By Matthew Martin, MEED Banking and Finance Editor
The Harrods Hajj is the nickname given to Gulf Arabs flocking to London each summer to stock up on luxury goods, while avoiding the debilitating heat at home. It is big business. London & Partners, which promotes the UK capital, says the average Saudi spends £1,900 ($2,984) a day shopping. This year, it could be even more as strong economic growth and government handouts buoy sentiment.
Back at home, consumer spending has already been rising steadily for the past three years. The latest figures for withdrawals from automated teller machines (ATMs) and point-of-sale (POS) transactions indicate that consumers are spending more than ever. In May, nearly SR55bn was withdrawn from ATMs in Saudi Arabia, almost matching the SR56bn peak recorded in April last year. In addition, there was about SR10.9bn spent through POS terminals, the highest value ever.
In contrast, consumer spending in the US in May was flat on the previous month, showing that stagnant wages and weak employment figures were putting the public off spending. In the UK, spending fell by 0.1 per cent in the first quarter and there was also a fall in the amounts Britons were saving.
Higher deposits in banks
Clearly people in Saudi Arabia are feeling less threatened by economic worries in the West. While data on personal savings is unavailable, overall deposits in the kingdom's banking system have been rising over the past year, leaving banks with more money than they know what to do with.
The figures for Saudi Arabia indicate that consumers are more confident than it would first appear, says Paul Gamble, chief economist and head of research at the local Jadwa Investments. He points out that last year, King Abdullah bin Abdulaziz al-Saud gave public sector workers two months' salary as a one-off gift.
The move was part of a broader spending package he announced upon returning from the US for medical treatment against the backdrop of the Arab uprisings. A large number of private sector firms also subsequently felt obliged to give their workers a bonus. As a result, economists were expecting to see a spike in consumer spending around that time as Saudis spent their bonuses. Instead, spending has just been getting stronger.
"Last year, we were still seeing the benefits of the pay award for public sector workers," says Gamble. "So I was surprised the recent numbers were as good as they were for May."
It is not just pay awards that have encouraged Saudis to spend more. In December, the government started paying unemployed locals SR2,000 ($533) a month in unemployment benefit, the first scheme of its kind. The Labour Ministry now says that more than 1 million people are receiving payments. These are likely to give a major boost to spending as people with lower incomes tend to spend more of their money.
High government spending levels and strong economic growth are helping build optimism. "The high levels of consumer spending are reflective of the strong economic position of the country, the high oil price and the extent to which government employees make up the labour market," says Gamble.
Unrest in the region is also encouraging Saudis to spend more domestically. "There is probably less regional travel occurring as a result of the Arab uprisings, so people are spending more at home," says one local analyst.
High spending levels also indicate that despite the threat posed by the social unrest and regional tensions with Iran, Saudis remain largely unconcerned by both issues.
Investor confidence in Saudi Arabia
Consumer confidence is important for two reasons.