Fleet Management Update of the main MEA markets
The Middle East and Africa (MEA) is arguably the most neglected automotive and fleet management region in the world. However, the leading markets in both Africa and the Middle-East are more resilient and Fleet-mature than most observers give them credit for. Together with Global Fleet expert Roberst Boscari, we take a look at the Economic overview, Automotive sales and Fleet penetration in the main MEA markets.
MIDDLE-EAST: Automotive growth to resume in 2018
The sharp drop in oil prices from 2014 onwards has led to a steep decline in growth across the region, notably in the Gulf countries, where growth has declined from between 15% and 20% to about 2% to 3% today.
The Middle-East automotive market constitutes 3.5% of the global market. It has suffered a severe decline since 2015, but is expected to resume growth from 2018.
The Middle-East is a more diversified – and more Fleet-oriented – automotive market than many outside observers realise. Elements in favour of Fleet in the Middle-East include: a strong orientation towards public-sector Fleets, the presence of and investment by large multinational companies, a strong banking and financial sector, and an emphasis on large building projects.
Mobility as an industry is overwhelmingly at the service of the business community and of development efforts. The business hub for the region, is Dubai where multinationals generally have their headquarters for the region – often also including India.
Global Fleet Managers generally target their efforts at any or all of the five key markets in the region: Iran, Saudi Arabia, the UAE, Israel and Oman.
Iran: The post-sanctions boost
In January 2016, an agreement on the nuclear issue meant that the international sanctions against Iran were lifted. This gave a boost to the economy, which is now growing at about 5%; and had a positive impact on the banking sector, by reducing international transaction costs and stimulating the inflow of foreign direct investment.
The outcome of the presidential elections later this year will be decisive for the economic outlook, especially for the potential growth in European investment – several U.S. sanctions against Iran remain in place.
In 2016, Iran was the 15th-biggest automotive market in the world, with 1.3 million light vehicles sold (up 27% over the previous year). Prospects for 2017 are of 25% growth. The most popular brands in 2016 were Peugeot (23%) and Kia (16%), with strong progress registered by Renault. The best-selling cars were the small Kia Pride (19%) and the Peugeot 405, a large family car (11%). Manufacturing in Iran looks set to increase: Mercedes and VW already have a presence, and PSA has signed an agreement to produce vehicles in the country.
Due to its large and growing population (currently 80 million strong), its large public sector and the return of foreign investment, Iran has the potential to be an important fleet market. But from the perspective of both manufacturing and financing, the Fleet sector is very weak in Iran – not to mention non-existent. The market will therefore have to be created from scratch. Car manufacturers will have to set up dedicated Fleet sales structures and leasing companies will enter the market, depending on the political context. Analysts think this would be achievable by 2018.
Saudi Arabia: A work in progress
The drop in oil prices led to a sever slowdown in economic growth, which stalled at just 1% in 2016. Not surprisingly, since oil accounts for 90% of the kingdom's exports. A gradual recovery is expected for 2017. Services account for 50% of GDP, with tourism, banking and other financial services as strong points. Eager to promote international trade, attract foreign investment and diversify the economy, the government has launched major projects throughout the country's regions.
In 2016, Saudi Arabia was the 21st -biggest automotive market in the world, with 680,000 light vehicles sold (down 20% over the previous year). Prospects for 2017 are of a further 15% drop. The most popular brands in 2016 were Toyota (32%) and Hyundai (21%), with strong progress registered by Nissan. The best-selling cars were the Hyundai Accent, a compact (8%) and the Toyota Hilux, a pickup (7%).
The Fleet market is significant, in large part because of the size of the public sector. Some manufacturers and importers have a Fleet approach, with dedicated structures.
Leasing exists, thanks to the well-developed banking and finance sector, but often this is by rental companies who offer medium- and long-term rental options; or by strictly local players; or as a financial arrangement with a purchase option, similar to balloon financing, which corresponds to the resale price of the vehicle. These companies have had major problems following the suspension of major works and the sharp decline in demand for these three-year-old vehicles, which were resold in West Africa, Iran and Iraq.
The absence of European-style Operational Leasing is linked to the absence of an operational structure for the resale of three-year-old vehicles in-country, as well as the absence of a diversified remarketing structure, organised by the rental and leasing companies themselves.
As a general rule, good management of the Fleet market requires a good management of the remarketing of used Fleet vehicles. In Saudi Arabia as in the Middle-East in general, this is still very much a work in progress.
United Arab Emirates: The most advanced Fleet market
The economy of the UAE remains the most diversified in the region, and has also proved the most resilient in the face of the drop in hydrocarbon prices. Yes, the economy has been adversely affected, notably the construction industry. But the economy is still strong in 2017 and the financial and tourist industries remain important engines for economic activity.
