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GCC Warms Up to Renewable Energy

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The development of fossil fuels in the GCC has led to a rapid economic growth of the region. A couple of the GCC countries boast some of the highest GDP per capita globally, with the good economic performance attributed primarily to the hydrocarbon sector growth. Saudi Arabia, the UAE, and Kuwait are the second, sixth, and ninth largest producers of oil in the world, respectively in 2015, reflecting their position as hydrocarbon exporters and producers. However, with rising domestic demand for energy and the need for a sustainable future energy supply, GCC has been making efforts to introduce renewable energy sources with a view to balance economic needs with environmental factors.

The Gulf Cooperation Council (GCC) comprises countries that are among the largest hydrocarbon producers in the world, with GCC collectively holding around one third of crude oil reserves and almost one fifth of global gas reserves. While oil and gas exports have underpinned an extraordinary economic growth of the GCC over the past several decades, the increasing domestic demand for energy has made it difficult for these countries to maintain their export levels. For instance, in 2014, Saudi Arabia, one of the largest oil producers globally, was the seventh largest consumer of oil in the world. In the same year, its domestic energy consumption stood at 28% of production against 17% in 2000, reflecting a rising domestic demand.

Domestic demand for energy is increasing in GCC 

Various reasons including industrialization, water desalination, and increase in population size, have led to this increase in domestic demand for energy in GCC. Industrial sector (comprising mostly oil refining, petrochemical, water, and fertilizer industries) accounts for nearly half of the total demand in the region.

The growth of the residential and commercial sector has also contributed to the rising energy demand, and currently almost half of the total electricity produced in the region is used by the residential sector. Moreover, electricity consumption by recent housing and commercial projects has grown at an average rate of 6% to 7% per year between 2003 and 2013, faster than anywhere else in the world in this time period.

Furthermore, rapid economic development in the region has led to rising water demand, leading countries to generate fresh water through seawater desalination. Desalination fulfills a large share of GCC’s water demand (e.g. around 27% of the total water demand in Oman and 87% in Qatar in 2015). Since desalination is an energy-intensive process, it has also put pressure on the consumption of fossil fuels.

These factors have forced GCC to focus on diversifying its energy mix to meet the domestic demand while still sustaining the countries’ economic growth. A diverse energy resources portfolio is needed to allow GCC to make the domestic energy production available for export. In addition, it would also reduce carbon-dioxide emissions to create a more environmentally sustainable future. Countries in the GCC region are thus focusing on developing the renewable energy sector, particularly solar energy.

The region is turning to alternative sources of energy

Several GCC countries have embarked on a path of setting more aggressing targets for sustainable energy production from sources other than traditional fossil fuels.

For instance, UAE plans to invest US$ 163 billion in the next 30 years in renewable energy sector. Moreover, it aims to increase the contribution of clean energy in total energy mix from 25% at present to 50% by 2050. It also plans to generate 44% of its power supply from renewable sources (e.g. solar), 12% from clean fossil, and 6% from nuclear energy.

Further, as Saudi Arabia’s renewable energy represents merely 1% of the total energy produced, the kingdom targets to increase the renewable energy share to 4%, an equivalent to around 3.45GW.

Other countries are also developing plans, and these include the renewable energy program in Kuwait that aims to generate 2GW energy from renewable sources, thus contributing 15% of the total energy produced by 2030. The country also commissioned its first solar power project of 10MW with an investment of US$ 99 million in 2016 and plans to generate around 20% electricity from alternative sources by 2020.

Qatar aims to generate 200MW solar energy by 2020, an equivalent of electricity for 66,000 homes per year. In addition, it also plans to install 1.8GW of solar power capacity by 2020.

GCC Warms Up to Renewable Energy

EOS Perspective

While GCC is putting in efforts to become an energy efficient region and reduce its revenue dependency on exports, the pace of alternative energy sources development has been rather low. Lack of clarity in roles and responsibilities of policy makers as well as uncertain policies and regulations around energy planning are contributing to the slow growth of renewable energy generation.

Lack of clarity in roles and responsibilities of policy makers as well as uncertain policies and regulations around energy planning are contributing to the slow growth of renewable energy generation.

In most countries, no authority has been assigned at the governmental level to handle the affairs of the renewable energy sector. There is no doubt that more dedicated efforts towards the implementation of energy development projects would surely help speed up the process of the sector’s development.

