UAE. The 2018 MEADFA conference drew to a close yesterday following a fine gala evening on Monday night hosted by Dubai Duty Free.
The final-day programme covered the regional business environment, traffic trends, airline industry outlook and regulatory challenges
A special report compiled for MEADFA by Emerging Markets Intelligence & Research (EMIR) was the subject of the opening session. EMIR Senior Analysts Gary McFarlane and Samir Sweida-Metwally charted the geopolitical and economic factors that will shape the business and travel environment in the Middle East in the mid-to-long term.
Hampered by recent sluggish growth and low oil prices, the Middle East is set for a better year in 2018, according to the analysts. This will be driven by a depreciation of the US Dollar and a pick-up in oil prices, increasing the attractiveness of the region. As a result, consumer confidence will grow. However, in the medium term, security threats will continue to threaten trade in the region.
Economic and traffic trends forecast tourism boom
According to EMIR’s analysis of tourism opportunities in the Middle East, Saudi Arabia’s consumer and business environment is developing at breakneck speed. The country plans to launch tourist visas for the first time this year, waking “a sleeping giant” for tourism in the long-term. The country currently issues two-week visas for those on business, pilgrimage or visiting resident family members.
The analysts projected a better year for Qatar, propped up by spending ahead of the 2022 FIFA World Cup. Oman, which is positioning itself as a high-end luxury destination, is seeing the bulk of its inbound growth from the Indian market, which has increased by close to double digits.
The UAE economy is expected to see growth more than double to +3.5% in 2018, up from +1.6% in 2017. The UAE has experienced a recent surge in Chinese visitors, who represent a US$260 billion spend potential.
Last year, GCC member states (UAE, Bahrain, Saudi Arabia, Oman, Qatar, Kuwait and Yemen) signed a framework agreement to introduce VAT on the supply of goods and services at a standard rate of 5%, in 2018. According to the analysts, it is too early to tell whether this will have an impact on consumer confidence in those states (see more on the implications for duty free below).
The next presentation neatly transitioned onto traffic movements. Following double-digit growth for visitor arrivals in Middle East and Africa in 2017, ForwardKeys Co-founder & CEO Olivier Jager forecast a positive trend for Q1 2018.
International arrivals are expected to grow +11.2% overall with inbound activity increasing across the Americas (+16%), Europe (+13%) and Asia Pacific (+4%).
Jager also discussed how the Qatar diplomatic crisis last June has impacted regional hubs. Doha’s international traffic has plummeted, with ForwardKeys data suggesting traffic is moving to Istanbul rather than regional hubs such as Dubai. “Two major hubs are losing steam – with growth expected at -0.1% for Doha and -14% in Abu Dhabi in Q1 2018. Istanbul is benefiting from the Qatar diplomatic crisis with traffic expected to rocket +21%,” he said.
Africa and the potential for inflight duty free
Focusing on the inflight market, Inflight Sales Group Europe President Karen Durban-Villeval described a changing environment for the channel. Increased competition from airport shops, online discounts and ultra-connected passengers have challenged traditional inflight duty free sales.
“We still believe in it as a strong channel for impulse purchases,” said Durban-Villeval. “But you need strong communication, attractive prices and motivated cabin crew. The [future of inflight retail lies in] creating a differentiated onboard shopping experience.”
Durban-Villeval marked Africa as a growing market full of opportunities and expectations. “In Africa, passengers are still willing to buy onboard as they often only have access to certain brands via this channel.”
The next session summarised key legislative challenges needing significant industry action and awareness. ETRC President Sarah Branquinho brought the industry’s attention to the World Health Organization’s Illicit Trade Protocol (as outlined in the previous day’s Duty Free World Council workshop) and product labelling challenges.
Labelling issues are affecting four key categories – tobacco, alcohol, confectionery and fragrances or cosmetics. The ETRC is working on a ground-breaking pilot for a digital product information platform, which can be rolled out globally.
VAT on arrivals sales in GCC could “erode concept of duty free”
The ‘worrisome’ impact of the aforementioned intra-GCC excise and VAT rules on duty free sales was outlined by Dubai Duty Free Senior Vice President Finance Bernard Creed. UAE and Saudi Arabia implemented the VAT rules on 1 January with Bahrain set to follow in Q3/Q4. Creed expects all GCC countries will comply by January 2019.
“As each GCC country begins to implement the policy over the next 12 months, potentially, anyone leaving our airport and travelling to the GCC will be charged VAT,” said Creed.
While onboard and departures duty free is exempt from the 5% VAT ruling, arrivals duty free is not.
Creed warned that charging GCC VAT and excise in arrivals duty free in the region could erode the duty free concept. “The risk to our industry is that if you have a duty free sign above your door and you are charging VAT and excise – is the whole concept of duty free being eroded? We believe it is.”
With excise duty of 100% imposed on tobacco products (in arrivals duty free), it means that the category has become less competitive in the channel across the UAE.
Sharjah Duty Free has already withdrawn tobacco in arrivals, noted Creed, while Abu Dhabi Duty Free is set to follow. Dubai Duty Free currently has no plans to remove tobacco from sale on arrival but is monitoring the situation, said Creed.
He stated that Dubai Duty Free is looking to appeal the legislation on arrivals duty free and is hoping other GCC countries will take a similar stance.
Writer and broadcaster Victor Kgomoeswana delivered a superb closing keynote presentation with a breezy take on the African business opportunity. He named Zimbabwe, Liberia, Angola and South Africa as some high-potential emerging markets.
Closing the 2018 conference, MEADFA President Haitham Al Majali thanked the industry for attending. In a strong finish, he reaffirmed the positives for regional travel retail, concluding: “We are on the verge of a major acceleration.”
Note: Click here for our report on the first day of the MEADFA Conference.