In 2016, the UAE were the 33rd-biggest automotive market in the world, with 308,000 light vehicles sold (down 26% over the previous year). Prospects for 2017 are of a further 15% drop. The most popular brands in 2016 were Toyota (33%) and Nissan (21%), which showed strong progress. The best-selling cars were the Toyota Land Cruiser, an SUV (6%), and the Nissan Patrol, a luxury SUV (5%).
At 50% of the total market, the Fleet segment is very strong in the UAE. This is not surprising, given the combined weight of the public sector and the presence of multinational companies. Many car manufacturers have their regional HQ in the UAE, as do many importers, with dedicated Fleet Managers.
The UAE have a strong banking and financial system, solid enough to support a rich ecosystem of leasing companies offering operational leasing, as well as short- and medium-term rental companies, and independent lessors.
Dubai is often used as a financial base for financing lease operations throughout other Middle-Eastern countries. LeasePlan has a presence through a joint-venture in Abu Dhabi, and Bukkehae Middle East, a specialised fleet management company that also does trucks and is oriented towards emerging economies, is in Dubai.
A lot of multinationals have chosen Dubai as the centre for their operations in the Middle-East, often including India. It is also the hub for a number of taxi companies. Car-sharing is being developed in both Dubai and Abu Dhabi (cf. eKar) notably for Etihad and Emirates airlines. Uber is also present in both Dubai and Abu Dhabi. In short, the UAE are the most advanced market in the Middle East when it coms to Fleet Management and Operational Leasing.
Israel: A leader in clean and smart mobility
Economic growth hit 2.8% in 2016, up slightly from the year before, thanks to strong private consumption. Growth is expected to accelerate to 3% this year, again stimulated by domestic demand, but also by a recovery of investment. The Israeli government has also introduced tax cuts to further support consumption and investment, the latter especially in the high-tech industry (cybersecurity and driver assistance being two of the most dynamic examples).
In 2016, Israel was the 35th-biggest automotive market in the world, with 286,000 light vehicles sold (up 12% over the previous year). Prospects for 2017 are of a further 13% increase. The most popular brands in 2016 were Hyundai and Nissan (both 13%), with Hyundai showing strong progress. The best-selling cars were the Kia Sportage, an SUV (5%), and the Kia Picanto, a city car (5%).
With a 57% share of the total market, the Fleet segment dominates the Israeli automotive market. Manufacturers have Fleet sales structures in place. The Operational Leasing market is dominated by Short-Term Rental multinationals that also offer leasing solutions, and by local players. Both Fleet Management and Operational Leasing are at a mature and at a good level. The Israeli government is putting a lot of money and effort into the country becoming a world leader in clean and smart mobility.
One example is Mobileye, an Israeli high-tech company developing anti-collusion systems, and also a major player in the development of autonomous vehicles. Israel could be considered the technological laboratory of tomorrow's mobility. It is a point of reference for the industry and a country that experts and fleet managers would do well to follow closely.
Oman: A market looking for focus
The low oil prices of 2016 had a significant impact on the Omani economy, which experienced a marked slowdown. Budget cuts, plus with the weak outlook for the non-oil sector, both weighed down investment. The government deficit remained substantial. The slight upturn in oil prices predicted for 2017 is expected to improve fiscal revenues.
In 2016, Oman was the 45th-biggest automotive market in the world, with 159,000 light vehicles sold (down 21% over the previous year). Prospects for 2017 are of a further 15% decline. The most popular brands in 2016 were Toyota (50%) and Nissan, which made strong progress. The best-selling cars were the Toyota Hilux, a pickup (9%), and the Toyota Prado, an SUV (8%).
With a 40% share of the overall automotive market, the Fleet segment is very important. Many manufacturers and importers have dedicated Fleet structures. The Operational Leasing market exists, but is dominated by small local companies and still needs to find its focus.
AFRICA: Growth is not a question of whether, but when
A big continent, with a small automotive footprint, representing only 1.5% to 2% of the global market. The volume of used vehicles sold in Africa is six to ten times that of new vehicles. Which means there remains much to develop.
African economies are currently growing at an average annual rate of about 5%, which is a cause for optimism. But Africa is not a uniform region, and vast areas remain subject to great political and economic instability. There is a lot of growth potential, but it will take its time. However, manufacturers are investing, and the question is less whether the automotive industry on the continent will grow, but when.
South Africa and Morocco, which together represent 90% of car production in Africa, are the main portals through which car manufacturers intend to develop their industry and conquer Africa. Global Fleet Managers should keep their eye on four key countries in Africa: South Africa, Egypt, Morocco and Algeria.