The governments of the Gulf countries should focus on establishing renewable energy corporate framework and assign a body to handle the development and implementation of policies and projects in this sector. Only few countries have assigned units within governmental structures to take the responsibility of overseeing the renewable energy production capacity growth.

The governments of the Gulf countries should focus on establishing renewable energy corporate framework and assign a body to handle the development and implementation of policies and projects in this sector.

For example, in 2010, UAE, set up a dedicated department called Directorate of Energy and Climate Change (DECC) within the Ministry of Foreign Affairs (MOFA), to lead the development of renewable energy in the country, supporting the national climate change strategy. DECC was also established to coordinate with stakeholders for the promotion of green energy in the UAE. It engaged with International Renewable Energy Agency (IRENA), an intergovernmental organization assisting its member countries to include green energy in their energy portfolio. IRENA acts as a center of excellence offering expertise and financial support to its members.

All GCC countries are members of IRENA which aids them in scaling up green energy in their respective countries. For instance, in 2014, it conducted Renewables Readiness Assessment (RRA) with the Government of Oman with a view to create a renewable energy roadmap comprising policies, regulations, and the infrastructure required for the country to meet its energy goals. The organization, thus, helps in the decision making as well as the implementation of strategies regarding renewable energy in GCC countries.

GCC should also focus on nurturing the development of R&D institutes which could offer expertise to policy makers in energy portfolio diversification. Such institutions could also offer workforce training to enable faster project deployment along the value chain.

GCC should also focus on nurturing the development of R&D institutes which could offer expertise to policy makers in energy portfolio diversification.

International collaboration with private and public companies in the GCC to set up renewable energy facilities could also support the development of the renewable energy sector in the region. Furthermore, incentives should be offered to these companies to encourage the establishment of green projects and facilities.

Endowed with hydrocarbon resources fueling economic development, GCC now has the potential to fuel its economic growth in a more sustainable manner, taking advantage of other resources at hand (e.g. by utilizing abundant sun available in the region throughout large part of the year). However, a greater and more structured regulatory support and more focused implementation is required to pave the way for the renewable energy sector development in the GCC.

Indian automotive market
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Tata’s Tamo Breaks with Convention, but the Fight Lies Elsewhere

Will the new Tamo sub-brand be able to change Indian consumers’ perception of Tata Motors?

Tata Motors is out to regain its place in the Indian automotive market, where it continues to suffer from a lack of trust among consumers.

Launched in February, Tata Motors’ future mobility sub-brand, Tamo, is intended to act as an incubation center of innovation’ to push new technologies for developing future mobility solutions…

Read our article published on Automotive World.

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Starbucks – Expanding in Asia

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With more than 25,000 outlets operating in 75 countries, Starbucks is rightly said to be the premier retailer of specialty coffee globally. With the mission to “establish Starbucks as the premier purveyor of the finest coffee in the world”, the brand continues to rapidly expand its retail operations by opening stores in new markets, particularly with focus on Asian countries. Starbucks has already captured a solid customer base in China and Japan, and it is aiming to expand in other parts of the region, especially in India. While partnerships with local players have been beneficial to the company’s expansion strategy, Starbucks uses an interesting mix of product localization ideas to suit consumer preferences and local tastes to make a mark in the land dominated by tea drinkers.

With plans to open 12,000 new outlets globally over a span of five years, out of which nearly half are to be opened in the USA and China, Starbucks is planning to take its chain to a total of about 37,000 outlets globally. Asia is increasingly important to Starbucks’ growth strategy. As of 2016, the company operated 6,443 stores in 15 countries in the China/Asia Pacific (CAP) region that includes Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam. Potential for growth in this region is great, not only measured in the number of stores, but also in per store revenue – the CAP region currently accounts for 25.7% of Starbucks stores count, but generates around 14% of the company’s revenue.

 

Starbucks – Expanding in Asia by EOS Intelligence

Starbucks follows a two-pronged approach to grow its business in the Asian markets (and other emerging regions). The first tactic of approaching these markets is to partner with regional players to have an easy access. For instance, the coffee maker entered the Japanese market in 1995 with a 50-50 joint venture with Sazaby League, a major Japanese retailer and restaurateur, and in 2014, Starbucks took over the full ownership of its Japanese operations. Similarly, the first Starbucks coffee store that opened in India in October 2012 was in alliance with Tata Global Beverages, Indian non-alcoholic beverages company and a subsidiary of Tata Group. These partnerships allowed to company to get a strong entrance to the local markets, navigate through diverse market environments, and to fulfill regulatory requirements imposed on foreign investors by local governments (which otherwise would leave Starbucks unable to tap these high-potential markets).

