DUBAI (Reuters) - Businesses in the Middle East are betting that Ramadan, the high-grossing annual Muslim month of fasting and reflection, will be able to shake off any dip in spending due to the social unrest seen in parts of the region.
After the Arab world, mainly the oil-rich Gulf, was hit hard by the global financial crisis and local debt woes, its economies began recovering in 2010 until the arrival of the Arab Spring threw into doubt the sustainability of a recovery in countries such as Egypt and Bahrain. Governments have made up for dips in private spending by boosting their own funding of projects and infrastructure.
Ramadan, and the Eid holiday immediately after, has become an annual opportunity for businesses to ring up profits, and is in focus this year given the regional turmoil and its impact on spending.
“Post-Ramadan there is more economic activity. The month instills fresh energy into the system,” said Shaharayar Umar, marketing director at Dubai-based Pan Arab Research Center.
According to PARC, across the Arab World advertising spending generally doubles in Ramadan, with some companies spending up to 78 percent of their annual advertising budget during these 30 days. In 2010, the Middle East’s top five spenders on advertising put down an average of 25 percent of their annual advertising budget in just Ramadan of that year.
During Ramadan, a month-long lifestyle shift that includes shortened working hours and large family gatherings to break the daily fast, spending on food tends to increase because of the lavish meals set out after the fast ends at sunset. The gift-giving Eid holiday that immediately follows Ramadan is also big business, with auto sellers offering discounts and shopping malls launching sales.
Private consumption is a significant driver of economic activity in the Arab world. In Saudi Arabia, consumer spending accounts for around 35 percent of the economy. It is around 73 percent in Egypt, whose unrest-hit economy is expected to see growth of 1 percent in 2011 according to the IMF, its slowest since 1992.
This year, because of the lunar rhythm of the Islamic calendar, Ramadan falls right in the middle of August, usually a slow time across the region, with searing temperatures and holidays. But Ramadan usually encourages people to stay at home, and has been immune to political and commercial cycles.
“Our experience says that no matter where and in which calendar month Ramadan falls, it’s a seasonality by itself,” said Mazen Hayek, official spokesperson for regional television giant MBC Group.
“Is there a Ramadan economy, definitely. In the car business, in the electronic business, in the food business, in the advertisement business,” said Hayek.
Television is one of the main drivers for increased spending as the lifestyle shift translates into more time spent in front of the television during the day. According to Hayek, the average time spent watching TV doubles to seven hours per day during Ramadan.
Of the total $2.2 billion spent on advertising in Ramadan in 2010, $1.7 billion was allocated to television alone. Advertisers are betting the same will happen this year, to help make up for a drop in overall advertising due to the region’s political and economic turmoil.
On the eve of this year’s Ramadan, consumption shot up by 30 percent in the United Arab Emirates, retailers said. That’s similar to the boost seen elsewhere as people stocked up on groceries needed for putting together iftar meals.
“We have seen a sales growth, about 20 percent higher than normal sales. From 2 o’clock to 6 o’clock we are busy, after that people are at home to break the fast. Then we are busy again after 9 o’clock,” said Shaji Philip, grocery manager at local grocery chain Spinneys.
Food demand increases so much during Ramadan that some retailers hike up prices to get more out of consumers - a trend the UAE government acted against by imposing a price freeze on food items throughout the month.
Editing by Reed Stevenson