Middle East/Africa sales

December 2022: +8.7%; 0.318 million units vs. 0.292 million units
YTD 2022: +5.6%; 3.756 million units vs. 3.556 million units

• Light vehicle demand in the Middle East and Africa (MEA) region posted an estimated increase of 8.7% in December 2022 compared with the same month in 2021, signaling a stable demand trend during the final months of the year. The upward trajectory has now been positive over five consecutive months. However, the uncertainty regarding global inflationary pressures and rising interest rates will continue to cast doubts that a fuller recovery in new-vehicle registrations is possible, as the first half of the 2023 outlook continues to call for a weak pace regarding modest car demand.

• Regarding new vehicle registrations over the last year, the first and third quarters each posted low, albeit positive growth rates, while the second and fourth quarters posted high rates above 8.0%.

• The main external events that heavily affected demand for new vehicles were the supply crunch due to the global semiconductor shortage and the Russia-Ukraine conflict. The latter has created many knock-on effects such as imbalances regarding the global energy sector, disruptions to key agricultural supply chains, and the associated cost pressures that have worsened the high inflation trend that had already begun halfway through 2021 following the pandemic-related economic turbulence and fiscal stimulus provided by governments and central banks as economic sectors reopened with pent-up demand. These events are expected to remain in global current affairs throughout 2023.

• As for 2022, new-vehicle demand is estimated to have matched the result of 2021 and surpassed 3.5 million units for the second consecutive year, rising by 5.6%. This result has taken volumes back on track toward achieving the level of sales reported in 2019, just before the outbreak of the global COVID-19 pandemic. Nevertheless, several years will pass until volumes hit the 5.0-million-unit mark—the level reached back in 2014 (nine years ago).

• Vehicle supply chain disruptions will continue in 2023 as specific factories in Germany and neighboring countries are greatly impacted owing to the raw material shortages and regional transportation logistics of vehicle parts resulting from the war in Ukraine. Central European countries such as Poland, Czechia, and Slovakia also have significant vehicle plants and are more dependent on suppliers located within Ukraine. Furthermore, China's turbulent on-and-off COVID-19 lockdown policies will continue to impact its vehicle manufacturing sector, and export plans may fall short of targets. As a result, premium vehicles made in Germany and exported to the MEA region will continue to be more restricted owing to lower production levels in the short term. This will also apply to new Chinese-based OEMs that have targeted MEA with their vehicle exports. Other car makers continue to adapt and many have increased their vehicle sourcing from South Asia, namely India, to meet client expectations and keep the sales order backlog under control.

• In recent years, regional economies were already very fragile, and the COVID-19 pandemic further deteriorated both business and consumer confidence levels. In addition, record-low crude oil prices in 2020 through mid-2021 further depressed the economies of countries that heavily depend on oil export revenues, as global supply heavily overshadowed global demand. Key industry sectors in developed countries, such as airlines, cruises, cargo shipping, fuel stations, and manufacturing plants, significantly lowered their demand for oil, resulting from government-imposed lockdowns forcing consumers to stay at home. As a result, countries heavily dependent on either oil or tourism revenues crashed across the region. At present, a more positive turnaround gathered pace in the first half of 2022 for crude oil-exporting nations, underlined by high global prices, while tourism-based countries experienced a slight uptick in the second half of the year. In sum, the economic recoveries will gain momentum at various speeds, depending on each region's and country's specific core sectors. Additionally, the conflict between Russia and Ukraine has resulted in the escalation of global oil prices, as many countries have decided to halt the import of Russian oil and gas. As a result, lower supply will lead to higher prices for consumers and industry. Other crude oil-exporting countries are set to gain significantly, which should be the case for Gulf countries. Robust demand for commodities has benefited specific countries. The return of tourism will also kickstart the revival of car rental companies, representing an important market share in some countries that have frozen new registrations since the start of the pandemic and decreased the size of their fleets to readjust to demand levels. Higher demand for new vehicles will face longer waiting times because of the global chip shortages that have forced carmakers to slow production rates. As a result, many registrations will be pushed out to early 2023.

• Estimated full-year volumes in January-December 2021 were up by 19.0%, rebounding from the overall negative trend that developed in the past six years (2015-20), in which vehicle sales steadily decreased from 4.6 million units to 2.9 million units. The economic recovery will enable countries across the region to plan for expansion projects and support dynamic sectors with industries adapting to future consumer requirements, such as energy resources. Nevertheless, we continue to highlight the need for structural economic reforms to be implemented, as specific sectors will continue to overshadow this recovery.

• The estimated forecast for full-year 2022 for the MEA region is set at 3.756 million units (revised down by 0.9% versus last month), representing a 5.6% year-on-year (y/y) increase, which still holds total regional volumes back to levels reached 16 years ago—in 2006. Moreover, falling demand in six consecutive years (2015-20) highlights the economic instability across the region and consumers' cautiousness to commit to a new-vehicle purchase.