The second tactic that Starbucks has successfully implemented in most Asian markets was to tweak its menu to suit the tastes of the local population. Considering that since its inception, Starbucks has been synonym for coffee, adjusting the menus to suit tea-drinking consumer tastes without diluting the brand has surely been challenging. Although the Asian tastes evolve and more consumers start to drink coffee, basing the menu on coffee beverages alone would be a risky move. One of the moves Starbucks did to accommodate the local preferences was the 2016 launch of ‘Teavana’ line of tea beverages for Asian countries that includes matcha and espresso fusion, black tea with ruby grapefruit and honey, and iced shaken green tea with aloe and prickly pear, flavors not typically found in the company’s western stores.

Starbucks’ strategy in the region seems to be paying off. As of December 2016, in China, Starbucks store was said to be opened every 15 hours, making it the company’s fastest growing market, the highest revenue generator in the region, as well as the second largest market globally in terms of stores count. Overcoming challenges of reaching out to consumers with heterogeneous tastes in this vast country, partnering with local players, and creating a menu that suits the taste buds of local consumers have been a game changer for the coffee brewer in mainland China.

Japan is another key market for Starbucks in Asia. The company was able to successfully tackle the Japanese market, as it chose to focus on providing excellent customer experience to better resonate with Japanese culture that emphasizes traditional etiquettes and personal respect. Starbucks outlets in Japan do not ask for the customer name while placing order as privacy is highly valued in Japanese culture. To fit in the local culture, Starbucks in Japan has come up with the ‘concept stores’ that offer products based on local needs. Starbucks has the one of a kind ‘black apron-only’ store boosting of certified coffee experts in Japan.

India, a relatively new addition to the company’s Asian portfolio of markets, might turn to be a problem child for Starbucks. Since entering the Indian market, the company has been trying to take full advantage of the opportunities lying in the increasing income of the middle class population in India. Having opened more than 80 outlets in less than four years since inception, Starbucks in India (known as Tata Starbucks Private Limited) seems to be on an extension route in the Indian subcontinent. But with retail figures saying the opposite, with only 10 new stores in 2016 up against average of 25 stores in last three years and a few closed over infrastructure mishandling, the picture does not look very positive. India’s devotion to tea is a hard nut to crack for Starbucks, and while the company followed its standard move to include tea beverages in local stores, they do not always suit local tastes, as they differ greatly from chai that majority of Indians are used to and love. The scenario in south India might seem more favorable, as the locals have been accustomed to drinking coffee since long before Starbucks came to the country. But the local preference if for traditional filtered coffee, very different from anything on Starbucks’ menu, and bulk of it is consumed at home. With not much being said about the opening of new stores in the near future in any regions of the country, Starbucks in India needs to realign its strategic move to be able to see persistent growth.

EOS Perspective

While many enterprises fail to understand the impact of consumer behavior and preferences over the success or failure of a business, Starbucks offers a finely tailored customer experience to its consumers. For the most part, the company has managed to combine its exciting American flair with the underlying values of the Asian cultures to create a localized, unique experience.

With continuous and consistent expansion of its store base by adding stores to higher growth markets, Starbucks aims at standing as one of the most recognized coffee brands in China and Japan, and increasingly in other CAP countries. In those regional markets, where Starbucks has achieved the greatest success, China and Japan, the company’s efforts to offer consumers new coffee (and non-coffee) flavors in a variety of forms, across new categories have led to Starbucks’ continuous strong performance, and over time translated to acceptability of the American coffee-brewer in the lands of tea drinkers.

