If 2020 taught anyone anything, probably the biggest takeaway is to not expect anything any more than you can reasonably predict.
The uncertainty that gripped the world was felt acutely in the GCC – we wrote about this in December.
We looked at business recovery in 2020 and also explained that D/A’s Sila tool is at the forefront of Arabic-understanding natural language processing models, giving us insights that meaningfully change businesses relationships with their customers. Simply put, Sila helps us navigate our consumer’s world with more empathy.
What’s changed since December
I wrote on December 5 that the economy in the UAE, and to a much more subdued extent, in KSA was on the way back. Data from D/A’s Sila tool showed consumer confidence in the economy was getting stronger.
But December was an interesting month.
Within a week of that article we saw news of the ‘UK variant’ of COVID-19 that was more virulent than other mutations. Travel restrictions reared their heads again as hospitalisations globally skyrocketed. As we moved into January some worrying trends emerged in the UAE as we learned about the South African ‘variant’ of COVID-19. Cases rose, deaths increased and vaccine roll-outs stuttered.
They are global news stories of course.
What is the most connected economy in the MENA region? The UAE.
In the UAE it was a decline of almost 8 percentage points to push the economy outlook net negative for the first time since October, but still the third highest month for a year.
If we annualise this, we can pinpoint the exact moments in December the UAE lost some of its momentum (the immediate rise in negative (expansion of red) followed the UK variant announcement. The news didn’t get better from there:
Are consumers alone in their worries?
Seemingly, yes. The raft of regulatory reforms in the UAE, including citizenship, along with vaccine rollouts to the private sector enabled strong growth in positive sentiment among business.
Business is rebounding, with the highest confidence since January 2020 being recorded in January 2021, a net positive of 58.8%.
Saudi is a bright spot
Saudi roared back in 2021, with a strong start – confidence was a record 50.3% and was net positive for the first time on record since our series began. With the oil price rebounding, and a number of announcements in January, not least the signing of the AlUla Declaration, the confidence of the consumer has come roaring back.
But, as we’ve iterated before, this is a two speed recovery. Consumers are optimistic about the economy, business not so much. In fact as new lockdowns loomed we saw a stuttering recovery for business in the Kingdom – still off the marginal ‘high’ of 15.8% net positive in November.
Two speeds, alternating currents.
We’re seeing an interesting intersection of optimism. On one hand, we see businesses in the UAE demonstrate resilience to news that would’ve again caused panic previously. Reforms and vaccines are driving how we view the world right now.
A wary public is growing more restrained and net-negative on the economy. Will this be just a one-month observation?
As we see in Saudi, broader reforms can drive economic confidence; but business, battered by a rise in VAT and a tough 2020, remains subdued about the future to a worrying extent.
What we’re seeing is a very classic divergence in consumer and business behaviour:
- Consumer confidence is not chained to business optimism. Business appears as a lagging indicator of the consumer. Consumer demand takes some time to translate to business demand. In an expansionary economy; this might seem to correlate, but it rarely does. Employment conditions are lagging indicators of economic cycles because it takes up to 3 months for employment to suffer at volume. We can say the exact same of consumer confidence – take household savings translating to expansionary purchases like an automobile.
- It would be reasonable that the consumer might be confident in the economy; but, still may have ‘fresh wounds’ that prevent them from committing to a big-ticket item like a new car. This takes maybe, let’s say, 3 months from the optimism returning. A business reasonably doesn’t see an uptick then for a further 2-3 months as trends are confirmed in purchase behaviour from their sales data. It’s reasonable then, that the improvement in business optimism in January, is reflecting October’s consumer optimism. We could expect that business in February or March will then, potentially, take a hit, if January’s consumer economic outlook is confirmed a trend.
- Consumers are shrugging off bad news: We are seeing a much broader trend whereby the bad news cycle is being crushed quicker than it was in 2020. Our uncertainty governed our flight or fight mentality to COVID-19 – we simply didn’t know enough (it could be argued that we still don’t) about the virus and so each piece of news made it harder and harder to see a way out. As we progressed though; we talked it about it less, and optimism by way of vaccines, reforms and economic activity returned – we contemplate a future where we live alongside the virus as it slowly gets subdued by medical advancements.
How marketers can connect with consumers in 2021
Consumers are wary of news cycles. Rumour mills, long the mainstay of life in the Gulf, don’t help with sudden changes in sentiment. While the media does a good job at reporting, there is a communication gap, and our desire to know more about bad news than good feeds into that cycle.
What is clear is that bad news isn’t sticking like it did in 2020. We are facing a new reality of consumer that isn’t necessarily bound by societal changes; but, they have been changed in profound ways. Whether COVID-19 inspired changes to workplaces and employment remain in our collective memory into 2022, we don’t know. But it would be foolish to dismiss permanent changes to consumer behaviour as simply pandemic-related.
We believe:
- COVID-19 has been an accelerant in the GCC to reforms that have long held back business and societal development.
- Consumers are responding to a more realistic view of the world they are in – and are more mindful of money and time nexus’. This means that consumers are more aware of the boundaries between their work and personal lives; and are looking for ways to enhance these.
- The deluge of time online has meant the creator economy is building to an extent that is seeing a slow; but very steady, shift towards a new model of consumer brand behaviour. This audience-first approach is manifestly clear in the data above – we are moving towards observation and action based on our peers; not what the media may have us focus on.
- Resilience is baked into consumer behaviour. If there is pent-up demand, at a societal level, it will be slow release instead of immediate. From big-ticket items to vaccine-enabled travel, expect a slower return to typical behaviours – if at all.
As an aside; some of the thinking in this piece about consumer rationalism has come from some reading I’ve done recently. It could be of interested to read a really accessible viewpoint of how our psychology bests with money. I encourage you to read Morgan Housel’s excellent The Psychology of Money. An extraordinarily accessible read if you buy the book.
If you made it this far, well done!
This article was published by the co-founder of Digital Ape, Paul Kelly, on Linked In.
