Saudi citizens: Your purchasing is losing power

June 18, 2018 2:11 pm

Saudi is so intent on changing its identity that today’s kingdom bears no resemblance to recent years’ past.

From removing the ban on women driving, to introducing movies and entertainment, not to mention opening the country to tourism with a new tourist visa for all, Saudi is looking for a complete make-over.

But this diversification strategy that began with Vision 2030 costs money, as it strives to derive income from sources other than oil.

Saudi implemented 5% VAT at the start of the year, a move that was preceded by the implementation of Excise tax in May 2017.

Now, citizens are feeling the after effects, with prices reported to be inflated in a new report by Jadwa Investment, citing an April report by Saudi’s General Authority for Statistics (GaStat).

UAE: Impact of VAT on sales of gold and diamonds to be reduced

Your money buys less

In GaStat’s report, overall prices in the Kingdom have increased by 2.8 percent year-on-year so far in 2018. Furthermore, prices rose by 2.6 percent year-on-year in April.

Jadwa said food and beverages prices rose by 5.7 percent year-on-year in April, but declined by 0.9 percent month-on-month for the second time in a row.

They also explained, “we maintain our inflation rate forecast for the full year of 2018 to average around 3.1 percent, due to expected higher imported inflation, and higher costs borne by local food and agriculture companies”.

This does not spell good news for the Saudi customer, whose salary is about to buy less. While the upper and middle-class demographics might not be as impacted by this at the onset, customers with lower earnings will feel the greater blow. Of the country’s 11.7 million expats, 1 out of 5 falls into the lowest income bracket, earning less than $12,000 a year. This portion of the population will be hit the hardest. Construction workers, cleaning servicemen and women, and other labor-intensive job holders will come out as the greatest losers in this situation.

READ: Saudi VAT App helps consumers avoid price traps set up by retailers

The silver lining

GaStat’s research also stated that annual growth in point of sales, aided by the purchasing power of those who could afford to spend, has rebounded after a decline in January, with the average year-to-date rise of 13 percent. This is compared to 7 percent in the same period last year.

Saudi economy pulled out of recession in the first quarter of 2018 thanks to oil price rises, Capital Economics said earlier this year. They also said that the oil-dependent Saudi economy grew by 1.5 percent in the first quarter, after having contracted by 0.7 percent in 2017.

Financial services company Al Rajhi Capital estimates consumption to remain relatively flat until 2020, increasing just 3.8%.

READ: Say Cheese! Who bet the farm to save the Saudi consumer?


Mark Anthony Karam
By Mark Anthony Karam
Mark Anthony Karam has 3 years of experience in the field of visual and written media, having earned his Masters degree from the UK. You can get in touch with him here: [email protected]