However, the coffee brand’s take off in India has been bumpy. The company has less than 100 stores in India, incomparably fewer than its competitor, Café Coffee Day, which has more than 1,500 outlets across the country. In terms of geographic spread in India, Starbucks has till now only concentrated on opening its stores in the largest metro cities, where to some extend it could justify its products’ high pricing (for local market standards). But in order to be successful, the chain needs to reach consumers in tier 2 and tier 3 cities, and appeal to them with more affordable products by marginally compromising on product prices (yet still remaining elitist, as it stands no chance to appeal to the clientele of traditional tea-corner stands which offer a cup of hot tea or coffee for virtually a fraction of Starbucks products price). If the company ensures expansion beyond tier 1 cities, continues to launch new stores offering localized products, it should be able to reap benefits of the rising income of the fast-expanding middle class largely interested in the foreign-feel-like experience and social statement that visiting Starbucks offers them along with their tall Frappuccino.

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Trump In Action: Triumph Or Tremor For Latin America?

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Donald Trump commenced his presidency by announcing ‘America First’ policy, thus casting a dark shadow on trade and exports from other countries to the USA. Trump’s protectionist and neo-isolation policies are accepted with gritted teeth across the world, particularly by the USA’s southern neighbors. The renegotiation of trade treaties, more stringent migration policies, as well as strong focus on encouraging domestic industrialization by pruning imports might contribute to a slowdown in economic growth of a few Latin American countries. The policies set by the new president may result in economic malaise across Latin America, where people are uncertain and apprehensive towards the alarming strategies laid down by the USA.

While the degree of economic and trade impact will vary across LATAM countries, the strongest distress is likely to be witnessed across Cuba, Mexico, and Venezuela. On the other hand, Brazil might partially benefit, while the impact is unlikely to be significant on other larger economies such as Argentina or Chile.

The wall between Mexico and the USA

Mexico is facing the worst of Trump’s wrath. The country is highly dependent on the USA for trade – most importantly for duty free exports. These are likely to witness a tremendous setback with Trump imposing 20% import tax on goods from Mexico to finance a wall that he intends to build to safeguard USA’s border from illegal immigrants.

Renegotiation of the North American Free Trade Agreement (NAFTA) and withdrawal from the Trans-Pacific Partnership will further tarnish Mexico’s trade with the USA. Trump intends to renegotiate terms of NAFTA, focusing mainly on moving away from the zero trade barrier policy. By imposing tariffs on imports from Mexico, the cost of goods will increase as they enter the USA, which is likely to boost domestic production of those goods, but it will surely have a negative impact on Mexican production. Another key driver for Trump’s plans to put a break on Mexican imports is the concern over trade deficit that the USA faces with Mexico – approximately, US$ 50 billion in 2015. Hence, Trump wants to encourage domestic production to reduce imports from Mexico.

Further, Trump’s administration has also endangered billions dollars of remittances, one of the largest sources of foreign capital in Mexico, received from Mexican citizens working in the USA. Trump has threatened to tax the remittance transfers if Mexico does not support the trade and immigration limitations imposed by the USA.

Another major issue is the possibility of implementation of strict migration policies which can result in deportation of millions of undocumented migrants, most of them being Mexicans. Several other countries such as Haiti, Dominican Republic, El Salvador, Guatemala, Honduras, and Cuba also stand to suffer due to the change in migration policies. Mass deportation will increase unemployment in these migrants’ home countries and reduce remittances in foreign currency.

Amid the USA-Mexico tension, the Mexican peso has already witnessed a slump, almost nearing its all-time low – declined by 5% since the beginning of 2017 and by 20% since Trump came into power.

Trump’s crackdown on Cuba

The relationship between Cuba and the USA is predicted to get frosty under Trump’s administration. Cuba has struggled for several years under the USA-imposed isolation until president Obama negotiated to re-establish diplomatic relationship between these two countries. However, in his campaign, Trump threatened to reverse the restated diplomatic relationship – including easing of travel and remittances between Cuba and the USA – if Cuba does not agree to a “better deal” which Trump left undefined. Moreover, the US president has announced that he was against the Cuban Adjustment Act, which permits any Cuban, who reaches the USA to stay there legally and apply for residency.

Venezuela, not far from Trump’s radar

Trump has already turned hostile towards Venezuela considering the recent sanction imposed by his administration in February 2017 on the Vice President Tareck El Aissami, accusing him of playing a significant role in international drug trafficking. Relationship between these two countries has already turned sour amidst the deep economic and political crisis that exists in Venezuela.

Further, Venezuela’s oil exports to the USA might suffer due to Trump’s decision to revive the Dakota Access Pipeline – an oil pipeline project that can reduce country’s need to import crude oil. Presently, Venezuela exports 792,000 barrels a day of its crude oil or 38% of total crude exports to the USA, and any additional access to oil for the USA could have a deep impact on Venezuela’s oil exports.

