Saudisation To Slow Retail Sector Growth - Gulf Business
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Saudisation To Slow Retail Sector Growth

Saudisation To Slow Retail Sector Growth

Lower demand and higher local wages are expected to drag growth in Saudi Arabia’s retail sector, says NCB Capital.

Saudisation is expected to slow down growth in the Kingdom’s retail sector in the short-term due to lower demand and higher wages pressuring margins, according to a report by NCB capital in the local media.

“As seen in Q3 2013, we believe a slowdown in growth will continue to be recorded in the next few quarters due to the negative short-term impact of Saudisation,” said Farouk Miah, CFA, head of equity research at NCB Capital.

“These include one million fewer expatriates, the negative sentiment from remaining expatriates, slowdown in new store openings and higher staff costs for companies, leading to pressure on margins.”

But Miah said that nationalisation policies will have a positive impact over the long-term despite the current sluggish growth.

“We believe over the long-run Saudisation will be positive for the retail sector. Increased employment and disposable incomes for locals, particularly for women, should lead to higher sales for retail companies,” he said.

“Additionally, the longer term drivers for the sector such as consolidation of a fragmented sector, young and growing population and economies of scale aiding margins all remain.”

Despite a short-term slowdown in growth, Miah said that this period offers “an opportunity to enter stocks for the long-term.”

“Macroeconomic drivers in Saudi Arabia remain strong with consolidation of fragmented sectors supporting the long-term growth outlook for stocks under our coverage.”

Among retail stocks, NCB remained neutral about electronics company Extra since it would be heavily affected by the country’s Saudisation policies while it remained positive about the consumer electronics firm Shaker due to its year-on-year improvement.

According to a recent A.T. Kearney report, the Kingdom is a growing retail destination with massive untapped potential. The report added that Saudi Arabia’s retail sales are expected to have grown 11 per cent in 2013.


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