say it’s heterogeneous, I mean in terms of it being very polarised. It’s broken down by a number of things divided by income – 10% of the population in the GCC accounts for almost 68% of the total regional income. It is divided by age and 50% of the GCC’s population is under the age of 30 and by 2025 we are expecting it to increase to 54%.

“In Saudi almost two-thirds of the population is under the age of 35. It’s divided by gender and ethnicity. We have more than 200 nationalities living in the UAE and more than 50 nationalities living in other GCC countries. What does it mean for companies? Companies need to understand and evaluate and develop personalised services and products for this heterogeneous society.”

The time for a single overall strategy for the GCC is consequently a non-starter for firms looking to work across the region.

“What works in Saudi Arabia doesn’t work anymore in the UAE. What works in Oman doesn’t work anymore in Kuwait. The regional strategy can be the same but then country-specific changes or adoption of this heterogeneous society has to come in product and services – and that’s a key message from me.”

Frost and Sullivan celebrates its 60th anniversary since it was founded in New York city next year. Today, it operates out of 40 offices across six continents. From the start of the pandemic the consultancy and researcher has been exploring the macroeconomic impact of covid-19 globally as well as how it may continue to affect the regional economy going forwards. It now sees one clear route out of the harm caused by the pandemic.

“When we started the covid-19 impact analysis, we were doing three scenarios. However, now we have come down to only one,” he says, adding that the world is facing the worst recession since the global depression started in 1918 due to governments underestimating the impact of Spanish Flu. Understandable given that many countries were still recovering from the First World War but a mistake that sparked a decade of difficulty.

“Whenever we talk about recession, we talk about the depth, length and the timeframe of the recovery – or the speed of recovery – which the recession is going to take. In the current scenario, if I look at the global GDP, we are expecting somewhere about 3% to 8% depth and recovery begins in three to five quarters,” he remarks.

“We are expecting recovery to happen by Q4 2020 in terms of global GDP. However, we are expecting a spike in 2021 coming from a perspective that we already have $5 trillion globally in stimulus packages.

“A second wave of stimulus packages, which is likely to come in few months which will be focusing on capital spending and a last package might come towards the end of 2020 – and that is what is going to support a faster recovery. The market should stabilised to the pre-covid situation after 2021 and in 2022.

“If you look at it from the regional standpoint again, I have good news and bad news. The bad news here is that the US and Eurozone are definitely in a recession. But when we talk about the South Asia side of it, it just might escape the recession and the growth might be more stable in comparison with the US and the Eurozone. We are all aware about the China situation. South Korea has recovered well, and we have already seen growth happening in some of the East Asian countries.

“We are expecting the same trend to be followed in the Middle East. When we talk about GCC – these are all analysis based on that we will have the reopening of the economy to the 70 to 80% level by (at least) July and we are not expecting a second wave (of COVID). Otherwise, the recovery will become W curved rather than a V Curve. We are expecting somewhere about 1-3%percent decline in terms of overall GDP and the recovery will take at least on year to come to the normal level. When I say normal, I mean to come to the stable level where we were pre-COVID era.”

Joshi believes that incoming data is revealing that some economies are recovering faster than the others in the GCC with COVID-19 and low oil prices applying the brakes on an immediate bounce-back. Although the situation could have been a lot worse.

“When we were running our doomsday scenario where the prices can go down to less than $5 or to even negative. Thankfully, that hasn’t happened, and we are forecasting it to be stabilised between 35 and 40 dollars. That will help in the recovery of the economy going forward.”

Joshi finds more reasons to be optimistic in the mobility industry’s historic ability to ride out the challenges set before it, even if it is in for a rough ride.

“If you look at the automotive industry, it is very resilient. We have seen it in 2001-2002. We have seen it 2008-2009. In fact, in 2008 and 2009 OEMs bounced back within a two year time period. However this time it is going to take much longer,” he says.

“Covid-19 is definitely one of the reasons for that.”

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Stephen Whitehttps://truckandfleetme.com/
Stephen White was formerly editor of Big Project ME.
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