Trump could be good news for Brazil

It appears that the only silver lining for Latin America, while Trump hovers with his protectionist policies, is Brazil’s opportunity to strengthen its ties with Pacific and European nations. Brazil’s Minister of Foreign Trade predicts new trade opportunities for Brazil, as the country aims to expand trading relations with other countries, while the USA withdraws and renegotiates key trade agreements. Moreover, Brazil (as a member of Mercosur – consisting of Argentina, Brazil, Paraguay, and Uruguay) is already pursuing free trade agreement with the European Union, with next round of negotiations lined up for March 2017.

However, a few setbacks that Brazil could suffer include deportation of many of the 1.3 million Brazilians immigrants living in the USA, whose stay in the USA remains undocumented. The deportation is likely to adversely impact the remittances received by Brazil. Further, Trump’s focus on implementing higher import tariffs is likely to impact the Brazilian exports to the USA – approximately 13% of Brazilian exports are directed to the USA.

 

EOS Perspective

USA’s withdrawal from Trans-Pacific Partnership and aim to renegotiate NAFTA is driving Latin American countries to break dependence on the USA, establishing friendly trade relations with other countries and strengthening intra-regional ties. Latin American countries are focusing to redirect trade and investment towards countries such as China and Russia, as well as Europe and Africa.

China is already a key trading partner for Latin America – with trade between the two regions growing from US$ 13 billion in 2000 to US$ 262 billion in 2013 – and USA’s withdrawal from Trans-Pacific Partnership is likely to further deepen the ties between them. China aims to increase investment and trade in LATAM to US$ 250 billion and US$ 500 billion, respectively, by 2025.

China is moving swiftly to strengthen relationship with Latin American countries. Soon after Trump’s win, the Chinese President visited LATAM aiming to deepen economic cooperation, and to promote social and economic development in the region. During the visit, Ecuador and China agreed to a new economic Free Trade Agreement, focused to grow production and investment across energy, infrastructure, and agriculture sectors. An extension of China-Peru free trade agreement was also signed to promote bilateral trade and investment between the two countries. A closer association between China and Latin America is likely to reduce USA’s dominance and supremacy in the region.

Further, with USA’s plans to increase import tariffs, Latin American countries are slowly focusing on expanding intra-regional trading relationships, which till now have not been developed to their full potential due to dependence on the USA for trade and exports. Present circumstances are optimal to slowly start building an intra-regional trade force in Latin America, and the region’s countries should work towards strengthening existing trade and integration blocs, such as the Union of South American Nations (UNASUR) and the Community of Latin American and Caribbean States (CELAC).

Trump’s policies are likely to have a diverse impact on different Latin American countries. The region has already slowly started forging new trading relationships to reduce dependence on the USA, which proves that LATAM might be able to divert the negative repercussions of USA’s new policies and turn them into new opportunities (at least to some extent).

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China’s Water Crises Set to Boost Private Investment

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The past two decades of a rapid industrialization in China have heavily impacted the country’s water supply and quality, resulting in almost two thirds of groundwater and close to one third of main rivers being classified as not suitable for direct human contact. The country is in a water crisis and wastewater treatment continues to be a key concern. The government is making efforts to strengthen the wastewater treatment industry, leading to an increase in investment and the number of joint ventures in the development of wastewater treatment plants.

The country’s 13th Five Year Plan provides ample opportunities for the private sector and foreign companies to bring in advanced technologies to support the country’s environmental targets, as under the Plan, the government plans to increase investment in wastewater treatment plants by 35% between 2016 and 2020. These plans have made China a great prospect for foreign investors, who can leverage on their experience and high-end technology to enter the local market, now receiving great governmental support, as wastewater treatment has become an integral part of the country’s environmental goals, following decades of neglect and a slow pace of pollutants reduction.

Opportunities appear vast, especially that many needed technologies are not available from local providers. For instance, ultrapure water treatment in pharmaceutical and microelectronics industries require advanced technical know-how which domestic companies are currently unable to offer. This provides opportunities for international players who can provide the necessary technology for the requirement of high quality water in semiconductor and pharmaceutical industries, both of which are witnessing a double-digit growth in China. Other needed but locally unavailable technologies include zero liquid discharge (ZLD) solutions that are compulsory in the coal-to-chemical wastewater treatment plants. Further, advanced wastewater treatment applications such as nanofiltration, reverse osmosis, and membrane bioreactor systems, which allow users to treat wastewater to a high standard, are required to comply with the new Chinese wastewater discharge standards. Such high-end applications can be offered by foreign companies who can thus gain a major foothold in the market.

