CLOSE-UP: LIVE ISSUE - WAR. Caution reigns as advertisers ride out war in the Middle East

Despite the war in Iraq, it is not all doom and gloom for the Middle Eastern advertising market, writes Shilpa Mathai, who takes a look at how war is affecting advertising in Middle Eastern markets.

Regional Middle Eastern companies have not shied away from advertising and regional newspapers still have their fair share of ads from local companies. However, the big multinationals, especially US brands, are conspicuous by their absence. There is a distinct lack of marketing activity in the region and companies are adopting a watch-and-wait attitude before proceeding with plans for the year.

There are exceptions: this month saw Intel make a big splash in the Middle East with a glitzy launch for its Centrino wireless technology. A local TV star was hired to compere the event, prominent customers from the region were invited to meet the press and Intel is backing the event with advertising.

While Centrino was unveiled in a packed auditorium, other multinationals are less confident. Launches, revamps and new-business initiatives across the region are on hold with big advertisers, especially multinationals, holding back until the crisis is over.

"Why make a decision to go ahead with launching a new campaign or a new product when you can wait a couple of months and play it safe? The caution comes from not wanting your ads to show up on TV during a crisis situation," Faris Abouhamad, the executive vice-president of Fortune Promoseven, the McCann-Erickson affiliate in the region, says.

Some luxury goods, motor and US consumer brand advertisers told agencies they were considering cuts in adspend before war was declared. Others have waited until battle commenced. Although the big agency networks are officially doling out "the business as usual" line, privately they confess to being worried about being in a state of limbo.

One Dubai agency chief explains: "Our local and regional clients are sustaining the business right now. They are going ahead with their plans, unlike the multinationals, which are freezing ad budgets. Most of our clients will hold off advertising during the initial phase of any attack and see how it plays out."

Nevertheless, some industry executives are more bullish, assuming conflict concludes quickly. "If there is a four- to six-week war, ad spending could really pick up in the latter half of the year," Rohit Misra, the regional vice-president of Euro RSCG, Middle East, says. Avi Bhojani, the vice-chairman of Bates PanGulf, is more pessimistic. He estimates a 10 to 15 per cent decline in adspend in the second quarter of the year, whatever the duration of the conflict.

Any conflict affects precarious trade relations between the Arab world and its Western counterpart. When many Arabs launched a boycott of American brands last year to express their solidarity with the Palestinians, losses incurred by local businesses in the Middle East that run American chains or deal with American brands were estimated at as much as $200 million.

Some US brands in the region are considering scaling down their operations. Coca-Cola has announced plans to run its Middle Eastern operations from Athens instead of Bahrain.

But official figures claim it's not as bad as it seems. Last year, total adspend in the region grew by an impressive 22 per cent over 2001 and exceeded a consolidated market spend of $3.1 billion, according to research by the Pan-Arab Research Centre. The ad industry grew 35 per cent over 2001 (growth was pegged around 26 per cent) and the average adspend per capita was estimated at $21.4 in 2002.

Such impressive growth figures can be misleading, however. Per capita adspend in the region is still one of the lowest in the world. Saatchi & Saatchi Middle East's chairman, Khamis Al Muqla, believes that the region needs to go a long way beyond such figures to catch up with other countries.

No agency has announced downsizing plans yet - they seem confident of sustaining existing staff levels for at least another three months. Misra explains: "The regional advertising market had a buoyant run last year; it was one of the few markets not affected by recession. The small market size and the proliferation of choice increase the need to advertise products and services. The cluttered market is extremely competitive and hence highly promotion driven, which affects the necessary marketing investment."

However, some Gulf states are experiencing a drop in revenue. There is an active contraction in luxury spending in Kuwait and Saudi Arabia. Retailers say that Kuwait is one of the biggest consumers of luxury items per person in the world - one company estimates women spend $500 to $800 a month on perfume and beauty products alone. "We anticipate a short-term advertising slump in our beauty care products and less of an impact on other categories such as home care and lingerie," Chris Delaney, the vice-president of Procter & Gamble, Arabia, says. "There will be a slowdown, a drop in consumer confidence but markets don't change as a result of short-term glitches. We will continue advertising while ensuring content is appropriately sombre."

The reduction in adspend by companies in Kuwait has led to a drop in agency income of around 20 to 25 per cent. Media owners are also scrambling to fill ad pages, which means a reduction in advertising rates is imminent.

Media, especially magazines, have started undercutting rates to lure reluctant advertisers, and media agencies predict that the ensuing months will be good in terms of a better bang for the advertisers' buck. "Media clutter is a problem in the Middle East market. In that perspective, the crisis can be a clutter cutter. As companies withdraw advertising, those that continue to beam their messages will benefit," ZenithOptimedia's CV Suvi says.

According to Talal El Makdessi, the chairman of one of the largest agency networks in the Middle East, The Team Holding Group, this is a good time for agency introspection. "Traditionally, this market was ignored by global brands and there is a dire need for increased investments in terms of per capita adspends and budgets by principals. To attract investment, regional agencies have to offer better creativity and business practices. A lull is always good to put your house in order."

These are difficult times for the advertising industry in the Middle East. "But it is also a market that thrives on chaos," Makdessi says.

"We have always had unrest in the region right from the 50s - this has not stopped businesses from growing. We have short-term glitches when political unrest peaks, but just like after the 1990 Gulf war and the events of 11 September, we bounced back with remarkable ease. There is no reason to believe that it will be any different this time. Once the crisis clears up, there will be business opportunities in rebuilding neighbouring countries and this will make up for any imminent shortfalls."

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