• Vehicle sales in December 2022 were affected by the distinct performances across the region, with specific economic developments affecting various markets and subregions in different ways. Vehicle demand during December 2022 in the Middle East (excluding Iran) and the Gulf rose by 22.3% compared with the same month in 2021 but posted a slight decrease in the African continent by 7.2%. Finally, owing to continued volatility, vehicle demand in Iran increased by an estimated 12.9%.

• As previously forecast, the rising vehicle demand trend across the MEA region will be reported at different paces for each country and depends on the specific nation's economic recovery plans and execution. The stronger demand expected in the next few years will continue to be periodically disrupted owing to a certain degree of economic volatility from post-COVID-19 "softer" restrictions to several industries that will continue to linger. Over the next few quarters, the steady fall in cases associated with the Omicron variant may bring new business to the travel industry and wider economies throughout the region after significant disruptions over the last few years. The result will be higher sales orders from rental companies to renew their vehicle rental fleets. Additionally, the slower recovery pace of vehicle registrations will fail to match the higher demand from consumers for new vehicles resulting from the cautious easing of economic restrictions—and especially due to the chip shortage affecting vehicle production globally.

• Sales of new vehicles in full year 2022 may match the previous year, posting low growth at 0.2% across the Middle East (excluding Iran) and the Gulf subregion owing to higher projections for Kuwait, Qatar, and the United Arab Emirates. The introduction of value-added tax (VAT) rates across the Gulf subregion continues to proceed as Oman introduced a 5% VAT last year (April 2021), becoming the fourth Gulf country to do so. Only Kuwait and Qatar are lagging with their implementation process. Expectations have now changed for Kuwait and Qatar to introduce the VAT in the next year, as both countries express concerns that high inflation has derailed the process. The new target date for VAT implementation has been pushed out by six months to 2024. The Gulf nations of Bahrain, Saudi Arabia, and the United Arab Emirates have already introduced a VAT. Recovery was strong during the last quarter of 2022 and vehicle demand is expected to post an equally high registration pace in the first quarter or 2023. The success of the World Cup tournament held in Qatar during November and December have allowed the country and Gulf subregion as a whole to shine globally, bringing stronger calls for more business ventures to support further economic expansion projects in several Gulf countries. More sporting events and tourism will benefit the other sectors as economic diversification plans continue. Also, the rise of global energy (oil and natural gas) prices and the sector's critical transformation globally will benefit the Gulf subregion's economic landscape.

• Demand for new vehicles in the Middle East and Gulf region (excluding Iran) rose by an estimated 22.3% in December 2022, slightly improving the recovery that has begun to form in the region. Across the region, many countries have lifted economic restrictions, and business activity has returned. For 2023, new vehicle demand will continue to recover throughout the year. At the extreme end of the scale, Iranian vehicle sales collapsed in two years during 2018-19 to levels reached over 20 years ago, crashing from the highs registered in 2017 at 1.6 million units, down to 0.8 million units in 2019. Since then, Iranian consumers have been denied American, European, Japanese, and Korean vehicle badges, resulting in the local industry slowly climbing back up while struggling to scale vehicle production up until the present day. Moreover, several Chinese carmakers have rushed to fill the gap left by their Western competitors and captured significant sales volumes during this time. As a result, the stark double-digit declines in the past that were a direct result of the renewed economic sanctions imposed by the United States have now been slowly recovering thanks to aid from the Chinese car industry's export strategy. The Iranian market in 2022 is now expected to grow by 23.7%, posting the third consecutive year of higher vehicle sales. Nevertheless, economic developments will continue to be a concern and affect the current-day sentiments of Iranians. Looking forward, Iranian car owners will continue to hold onto their vehicles for a longer period of time, thus driving up the age of the fleet of Iranian vehicles. In turn, this trend will lead to higher demand for new vehicles in the longer term.

• Across the Gulf region, higher taxation may slightly slow demand for high-priced goods. Iran and Saudi Arabia are the largest vehicle markets in the Middle East and Gulf region, and their performance will significantly affect overall demand. In recent years, Iran's vehicle demand registered one in every two vehicles sold in the region, thus highlighting the importance of the country. Now Saudi Arabia is looking to kick start its own vehicle manufacturing sector and is providing financial funding to some electric vehicle startups such as Lucid Motors with the intention that more OEMs will follow suit.

• Unfortunately, the African continent felt the full force of the COVID-19 pandemic in the second half of 2020; this struggle continued throughout 2022, as the global epicenter of the virus shifted onto the continent. African leaders continue to focus on containing the virus from further spreading. South Africa, in particular, recorded a significant number of positive cases, thus having registered a fourth wave brought on by the Omicron variant in the first quarter of 2022. At present, registered active cases are decreasing and the continent has now begun to return to some normality regarding economic activity.

