Things are looking up and the country is ready to overcome its past challenges, says OMD’s Wissam Najjar
What Egypt has experienced in the past 18 months is nothing less than an epic rollercoaster ride. After the decision to devalue the Egyptian pound by almost half and float it in November 2016, the country’s economy went down a vertical drop. Inflation, unemployment, public debt, prices, sales and every other indicator took a turn for the worse. Fast-track to 2018, and things are looking up again.
The float was a shock but it turned out to be a form of therapy. Several international institutions estimate that the country will end this year with a 5 per cent growth in real GDP. Consumer confidence is rising, with the latest Nielsen survey reporting a six-point increase in the fourth quarter of 2017 on the previous quarter, reaching an index of 84. That’s a massive 20-point increase on the same period in 2016. Consumers were particularly positive about their job prospects and the state of their personal finances in the next 12 months. Possibly of even greater interest to brands, there was a three percentage point increase to 29 per cent for immediate purchasing intentions between the last two quarters of 2017.
Advertisers are picking up on the return to stability and sensing the optimism. Monitoring sources put the increase between Q1 2017 and the same period this year at 29 per cent, with investments on TV growing even faster at 34 per cent. The net increase is more likely to be half that, but in 2018-19 we should have advertising investments growing by 15 to 20 per cent. In fact, Egypt will most probably see the fastest, if not the only, increase in investments in the region this year.
We shouldn’t let all these positive indicators blind us to a more contrasted reality, though. There are still challenges ahead but Egypt’s legendary resilience and entrepreneurialism will prevail.
Made in Egypt
As a result of the new exchange rate and tax regime, many multinationals have opted to produce or source suppliers locally. If Henkel and Danone already manufacture there, Mars and Unilever are switching to local packaging manufacturers, while PepsiCo is reducing its reliance on imported potatoes. Several international car manufacturers are also considering investing in plants in Egypt. Faced with the combined pressure of higher prices and lower subsidies on a number of essentials, Egyptian consumers altered their consumption behaviour and opted for budget or local alternatives to their usual brands. This is providing a welcome boost to the economy and helping local businesses grow. This is also having a positive impact on the advertising market.
Like elsewhere in the region, Egypt has dedicated a fair amount of energy, policy-making and resources to supporting smaller businesses in general and start-ups in particular. Be it with private sector initiatives or government-backed ones – such the launch of Egypt Ventures, an investment firm focused on empowering entrepreneurs, or the Sherketak accelerator program to further support start-ups in Egypt – the country is developing a true ecosystem. When Samsung acquires Kngine, an Egyptian AI startup, you know the environment can produce significant economic value. More has to be done to catch up with the UAE and Saudi in terms of scale, though.
Brain drain gain
Not even the good economic news, such as falling inflation, lower unemployment or the doubling of tourism revenues in 2017, can stop Egypt’s brain drain. Doctors, economists, scientists and engineers; the profiles emigrating to the Gulf or the West are the kind any country would want to keep. It is widely estimated that there are more than 13 million Egyptians currently living outside Egypt. This makes the country the region’s top exporter of manpower and still its net emigration keeps rising. The upside is that this probably contributes to the falling unemployment and the rising remittances, which increased by almost 20 per cent in 2017 to reach $29 billion. The other positive impact, of course, is the influx of well-educated, talented individuals in the creative, media and tech sector in the Gulf. Their experience and resourcefulness are very much in demand.
The Arabic content battle
The battle for Arabic content is heating up in the region. Earlier, TV stations were competing for the rights to Arabic versions of international programme formats such as Arab Idol and Got Talent, or with digital video platforms for people’s attention. Now, Netflix is throwing its keffiyeh into the ring, with the plan to produce an Arabic TV series on top of its original comedy programme. If Egyptian-made movies and TV series were the basic diet of TV schedules across the region, well there is about to be even more competition. Newly launched SBC in Saudi Arabia has firm intentions to stimulate the creation of a film and media industry in the kingdom. The Saudi entertainment market is certainly seeing significant investments. This comes at a time when new regulations in Egypt have introduced a ceiling on content acquisitions by broadcasters. So, with demand drying up both at home and abroad, the future for Egyptian content may well be online.
A digital challenger to TV’s rule?
There’s no questioning the overwhelming popularity of TV, though. Research shows that Egyptians turn to TV more than any other nation in the region. They consume other media less than their regional counterparts and this even includes digital. Egypt’s internet penetration may be lower than its neighbours’ at 50 per cent – compared with 99 per cent in the UAE, for example – but digital consumption is rising, particularly through smartphones. Internet access through mobiles has jumped by 50 per cent in the last two years and has now overtaken computers. Obviously, this plays in favour of social media, which is dominated by Facebook, including Messenger and WhatsApp, and YouTube. Instagram has risen the fastest in the last two years, albeit from a lower base. Despite Egypt having the largest population of internet users in MENA, the country lags behind other Arab countries in terms of e-commerce. Only 8 per cent of internet users say they transact online. Like digital advertising investments, estimated at about 20 per cent of the total, this number will only keep growing, though.
Numbers don’t always add up
The development of the advertising market is being held back by the absence of audience research since the closure of Ipsos in Egypt last year. Until the Supreme Media Regulatory Council (SMRC) releases its media study in the coming months, everyone is navigating in the dark. Even the broadcasters aren’t able to validate their programming investments. In the meantime, media negotiations are based on the cost per spot as well as qualitative measures while, on the other hand, steps are taken to professionalise and regulate the market. These include the ceiling on content acquisition by TV channels, to focus on quality rather than quantity, and cutting advertising clutter, a major issue that OMD has been championing.
All these will serve to deliver a more enjoyable viewing experience for people and a more effective platform for advertisers. But without media research, these goals will be harder to achieve.
In any case, there’s always football, particularly in this World Cup year, and the national and international appeal of Liverpool FC and the national team’s Mohamed Salah. He scores many goals for brands including Pepsi, Uber and Vodafone that have signed him as a brand ambassador.
The Egyptian market is certainly headed in the right direction and with stability returning, ambitions, rather than survival, are the main focus. All the country needs now is the resources to achieve them. Advertising investments per capita in the region are among the lowest in the world and Egypt is no exception. To capitalise on the market recovery, brands need to follow the same positive trend and aspire for more.