The chief of one of the region’s biggest media houses expects a sharp drop in advertising spending across the Middle East and North Africa next year amid regional conflict and faltering global growth.
Advertising spending could fall by more than 10 per cent in 2016 or as much as 20 per cent measured over two years, said Elie Khouri, the regional chief executive of Omnicom Media Group.
“The wars we have in Syria, Iraq, Yemen, Libya – this is definitely not a sign of health for our industry,” said Mr Khouri. “The other factor is the lack of growth in Europe and in Asia, which is putting pressure on the multinationals.”
A decline of this scale would be comparable to the aftermath of the 2008 crisis, he said.
The fallout from the conflicts and the weak oil price is taking the shine off a region that has been a bright spot for the advertising industry.
At the same time, the rapid migration of advertising dollars to digital platforms is hurting traditional media such as newspapers, magazines and television.
“Globally, what is happening is that print is going down – be it magazines or newspapers, it’s a free fall,” he said.
“Outdoor is holding. TV is going down – not at the same speed as print, but there is a decay in terms of investment. What is going up is mobile and desktop – that is the only thing that’s going up.”
But the trend is not being felt uniformly across the region.
“It is happening more strongly in some markets than in others. For example, Saudi Arabia is feeling the pinch more than the UAE.
“The UAE is feeling it less than Egypt. Lebanon and the Levant are catastrophic in terms of investments because of Syria and everything that has happened. So it varies by markets.”
Surging smartphone use in the UAE and the wider region is driving the growth of mobile advertising and rapidly redrawing the media landscape of a part of the world that has been a stronghold of traditional advertising media.
Globally, digital spending is expected to account for half of the overall advertising pie in four years, according to the management consultant McKinsey.
Within digital spending, it is mobile phone-based advertising that is expected to outperform – growing at about twice the rate of non-mobile digital advertising through the end of the decade.
Mobile internet subscribers in the Middle East and Africa are expected to increase at a compounded annual growth rate of almost 22 per cent through 2019, according to data published this week from PwC. The expected downturn in advertising spending could also trigger further regional consolidation among smaller players, predicts Mr Khouri.
“Consolidation yes, but not among the big four,” he said, referring to Omnicom, Interpublic, Publicis and WPP. “What is happening in this part of the world is not significant enough to influence mergers and acquisitions among the big players.”
“But the smaller players would be able to merge with bigger shops like us because, if they don’t do that, we will continually look at ways to grow despite the market shrinking.”
scronin@thenational.ae
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Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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