• Nevertheless, demand for new vehicles in Africa are estimated to have increased by an estimated 20.7% in full-year 2021, despite social unrest and signaling the green shoots of recovery, as substantial pent-up demand has significantly risen over the years. Since 2015, vehicle sales have considerably fallen from the highs of fewer than 2.0 million units to the current lows of fewer than 1.0 million units. The positive momentum during late 2018 and the first half of 2019 was short-lived, and the start of a turnaround has begun again from mid-2021 onward. Countries in North Africa, such as Algeria and Morocco, fell into negative territory in 2020, joining South Africa and hurting the region's overall demand levels. As a result of much weaker consumer demand, vehicle demand across Africa heavily decreased by 27.2% in full-year 2020, despite some relative support from the rise in commodity prices. Vehicle demand will also continue to be heavily affected by slightly higher levels of global crude oil demand, as a trending recovery in prices has materialized in late 2021. Nevertheless, total African vehicle demand has fallen back to levels achieved 17 years ago, in 2006. This scenario will lead to more hardship across Sub-Saharan countries, while North African countries will also suffer from a cautious recovery in Western Europe. For 2022, sales of new vehicles in the African continent are estimated to have slightly fallen by 3.0% versus the previous year.

• North African countries have also been struggling to put their economies on the right path to economic growth. Demand for new vehicles heavily fell in the three-year period of 2015-17 owing to the economic collapse in Algeria, Egypt, and Tunisia. Overall, North African vehicle sales have fallen to levels registered 15 years ago. In 2018, Algeria implemented a vehicle import quota system, and it has since continued to tank, with sales developments destined to be drastically lower than the normal market demand. In fact, new-vehicle registrations are estimated to have reached an all-time low in 2021 at 21,000 units, an abysmal gap from the highs of 500,000 units in 2012 and 2013 for Algeria. For 2022, the Algerian car market is forecast to slightly rise, at just above 25,000 units. Egypt's vehicle market posted strong results in 2021, up 25%, following a few turbulent years, and should continue on the path of a smooth recovery throughout the near term. Full-year 2022 demand will likely decrease but continue to surpass 190,000 vehicles for the third consecutive year. Finally, Morocco's vehicle market continues to develop in line with its economic growth, despite weaker sales resulting from effects of the COVID-19 virus outbreak on the economy and significant trading partners. New-vehicle demand rose by more than 30% in 2021, and a similar target of above 160,000 units is set for 2022. The overall recovery in demand will likely be mild for new vehicles across North Africa in 2022, as more carmakers and many tier suppliers have delayed expanding their manufacturing footprint in the region.

• The Sub-Saharan region has also struggled in recent years owing to low global oil prices hurting oil revenues for exporting countries and low commodity prices hurting agricultural and mining revenues for other countries. Following the high volumes reached in 2014, vehicle demand has struggled to achieve any consistency, trending downward in the past five years, and imports of used vehicles continue to flood the continent despite the government policy. Vehicle sales in 2022 are estimated to remain at the levels achieved 20 years ago. A stronger turnaround is projected beyond 2024 as more governments implement growth strategies for the automotive sector.

• South Africa is the largest vehicle market in Africa, but the economic landscape has been extremely difficult during the past few years and was further depressed owing to COVID-19, despite recent strong demand for natural resources and precious metals. Demand for new vehicles continues to be recovering, yet cautious owing to an outdated automotive policy and the political tension within the African National Congress (ANC), which in turn has led to a soft economic policy. The ANC led by Cyril Ramaphosa won the general elections held in May 2019, and the party's main task has been to provide greater stability, which is critical and necessary to turn around low consumer confidence levels. Big-ticket purchases, such as new vehicles, have been largely postponed during the COVID-19 pandemic and should recover at a more solid pace well into the first half of 2023. As a result of the government lockdown measures, which restricted movement and closed businesses over several months in 2020, consumer spending sharply declined. At present, a recovery is slowly unraveling, and vehicle sales in the full year of 2021 were up by 22.1%. However, the results continue to lag behind the pre-pandemic sales performance of 2019, which shows the underlining struggle to renew the vehicle fleet. Furthermore, social unrest will continue to be an economic threat as recently staged, following the arrest of former president Jacob Zuma. The resulting chaos, looting, and violence in the Gauteng and Kwa-Zulu Natal provinces hurt local communities and businesses. For 2022, new-vehicle sales have posted gains in each month and achieved a rise of 13.9% at 507,000 units.

