JEDDAH, 29 July 2003 — The market for consumer durables in Saudi Arabia is highly fragmented and generally geared to trading of numerous imported items, mostly from Japan and other Far Eastern countries as well as from other the industrialized countries. Meanwhile, domestic production of air-conditioners and refrigerators is meeting a significant portion of local demand besides exporting to other countries. The actual market size, therefore, depends on the specific range of products that are included in the estimation. This report focuses on the trading aspects of consumer durables normally required for household applications such as air-moving/conditioning apparatus, washing machines, water coolers, vacuum cleaners, food blenders, household heating apparatus, ovens, gas cooking appliances, tape recorders, video cassette recorders and televisions, cameras, and other audio and video items.
Saudi Arabia has emerged as one the largest markets for home appliances and consumer electronic products outside the industrialized countries on the back of high per capita income of the native population, improving standard of living and environmental factors. Moreover, the formation of around 250,000 new Saudi families every year also create incremental demand on top of the replacement demand created by aging consumer durables. The expatriate community, which represents nearly 30 percent of the Kingdom’s total 23.5 million population, also contributes to demand growth as they take away these items to home countries while leaving on vacations or on permanent transfer of residence.
Local producers of consumer durables are currently protected from foreign competition by a 12 percent custom duly on imports into the Kingdom. This rate was even higher at 20 percent before May 2001. In its bid to join the World Trade Organization (WTO), the Saudi government reduced custom duties across the board by more than half effective May 2001, from 12 percent to 5 percent ad velum (cif), while the protective duties were reduced from 20 percent to 12 percent. This short-term relief to domestic producers could go once Saudi Arabia joins the WTO, thus exposing the local industry to fierce competition from foreign brands. Local producers would have to be quality and price conscious in order to compete with international brands in a market operating at relatively low profit margins.
Market Demand & Supply
In value terms, the overall market demand for all types of consumer durables is estimated to have declined by 5.0 percent to SR8.4 billion in 2002, from SR8.85 billion the year before.
The market demand is expected to recover this year by around 3 percent to SR8.65 billion as the war in Iraq is over and the economic conditions in Kingdom are in a better underlying shape.
Imported consumer durables are estimated to have represented nearly 65 percent (SR5.46 billion) of the total market demand last year. Within the segment of locally produced consumer durables, around 3.6 percent (SR300 million) were directed to exports and the remaining 31.4 percent (SR2.64 billion) is sold in the domestic market.
All major brands vying for a higher market share by lowering the cost of their products particularly items imported from Far Eastern countries, including Japan, which are dominating the Saudi market for consumer durables. Cheaper Chinese and South Korean brands are also competing for a market share.
Market Demand by Segment
The numerous consumer durables are classified into four major groups according to the nature of their enduse purpose. They include (1) Air Cooling products; (2) Home Appliances; (3) Communication and IT items; and (4) Audio/Visual segment.
(a) Market Demand for Air Moving/Cooling Apparatus
The Air Moving/Cooling group of consumer durables includes both local and imported air-conditioners, refrigerators, desert coolers and other industrial products needed for air-cooling, such as electric fans and other similar products. The market demand for air-cooling products in Saudi Arabia is estimated at SR4.1 billion in 2002 representing nearly 48.8 percent of aggregate demand for consumer durables. Within the air-cooling segment, air-conditioners dominated the market with an estimated value of SR2.95 billion including exports worth SR300 million. This is followed by refrigerators, both local and imported at SR950 million and fans and similar items SR200 million.
In the air-cooling segment, Juffali dominates the market with around 30 percent of the air-conditioners segment, followed by locally produced Zamil at around 22 percent. Other imported brands include LG, Mitsubishi, Daikan, Samsung, with a small portion imported from Japan. The key players in the Split Air Conditioners segment are Mitsubishi, General, Daikan, National, LG and Samsung, with Mitsubishi having a dominating market share.
Meanwhile, locally produced refrigerators dominated the market, with an estimated market value of SR650 million, while imported brands amounted to SR300 million. The key local brands are Juffali’s Kelvinator and Alesayi’s Gibson while imported ones include LG, Samsung, National, Daikan etc.
The market demand for fans and similar air moving items is estimated at SR200 million in 2002.
(b) Market Demand for Home Appliances
The market for home appliances is diverse and its value could vary from one estimate to another, depending upon the number of products included. The demand estimate of this report includes (1) washing machines; (2) vacuum cleaners; (3) water coolers; (4) cooking range ovens and microwaves, and similar items; (5) toaster, hair dryers etc; (6) electric smoothing irons; (7) electric water heater etc; (8) juicers and grinders and (9) miscellaneous other items of home appliances. Imports are the primary source of supply of these items while local production is limited to water-heater and to a lower extent washing machines by Babtain of Riyadh.
The combined value of market demand for home appliances is estimated to have increased by around 3.5 percent to SR1.35 billion in 2002, and is expected to rise by around 4 percent to SR1.4 billion in 2003.
(c) The Audio/Visual Market
The combined value of market demand for various types of audio/visual products is estimated at SR1.3 billion in 2002, which represents nearly 15.5 percent of the total market for consumer durables. This segment of the consumer durable includes TV sets, Hi-fi items, Radio Cassette Recorder (RCR), Video, Satellite Receivers, VCR, Movies Cameras etc.
(d) Market Demand for Communication and IT Products
This segment of the consumer durables market include computers, fax machines, and telephone sets etc. The combined market demand for this segment is estimated at SR1.65 billion, which accounts for nearly 19.6 percent of the total consumer durables market in 2002. The market demand for computers in the Kingdom is estimated at SR1.4 billion, which accounted for nearly 16.7 percent of the total for consumer durables and around 85 percent of the total Communication and IT segment.
The three main characteristics of the Saudi consumer durable market are that consumers do not purchase these products very often as their life span extends over years. More time and efforts are spent on making final choice to buy which brand and type, and features of products can well be examined before the actual purchase is done. The demand for consumer durables in the Kingdom is very closely related to the economic conditions and the population growth. The consumer durables industry, both producers and traders, are doing well in the Kingdom. Expatriate community also contributes to the demand for consumer durables in Saudi Arabia disproportionately more than the households inhabited by them in the Kingdom.
(Said Al-Shaikh is chief economist at the National Commercial Bank in Jeddah.)
