Saudis are second biggest foreign spenders in UAE

Saudis are the second biggest foreign spenders on cards in the UAE after the U.S. (File photo: Shutterstock)

Card spending in the UAE was 10.2 percent higher in January-May 2015, relative to the same period last year, according to data compiled by Network International. The value of card transactions over the period reached AED 34.3 billion. Network International covers about 60 percent of the UAE market for e-commerce and point of sale (POS) transactions.

Most of the growth in spending in the first five months of this year was on cards issued by UAE banks (mainly residents), which rose 14.9 percent y/y and accounted for over 70 percent of total POS transactions. The value of foreign spending (i.e. on cards issued by non-UAE banks) was unchanged y/y in January-May 2015, at AED 9.8 billion.

“We assume that the country in which a credit card is issued reflects the spender’s nationality. While there will be exceptions where people use credit cards of countries in which they are not citizens and/or residents, as well as cases of dual citizenship, we believe this is a reasonable assumption.

“Spending on U.S.-issued cards accounted for about 20 percent of all foreign spending in the UAE in the year to May, and was up 9.2 percent y/y. The Department of Tourism and Commerce Marketing indicated that the U.S. was the fourth largest source market for hotel guests in Dubai in 2013 and 2014, behind Saudi Arabia, India and the UK.

“Saudis are the second biggest foreign spenders in the UAE, accounting for 12.7 percent of total non-UAE POS transactions. Growth in spending on Saudi-issued cards was up 24.9 percent y/y since January. The British are a close third, accounting for 9.2 percent of foreign sales year-to-May, but growth in spending was just 1.4 percent y/y, likely reflecting the relative weakness of GBP relative to USD and dollar pegged currencies year-to-date, compared with the same period in 2014.

“The impact of USD strength on foreign spending in the UAE becomes even more apparent in the geographic breakdown of spending beyond the top three source countries. Russian spending declined -52 percent y/y in January-May 2015, taking the Russian Federation down to 6th place from 4th place in last year. China moved up from 5th place to 4th in the list of top foreign spenders, although even Chinese spending was -5.4 percent lower in the first five months of this year relative to the same period in 2014.

“Qatari spending in the UAE rose 14.0 percent y/y, ranking 5th overall, followed by Kuwait (+6.0 percent y/y, ranking 7th overall). Switzerland and Nigeria ranked among the top 10 foreign spenders year-to-date, displacing Angola (where spending on cards declined by a third y/y) and France (-11.2 percent y/y).

“Interestingly, despite India being the second largest source market in terms of the number of tourists to Dubai, it ranks 14th in terms of spending on cards. There are several factors that may explain this, including the use of non-Indian bank issued credit cards by Indian tourists, a higher propensity to use cash rather than cards or simply lower per capita spend in the UAE compared with other nationalities. “The sector which saw the largest annual increase in card spending in January-May was restaurants (+21.6 percent), followed by airlines & travel (+15.4 percent). Spending on hotels and duty free rose by 7.1 percent respectively. The value of jewelry & watches sold in the first five months of this year was 7.4 percent lower than the same period 2014, while clothing & boutique spending was down -2.3 percent y/y.

“However, spending on UAE credit cards across all the key sectors in the year-to-May was higher than last year. The best performing sectors were restaurants, duty free, airlines & travel and hotels, which all saw double digit growth.

“In terms of foreign spending, there was a sharp decline in spending on clothing & boutiques (-17.8 percent y/y) and jewelry & watches (-16.7 percent y/y). In the first five months of 2014, Russians were by far the biggest spenders on clothing & boutiques, with total spend in this category amounting to AED186 bn. This declined by two-thirds to just AED 62bn in the first five months of this year, reflecting the very sharp depreciation of the ruble against the dirham. To some extent, the decline in Russian spending in this sector was offset by higher Saudi (+30.6 percent) and Qatari (+13.8 percent) spending.

“Similar trends were evident in the jewelry & watches sector, where Russian spending was down -65 percent y/y, UK spending was down -28.9 percent y/y and Chinese spending was down nearly -20 percent y/y in the first five months of this year. In contrast, jewelry & watches spending on Saudi and Qatari issued cards was up 68 percent and 14.8 percent respectively.

“As Gulf countries are pegged to the USD (and thus the dirham), the increase in spending from these countries supports our view that USD strength has been a key factor behind the weakness in non-GCC foreign spending in the UAE year-to-date.

“Encouragingly, foreign spending in the services sectors of the economy, such as restaurants (+17.7 percent), hotels (+4.9 percent), airlines & travel (+6.9 percent) grew relatively strongly in the year-to-May.

“There are several factors to bear in mind when evaluating this data. Firstly, the data is not comprehensive or full retail sales data – it does not include cash transactions, nor does it cover 100 percent of card transactions in the UAE. Secondly, the data measures the nominal value of transactions processed by Network International and is not adjusted for inflation. A rise in the value of transactions may not be entirely due to increased real demand. Finally, the geographic breakdown is based on the country in which the card was issued, which may not reflect the nationality or permanent residence of the spender.

“Nevertheless, the Network International data is a useful, timely indicator of spending trends in the UAE. Overall, the picture that emerges for the year-to-date is encouraging. There is clear evidence that the UAE’s competitiveness has been eroded by the recent appreciation of the USD, and that this has had an impact on tourist demand for tradable goods. This is consistent with anecdotal evidence from retailers in the UAE. However, demand from residents – who account for the bulk of sales - appears to be fairly resilient, and services sectors appear to be seeing robust growth in sales. This suggests that market conditions are not as weak as the foreign spending components imply.”

This was first published by the Saudi Gazette.

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Last Update: Wednesday, 20 May 2020 KSA 09:47 - GMT 06:47
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