A prob­lem of do­mes­ti­ca­tion

Pro­jected in­crease in con­sumer spend­ing is am­bigu­ous mes­sage for 2016

Executive Magazine - - Last Word - JES­SICA SAADE

Le­banese con­sumers, liv­ing in an oil-im­port­ing coun­try, are ex­pected to ben­e­fit in the com­ing months from some benev­o­lent fac­tors in their fi­nan­cial en­vi­ron­ment, but re­tail­ers should not cel­e­brate too soon as the past few years sug­gest stronger pur­chas­ing power does not trans­late into sig­nif­i­cant spend­ing boosts across retail seg­ments. In its Novem­ber 2015 read­ing, the Con­sumer Price In­dex (CPI) stood at 96.6 points, rep­re­sent­ing a monthly drop of 0.25 per­cent ac­cord­ing to the Cen­tral Ad­min­is­tra­tion for Sta­tis­tics (CAS). In­dex charts by the Con­sul­ta­tion and Re­search In­sti­tute showed CPI in­fla­tion to be prac­ti­cally zero when com­par­ing Novem­ber 2015 to Novem­ber 2014 and the 12-month mov­ing av­er­age was in neg­a­tive ter­ri­tory at -0.5 per­cent, down from 0.6 per­cent in­fla­tion a year ear­lier.

Ad­di­tion­ally, pro­jec­tions is­sued by in­ter­na­tional on­line data plat­form Trad­ing Eco­nom­ics at the end of De­cem­ber 2015 ex­pect the CPI to hover around 97 points in the first three quar­ters of 2016. At the same time, Trad­ing Eco­nom­ics’ charts for con­sumer spend­ing in Le­banon pro­ject grad­ual in­creases in the first three quar­ters of 2016. The stage set­ter for the CPI in 2015 and for es­ti­mates on CPI and con­sumer spend­ing go­ing for­ward is the over­sup­ply of oil cou­pled with its world­wide de­crease in de­mand, partly due to the weak­en­ing of many in­ter­na­tional cur­ren­cies against the US dol­lar, which has been trans­lated into lower oil prices. This sug­gests that a global in­crease in dis­pos­able in­come would fol­low, hence strength­en­ing con­sumers’ pur­chas­ing power and boost­ing their spend­ing lev­els. How­ever, while gen­er­ally per­ceived as pos­i­tive, this up­ward trend might be alarm­ing in coun­tries where it oc­curs si­mul­ta­ne­ously with do­mes­tic eco­nomic prob­lems.

This com­bi­na­tion of up­ward con­sumer spend­ing and do­mes­tic eco­nomic trou­bles is the sce­nario that most likely ap­plies to Le­banon, as ex­pressed in re­marks by cen­tral bank Gov­er­nor Riad Salameh who, ac­cord­ing to me­dia re­ports, told par­tic­i­pants in an in­vestor sum­mit on De­cem­ber 22 that gross do­mes­tic prod­uct in­creased at best by 2.5 per­cent in 2014 and is es­ti­mated to see zero per­cent growth in 2015.

MORE TO SPEND

Avail­able ev­i­dence sug­gests Le­banese con­sumers should have more dis­pos­able in­come, but re­tail­ers are largely not re­port­ing ben­e­fits from this ex­tra spend­ing power. Lower global oil prices have had a di­rect im­pact on what driv­ers in this car-lov­ing coun­try pay at the pump. As­sum­ing 1,600L of gaso­line is needed for 20,000km, which is the av­er­age yearly dis­tance trav­eled per ci­ti­zen, $15 per 20L at De­cem­ber 2015 com­pared to $17 at De­cem­ber 2014 means an im­por­tant yearly sav­ing of around $3,200 per ci­ti­zen. More con­sid­er­ably, com­pared to the $22 per 20L at De­cem­ber 2013, the two-year sav­ing is es­ti­mated at $10,000. Oil prices also likely con­trib­uted to the de­fla­tion­ary en­vi­ron­ment Le­banon has been wit­ness­ing re­cently. CPI fig­ures re­leased by the CAS show that the lead­ing con­trib­u­tors to a 3.9 per­cent year-on-year de­cline in Novem­ber 2015 were drops in the cat­e­gories of: wa­ter, elec­tric­ity, gas and other fu­els (-18 per­cent), trans­porta­tion (-10.7 per­cent) and health (-6.8 per­cent).

Data on con­sumer spend­ing, how­ever, show two years of de­cline for most retail seg­ments. The Le­banese Fran­chise As­so­ci­a­tion pro­vided Ex­ec­u­tive with a book­let show­ing the re­sults of re­tailer sur­veys con­ducted ev­ery six months be­gin­ning in 2012. At time of writ­ing, the most re­cent data cov­ered H1 2015. The sur­veys cover six cat­e­gories of con­sumer goods (cloth­ing, food & bev­er­ages, cos­met­ics, house­hold goods, lux­ury items and sports & hob­bies) as well as four cat­e­gories of retail ser­vices (hos­pi­tal­ity, tourism, med­i­cal ser­vices and education).Com­pared to the first half of 2013, the sale of goods across all cat­e­gories was up 2.8 per­cent; how­ever, growth was driven by the food & bev­er­ages (+17.6 per­cent). Cloth­ing and house­hold goods were the big losers in the two-year pe­riod, with sales drop­ping 12.4 per­cent and 10.4 per­cent, re­spec­tively. In the same time pe­riod, retail ser­vices also saw growth of 16.8 per­cent, largely on the back of the 37.7 per­cent sales jump in the tourism cat­e­gory. While th­ese fig­ures do not sug­gest a na­tion with much ex­cess cash to burn, they do re­flect a di­chotomy be­tween higher spend­ing and eco­nomic pro­duc­tiv­ity. An ex­tended anal­y­sis of the past 30 months high­lights do­mes­tic eco­nomic prob­lems, whereby the retail in­dus­try seems un­able to achieve a pos­i­tive rate of growth be­yond sea­sonal surges.

Look­ing for­ward to 2016, there may be a ray of hope in the most re­cent By­b­los Bank/Amer­i­can Univer­sity of Beirut (AUB) Con­sumer Con­fi­dence In­dex (CCI), which cov­ers the first half of 2015. In con­junc­tion with the CCI, By­b­los and AUB ask con­sumers about both their as­sess­ment of the cur­rent sit­u­a­tion in the coun­try and their ex­pec­ta­tions for the fu­ture. For the first time in years, con­sumers were con­sis­tently pos­i­tive about the fu­ture. “The By­b­los Bank/AUB Ex­pec­ta­tions In­dex posted higher val­ues than the Present Sit­u­a­tion In­dex in each of the first six months of 2015, con­sti­tut­ing the first in­stance since the first seven months of 2011 where con­sumers have a more pos­i­tive view about the fu­ture.”

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