What has greatly contributed to making the industry increasingly lucrative for suppliers of wastewater treatment technologies and equipment, are the legislative changes aimed at dealing with environmental issues. With a desperate need to improve environmental protection, the government introduced numerous policies regarding wastewater discharge and emission standards. Prior to the introduction of the new policies in 2015, state-owned enterprises were able to disregard the existing regulations, typically without any legal consequences. However, the new water pollution action plan has led to an increase in water and wastewater tariffs and higher wastewater discharge standards. The government has also tightened the facility inspections to ensure that the rules are being followed, and non-compliance to these regulations could now lead to a shutdown of the facility.

These stricter regulations offer significant opportunity for international players who can offer sound technologies which domestic companies are not capable of providing. For instance, less than a half of the 3,300 industrial parks in China have installed a centralized treatment plant. As per the new regulation, all industrial parks are required to install such plants by the end of 2017. The administration departments of these parks are now looking for appropriate solutions providers to meet this requirement. Fine chemical and petrochemical industrial parks, in particular, provide the greatest opportunities for foreign players as their wastewater treatment needs require high-end technology that is not available in the country.


EOS Perspective

China’s problem of efficiently managing its water resources has provided a boost to the country’s wastewater industry. The government’s willingness to support environmental protection even at the cost of industrial profits has made the country one of the largest markets for wastewater treatment in the world. With the use of various wastewater technologies, the country continues to grow its sewage processing capacity (around 3,717 wastewater treatment plants as of 2014, including Shanghai’s Bailonggang plant, world’s second largest wastewater treatment plant with capacity of 528 million gallons per day as of 2013). Ecologically progressive 13th Five Year Plan and the Water Pollution Prevention and Control Action Plan (also called Water Ten Plan) could lead to a flourishing wastewater treatment market with significant growth potential of annual investment of over US$ 6 billion.

Increase in investment and change in regulatory requirements have created ample opportunities for international players, primarily in terms of the much needed technical know-how and experience that domestic players are incapable of offering. International players such as Aquatech and Oasys Water have already leveraged on this and started gaining traction in the market. The entrance of international players could lead to increased competition in the market. Even though domestic players, supported by the state, will continue to have a strong foothold in the market, the rising demand for technical expertise is likely to make foreign players grab market share in the near future.

These prospects for international players are likely to be materialized as the Chinese government has introduced effective enforcement mechanisms to ensure that new regulations are being followed by wastewater treatment plants. It is promising that there are reported cases of heavy fines being levied on these plants. For instance, Hebei province in China spent around US$ 153,000 for the installation of automatic inspection systems at 210 wastewater treatment plants. Further, six wastewater treatment plants in the province were fined a total of US$ 3.3 million in 2015 for discharging excessive pollutants, post the introduction of the new regulations. If the government continues with its efforts for stricter enforcement, polluting plants will be forced to implement the required technologies, a step that will be welcomed by international wastewater treatment solution providers capable of offering such technologies.

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India Union Budget 2017: Implications for the Auto Industry

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Due to various macroeconomic factors, the Indian automotive industry has not achieved its full growth potential during the last 12-18 months.

In addition, the government’s recent demonetization policy has impacted consumer spending and created an unfavorable environment for the auto industry on the whole.

Amid these challenges, key stakeholders within the auto industry were hoping for a favorable budget which could revive consumer demand and catalyze growth in the industry.


