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Saudi turns to discounting as costs rise in Qatar and Egypt

Saudi small business Unsplash/Jhunelle Francis Sardido
A small retailer in Riyadh. Saudi businesses have been turning to discounting to attract customers
  • PMI up to 57.2 in September
  • Kingdom faces ‘competitive pressures’
  • Prices up in Egypt and Qatar

Increased competition has led Saudi Arabian businesses to embrace discounting, despite an increase in the price of raw materials and higher wages amid the rising cost of living.

The seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) indicated that “competitive pressures” had limited sales for some businesses, resulting in a decrease in prices at the quickest rate recorded since July 2020.

A similar discounting strategy was employed by companies in the UAE earlier this year, although this was tempered in August as more opted to start passing increased costs on to customers.

It is the second time in three months that Saudi Arabian businesses have dropped selling prices, with the overall sentiment that profit margins “were again constrained”, according to the PMI report.

The headline index rose to 57.2 in September, up from an 11-month low of 56.6 in August, showing a sharp and quicker upturn in the health of the non-oil private sector. 

The index remains well above the 50.0 mark that separates economic growth from contraction.

Naif Al-Ghaith, chief economist at Riyad Bank, forecast that non-oil GDP growth will remain above 5.5 percent this year, while headline inflation will average 2.5 percent.

The regional picture

Prices for goods and services in Qatar increased for the first time in five months, led by the manufacturing sector.

The latest PMI headline index from Qatar Financial Centre stood at 53.7 in September, a slight drop from the 53.9 reported in August but above the average of 53.0 for 2023 and the long-term trend since 2017 (52.4).

Non-oil private sector employment expanded for the seventh consecutive month and at the fastest rate since June 2022. 

“Companies reported efforts to gain experienced, highly qualified employees,” the report said.

In the wider Mena region, Egyptian companies also reported a “solid mark-up of selling charges” as weak exchange rates led to another sharp rise in overall costs.

Supply chain issues and increasing inflation led to an increase in outstanding work in September as output levels contracted sharply.

“Amid fears that prices will continue to rise and supply conditions remain challenging, firms held onto inventories and boosted staff numbers,” according to the country’s PMI report from S&P Global.

The headline seasonally adjusted S&P Global Egypt PMI Index posted 48.7 in September, down from 49.2 in August and a four-month low.

New work intakes dropped at the fastest rate since May, although the decline remained soft compared to those seen at the beginning of the year.

At the same time new export orders rose to its highest level since December.

“That may be a sign that improved competitiveness due to a weak pound is finally being felt,” said James Swanston, Middle East and North African economist with Capital Economics.