Over 80 percent of profits in retail sector go to foreigners

Although Saudi Arabia now ranks as the 16th most attractive retail market in the world, this is not benefiting the national economy because most of the profits end up in the pockets of retailers owned by foreign multinationals and individual expatriates, according to a local economist.
Essam Khalifa, a fellow of the Saudi Economics Society, told Arab News that about 80 percent of retail stores in the Kingdom are owned by expatriates. He estimates that Saudis only get 10 to 20 percent of the sector’s profits.
Khalifa was responding to the A.T. Kearney Retail Apparel Index released recently. The Kingdom ranks third among Arab countries following the United Arab Emirates and Kuwait with an attractiveness rate estimated at 71.4 and a risk rate of 79.2.
“Many expat retailers try out their trade operations in the Kingdom before expanding to other countries. This is due to the increasing phenomenon of Saudis registering shops under their names, while the original owners are expats,” said Khalifa.
“The position that we’re ranked is not a positive one, since we import almost 90 percent of our products. In contrast, we don’t export any products apart from the petrochemical industries.”
Asked about the reasons for the country’s weak exports, Khalifa said this was influenced by various factors including the labor system, fake visas, high cost of workers, weak infrastructure, and recently imposed taxes on expatriates.
Khalifa said Saudis should not be happy or optimistic about the ranking because most retail profits go to other countries. “The national economy is harmed by the current retail market,” he said.
Saudis get between 10 to 20 percent of the profits in the retail sector, while the rest is transferred to the retailers’ original countries, he said.
According to the index, the Saudi market is becoming more sophisticated, demanding differentiated products and retail formats, with trends such as fresh food taking hold as young consumers strive for healthier lifestyles. Saudi Arabia is also a largely untapped market, with major development showing great potential and increased retail space availability. Online sales are gaining popularity but remain a miniscule share of retail sales.
Mohammed Baqader, a retailer who imports Chinese baby toys, said that the Saudi market is still attractive for traders.
“Despite the fact that Saudi Arabia is trying to make it difficult for expat business owners to manage these businesses, especially with the recent raids, the Saudi market is still attracting retailers. This is because of the stability, absence of taxes and the diversified community,” he said.
“I expect more retailers in the next few years, due to the unstable trade in the Middle East North Africa (MENA) region.”
The newly released index showed that consumer confidence levels are among the highest in MENA, and that Saudis are among the most eager consumers in the world. Retail sales are expected to increase by 11 percent in 2013. Retail sales per capita and disposable income remain lower than some of the neighboring locations, so there is plenty of room for growth.
The index linked the growth in the retail sector to other factor such as religious tourism. Saudi Arabia currently hosts more than 12 million religious tourists a year.