What was expected

The auto industry had a fair bit of expectations from the Union Budget 2017 (annual budget of India). Many industry players expected last week’s budget announcement to offer reductions in existing tax structures, various incentives for R&D expenditure and promotion of hybrid and electric vehicles (EVs), and lower interest rates on auto financing. Some of the key items on the industry’s wish list were:

  • In order to support and boost government’s ‘Make in India’ program aimed at encouraging companies to manufacture their products in India, the industry expected some impetus in the form of lower taxation and other financial incentives

  • To increase vehicle sales, the industry expected lower interest rates on auto financing and larger fund allocation for the development of mobility infrastructure

  • EV and hybrid carmakers hoped for various tax exemptions and subsidies under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) scheme

  • OEMs expected the government to continue its 200% weighted deduction on R&D expenses

  • Industry players hoped for further clarifications with regards to incentives, timeline, etc. for vehicle scraping policy

What was received

  • Slashing 5% of corporate tax for enterprises with turnover under ₹500 million (US$7.4 million). This will benefit tier-2 and tier-3 auto components manufacturers and help them in further expanding their business as well as their R&D capabilities

  • The government earmarked ₹1,750 million (~US$25.9 million) in funding for the FAME scheme, which will further enhance the promotion of eco-friendly vehicles in the country


EOS Perspective

Although there were no substantial announcements in the budget that could directly benefit the auto industry, it surely has provided growth opportunities for it. Firstly, the government has increased its fund allocation by 11% to ₹640 billion (US$9.5 billion) for the development of national highways. In addition, 2,000 km of coastal roads are planned to be developed to improve the connectivity of ports and remote villages. These measures are expected to fuel demand for commercial vehicles in the coming years. Secondly, the income tax deduction of 5% for individual tax payers earning under ₹500,000 (US$7,425) is expected to boost personal consumption and spur demand among first-time buyers of passenger cars. Furthermore, the budget focused on boosting rural consumption by allocating more funds through various schemes. It is projected that these schemes will stimulate the demand for farming vehicles as well as two-wheelers in rural India.

For now amid no significant changes, all eyes are on the goods and services tax (GST) implementation expected to take place in July 2017. Industry experts anticipate that the rollout of GST will not only help to standardize various tax aspects, but it will also reduce costs across the industry’s entire supply and value chains. Therefore, a significant share of the impact will be seen only after the implementation of GST. Given the current scenario, we anticipate growth in the industry to rebound largely driven by government’s strong focus on enhancing consumer consumption and infrastructure development.

by EOS Intelligence EOS Intelligence No Comments

The Return of Consumer Credit – What Does It Mean for Algerian Passenger Vehicles Industry?

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(This post, along with recently published article on auto financing in Nigeria, formed a mainstay of a broader coverage article titled ‘Affordable auto financing essential for OEM success in Africa’, contributed by EOS Intelligence to ‘Guide to the automotive world in 2017’, Automotive World’s annual publication covering a gamut of articles by leading global automotive industry analysts and consultants. The report was published in January 2017)

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Banned in 2009 in order to curb the national import bill as well as the level of household debt, consumer credit was reinstated in Algeria in early 2016 to encourage the consumption of national products. In the local automotive industry, Renault Symbol is the only passenger vehicle currently available on auto financing, since Renault is the only locally assembled vehicle in Algeria. Can the return of consumer credit along with other policies provide the much needed boost to the nation’s passenger vehicle industry?

With a total population of approximately 40 million, Algeria is the second largest automotive market on the African continent. For the past several years, the country’s automotive industry has relied heavily on imports from Europe and Asia, importing nearly two million cars between 2012 and 2015. Today, the industry continues to be heavily dominated by imported vehicles, which account for approximately 85-90% of the total market. Passenger car manufacturing is limited, with Renault Algerie being the only domestic manufacturer (the Renault Algerie production plant is an assembly unit that builds the Symbol model from completely knocked down production for the Algerian market).

In 2009, all consumer loans were abolished by the government in an effort to reduce import bills as well as the level of household debt. However, in 2016, under the Executive Decree No. 15-114 of May 2015, consumer loans were made available on selected goods manufactured nationally. Under the scheme, car loans are available only on Renault Symbol, since it is the only locally-assembled vehicle.

Unlike in Nigeria and in several other African countries, where accessibility and affordability of car finance remain an immense challenge, in Algeria, a considerable part of the population can qualify for loans based on their monthly income level. As a result, major Algerian banks have seen a rapid surge of car loan applications. Although access to consumer finance has boosted car loan applications over the second half of 2016, this is not likely to significantly impact the industry growth, since consumers have no choice in selecting either brand or model. In addition, Renault’s current production volumes are very limited (25,000 vehicles per annum) and cannot meet the total local demand. However, due to the recently introduced reforms, the industry dynamics can be expected to change in the next few years.

