AFTER the 2008-2010 global economic crisis, the economic recovery in the Middle East has varied across countries. Looking at GDP rates, inflation rates, and industry diversification across countries, financial stability is forecasted for the region, Carmudi said in its report on “Car Financing in the UAE and KSA” which provides a look into current and future state of the flourishing car financing market and how consumer attitudes towards credit have transformed in recent years. The findings in this report are based on studies by governmental institutions and authorities and interviews with financial institutions, car dealers, and banking experts throughout the Middle East. United Arab Emirates, the eighth largest oil producer worldwide, has been consistently successful in proving the diversity of its economy in the past few years, remaining buoyant and agile throughout the volatility of the market. Due to an increase in demand for oil, production was ramped up and the economy was expected to expand by 4.5% this year. However, with the recent market instability, that number has gone down to 3.2%. Despite a short hiatus in growth, UAE's economic growth remains steady amidst the stumbling global economy. Saudi Arabia's oil-based economy is accompanied by strong government control over most economic activities in the country. It owns roughly 16% of proven petroleum reserves worldwide and currently stands as the largest petroleum exporter and plays a leading role in OPEC. Saudi government had established a six “economic cities”in several different regions throughout the country to advance foreign investment and is planned to spend $373 billion on infrastructure projects and social development between 2010-2014 to set Saudi Arabia's economy forward. The Middle East is one of the auto industry's most lucrative regions. Based on data from Frost and Sullivan, in 2012 the automotive aftermarket in the Gulf countries posted over 15% growth or $7.5 billion (Dh 27.5 billion) in total consumption. UAE came in as the second largest automotive market in the GCC after Saudi Arabia with consumption worth of $2 billion (AED7.4 billion). The report also forecasts a 20% or $14.4 billion growth in the automotive sector in GCC countries by 2016. Auto manufacturers in the UAE have predicted that the car market will grow on par with GDP (4%-4.5% per year) and that the car market's growth will continue to hike as the country's economy continues to grow. Similar growth can be seen in Saudi Arabia's automotive industry. Based on commitments made between the Saudi government and the World Trade Organization, the Saudi government has liberalized the automotive sector and set no personal income tax, no sales tax, no value-added tax (VAT), no land tax, zero property tax and a 20% cap on corporate profits. Consumers in the Middle East mostly belong to two school of thoughts. One that strictly follows Islamic banking and one that doesn't object to following traditional banking followed globally. In the Middle East, Islamic finance does not apply interest rates on loan seekers. To make profit, banks simply purchases the car from the selected dealer then sells it to the loan seeker with a higher price tag. Within the laws of Islamic banking, a loan seeker is able to be fully covered and receive 100% financing for a particular car they intend to purchase. Despite global oil prices being at a six-year low, the UAE and Saudi Arabia are in a good position to maintain positive economic growth and a low debt-to-GDP ratio. Both nations' governments are heavily involved in the economy, whether domestic oil prices or foreign investment limitations. We predict that the government interventions will keep domestic consumption, particularly into the automotive industry, stable. Managing Director of Carmudi UAE, Mohamed Noweir, said “Car financing has always been an integral part of the automotive industry, and both sectors work well together to make cars as attractive and affordable to consumers as possible. This leads to positive consumer attitudes towards purchasing, and a healthy economic outlook for the region.” – SG