Global crude oil outlook

• The oil market in 2023 will be under new and expanded management. The United States and the European Union are new market managers and will attempt to set—or at least influence—the price of more than 5 million barrels per day (MMb/d) of Russian seaborne oil exports. The price at which Russian oil is sold, in turn, can influence other prices. The aim is to keep overall oil prices moderate to low. OPEC+ is the established market manager. It will continue to adjust supply, but to support high prices. The oil market has no master, even if more countries aim to manage it. Indeed, more market management could continue to fuel the high oil price volatility we have seen in 2022.

• The disruption to Russian crude oil exports is so far less than feared, but the story is not over yet. The goal of the US-led price cap is to keep Russian oil flowing to markets outside of Europe. But beware of unintended consequences as the more complicated EU import ban and price cap on Russian product exports hits on 5 February 2023.

• Beijing's COVID-19 policies will be the biggest factor in determining if world oil demand growth hits our projections of 1.7 MMb/d in 2023 and again in 2024. The sharp reversal of mainland China's zero-COVID-19 policy—many restrictions on mobility have been eliminated—means that cases will rise, but it also increases the prospects of a return to oil demand growth once the winter is over.

• Immunity from price spikes? The Joe Biden administration's grant of sovereign immunity—and protection against US lawsuits—to Saudi Arabia's prime minister and crown prince removes a thorn in the US-Saudi relationship. Could this provide the West with immunity from oil price spikes? It is not inconceivable that the United States could implicitly coordinate decisions about how the US Strategic Petroleum Reserve is used with OPEC+ actions.

• Our base-case assumptions point to moderate oil supply surpluses for 2023 and 2024, but with inventories still low, OPEC+ action will lift prices above USD80/bbl and USD90/bbl. Keep in mind that geopolitical struggles among great powers will lead to surprises and unexpected outcomes.

• Mainland China is learning from the West's reaction to the war in Ukraine. Mainland China is eager to better insulate itself from Western financial and economic sanctions—now and in the future. In the coming years, mainland China aims to settle some of its oil purchases in yuan as opposed to the US dollar. If this effort is successful, it could be among the most profound changes to oil pricing and trade since the spot and futures markets became the dominant price-setting mechanism in the 1980s.

Middle East/Africa production

December 2022: -34.8%; 110,000 units vs. 169,000 units
YTD 2022: +9.2%; 2,242,000 units vs. 2,053,000 units

• After the United States reimposed sanctions on Iran in 2018, companies from various industries, including Stellantis and Renault, discontinued their business in and with Iran. As a result, production in the country has essentially relied on the activities of domestic OEMs, such as Iran Khodro and SAIPA. Since the crash of the market in the first half of 2019, output has been picking up, as the supply chain is being reconstructed—the country's production volumes are growing every year, with another gain of 10% in 2022 versus 2021. The key launches were the Tara from Iran Khodro and the Shahin from SAIPA, and both manufacturers have announced a lineup renewal in the near future.

• In Algeria, following import restrictions and the obligation for automotive dealers to invest in industrial or semi-industrial activities since 2017, several assembly operations have spawned in the country. However, the local content of this regulatory-related activity was close to zero, and the system collapsed in 2019 after the change of administration. Since then, officials have partially lifted import restrictions, and a new industrial assembly regime is in place. Within this new framework, production plummeted 97% in 2020 to 4,400 units and remained relatively low in 2022 at about 7,000 units. Renault and Stellantis, which have made investments to raise the level of local content, will likely attempt to continue car assembly activities in the country. Mercedes-Benz should also continue car assembly at its knocked-down (KD) plant near Tiaret with 3,000 vehicles per year. New energy deals concluded in 2022 may attract additional investments in the country. However, total volume forecast does not exceed 60,000 vehicles per year in the long-term horizon.

• In South Africa, volumes remained under pressure in 2020-21 as the COVID-19 pandemic affected domestic and export demand for vehicles. Production in 2020 was down 30% compared with 2019 and recovered only 12% in 2021 thanks to the transfer of some Volkswagen (VW) volume from Spain and new model launches at Mercedes-Benz and Toyota. In April 2022, the country was hit by floods, causing temporary closures of damaged production facilities, such as the Toyota South Africa Motors plant that returned to preflood production levels only by the end of September after four months of halted production. Thus, production in the country in 2022 only reached +7% versus the previous year.

• In Morocco, pre-COVID-19 production volumes were achieved in 2022, an increase of 17% compared with 2021. Renault's production remains strong with high demand for CMF-B LS platform-based vehicles, and the new PSA plant in Kenitra increases its capacity utilization every year. It was built with a capacity of 200,000 units per year in 2020 to produce the Peugeot 208; later in 2022, Stellantis announced plans to double its capacity and the OEM's presence in the region.

Keep yourself updated with the latest automotive insights featured on our Mobility News and Assets Community page to stay ahead of your competition.

This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.