EOS Perspective

The current economic environment, along with the implementation of licensing system and import quotas are likely to have a negative impact on the passenger vehicles industry in the short term. New vehicle sales can be expected to witness a decline to some extent in 2017. But the recent developments are also likely to push automakers to invest in setting up local production facilities. The arrival of major OEMs and their production projects is expected to serve as a growth catalyst for the local automotive industry over medium to long term. Once these projects become operational, local production volumes might increase significantly, which will provide consumers with more buying options. In addition, the ease of consumer lending could accelerate household spending, leading to increased bank lending in the automotive industry. As competition between banks intensifies, more innovative and affordable car financing solutions are likely to be available to consumers in Algeria, which can in turn attract many consumers across segments to buy new cars. The rising and young middle-class Algerians are likely to consider shifting from entry-level segment to the luxury segment, as they can spread their payments over a longer period of time (e.g. up to 60 months).

All of these efforts combined together – the recent industry reforms, auto manufacturing projects in the pipeline, and auto lending – can be expected to fuel growth in Algeria’s passenger vehicle industry.

by EOS Intelligence EOS Intelligence No Comments

Fintech Paving the Way for Financial Inclusion in Indonesia

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Over the past two decades, financial sector in Indonesia has witnessed a massive transformation with the introduction of fintech solutions, fuelled by growing digital market and increasing investments in the fintech market. The sector’s growth offers tremendous opportunities and has led to the emergence of various start-ups offering online financial services. Fintech promises technological solutions to various challenges within the financial sector and offers value-added services such as transaction analysis and customer engagement initiatives. However, challenges such as poor financial literacy among Indonesians and cumbersome regulatory processes continue to pose a threat to the market growth.

Fintech is increasingly gaining traction in Indonesia and changing the way financial companies do business. Gone are the days when banks were the only source of financial transactions in the country. Fintech has revolutionized the financial sector with the emergence of various technological start-ups in areas of mobile payment, loans, money transfers, asset management, etc.

Fintech sector’s growth in Indonesia is largely driven by the rapidly increasing internet penetration and rising smartphone usage, as well as solid and continuous investments – over 2013-2018, investments in the fintech industry are forecast to reach US$ 8 billion, growing at a CAGR of 21.7%. Despite these growth drivers, the sector faces several hurdles such as inexperienced financial personnel, lengthy regulatory processes, and poor financial knowledge among the Indonesian population.

Fintech Paving Way for Financial Inclusion in Indonesia

Nevertheless, the country has been taking measures to tackle the challenges to create banks of the future. In November 2016, Bank Indonesia, central bank of the country, set up a fintech office in Jakarta to boost development of the industry. The office is aimed to optimize technological advancements across the fintech sector, assist players in understanding the regulations, and increase industry’s competitiveness by sharing its developments with international institutions. In addition, Indonesia’s Financial Services Authority is in the process of developing regulations to govern the industry, a significant step to enable both the fintech players as well as the regulators to function cohesively. Further, the industry is also receiving support from conventional financial institutions, which have started adopting digital innovations by initiating collaborations with fintech companies.

Indonesia’s high dependency on cash-based transactions along with low financial penetration rate serve as untapped opportunity areas for fintech players to explore. As of 2014, only 36% of the adult Indonesian population had bank accounts. Additionally, 89.7% of all transactions are still conducted in cash. Fintech players have gradually started leveraging these opportunity areas by expanding services with introduction of various start-ups offering a range of online financial products. As of 2016, the country hosted around 140 independent start-ups, an improvement from just a handful a few years ago, representing a steady growth of the industry. Some of the prominent players of the industry include HaloMoney, Cekaja, and Kartuku, among others.

EOS Perspective

Fintech is the answer to the need for a more secure, fast, and practical financial processing system. It has the potential to transform Indonesia’s financial industry by creating a paradigm shift in the way financial services sector operates. However, certain measures need to be taken to realize its full potential. In order to cultivate skilled personnel, the government should collaborate with universities across the country and promote fintech courses to develop the required skill set among people. Additionally, the government should encourage the association between conventional financial institutions and fintech companies to promote collaborative training and communication, which could help to improve financial education among players in the market. The association would also help both parties to improve their own areas of expertise.

Fintech industry has slowly started changing the way financial services are being accessed in Indonesia. Gradual yet steady on-going efforts to overcome hurdles are likely to result in a larger population enjoying benefits of digital financial services.

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