South Africa: The continent's largest economy
South Africa has the continent's largest economy, ahead of Nigeria's. It is home to 75% of Africa's largest companies, and is very mineral-rich. The country's economy is strongly based on mining, and on the dynamic agricultural and financial sectors. After years of weak growth, the country came close to recession in 2016 (with a pithy 0.1% in GDP growth). The poor performance was the result of falling commodity prices, declining Chinese demand and poor harvests. South Africa's growth is expected to be slightly better in 2017 (+0.8% GDP), supported by a recovery in agricultural production and the continuation of infrastructure projects, but slowed by sluggish consumption.
In 2016, South Africa was the 24th-biggest automotive market in the world, with 538,000 light vehicles sold (down 11% over the previous year). Prospects for 2017 are of a 2% increase. The most popular brands in 2016 were Toyota (21%) and Volkswagen (15%), with Mercedes making strong progress. The best-selling cars were the Volkswagen Polo, a small car (11%), and the Toyota Hilux, a pickup (7%).
The Fleet market, 13% of the overall market, is mature. Car manufacturers have dedicated structures in place, and there are plenty of high-quality Leasing and Fleet Management companies present in the country. South Africa not just the major player in automotive production in sub-Saharan Africa, but also for further automotive and mobility services, as well as a key market for Global Fleet Managers.
Egypt: A portal between Africa and the Middle-East
Egypt's economic growth dropped to 3.8% in 2016, as the economy continues to suffer from low oil prices. Terrorist attacks have weakened the tourism sector, but construction and distribution are still dynamic. Overall, however, Egypt is and remains a low-industrialised country. The introduction of floating exchange rates has caused Egypt's national currency to fall. Due to the sharp increase in both inflation and unemployment, vehicle prices went up and the car market fell down.
In 2016, Egypt was the 41st-biggest automotive market in the world, with 202,000 light vehicles sold (down 28% over the previous year). Prospects for 2017 are of a further 25% decline. The most popular brands in 2016 were Chevrolet (21%) and Hyundai (22%), with Chery making strong progress. The best-selling cars were the Chevrolet TFR, a pickup (9%), and the Nissan Sunny, a compact (6%).
The Fleet Market constitutes 17% of the overall automotive market. Many multinational companies have a presence in Egypt, particularly in the pharmaceutical, food, communication and construction industries. And so do lease companies, including ALD and Corplease. Car manufacturers have established dedicated Fleet structures. Overall the Egyptian market is fairly well structured, and also well positioned geographically, as a portal between Africa and the Middle-East.
Morocco: A stable, high-quality market
In recent years, the Moroccan economy has been characterised by its macroeconomic stability and low inflation. The economy is strong and export-based, with rising private investment and solid tourism sector. Morocco's public finances continued to consolidate in 2016, while the agricultural sector remained predominant. The country was an active investor in other countries on the African continent.
In 2016, Morocco was the 47th-biggest automotive market in the world, with 153,000 light vehicles sold (up 16% over the previous year). Prospects for 2017 are of a further 17% increase. The most popular brands in 2016 were Dacia (28%) and Renault (11%), with Nissan making strong progress. The best-selling cars were the Dacia Logan, a small car (9%), and the Dacia Dokker, a leisure activity vehicle (7%).
The Fleet market in Morocco represents 35% of the overall automotive market. As the second-biggest car manufacturing country in Africa, Morocco has an important Fleet market, thanks to big public-sector fleets, the presence of performant Lease companies and numerous international companies. Car manufacturers have also set up dedicated Fleet structures and services in-country. The Moroccan Fleet market presently has many offers of a good quality.
Algeria: Another two to three years of crisis
Algeria has been facing great financial difficulties for more than a year now. Having already registered a deficit in 2015, Algeria came up short another $30 billion in 2016. The situation is likely to worsen in 2017, when the effects of the current crisis will hit home. According to the IMF, Algeria could remain in deficit until 2020. Against this backdrop, the Algerian government has decided to limit the number of car imports by setting quotas and encouraging manufacturers to produce locally. Renault established a plant in 2014 and Volkswagen is expected to do so by 2017.
In 2014, Algeria still was the 26th-largest automotive market in the world, but by 2016, it had slipped to 48th place, with 148,000 light vehicles sold (down 43% over the previous year). Prospects for 2017 are of a further 48% decrease. The most popular brands in 2016 were Dacia (28%) and Renault (11%), with Nissan making strong progress. The best-selling cars were the Renault Symbol, a compact car (12%), and the Dacia Logan, a small car (8%). The abysmal decline in sales has obliterated the finances of the official distribution networks, critically reducing service to users and creating a parallel after-sales market and second-hand market.
The Fleet Market represented about 30% of Algeria’s overall automotive market before the current crisis hit. It was an important market segment in this well-structured market, with plenty of large public companies, multinational and local Lease companies and a good service, on a par with Morocco. Vehicle remarketing and services delivery were improving. However, considering the current crisis, it will take at least two to three years before the Fleet market regains its previous standing.