Geopolitics and Luxury. The consequences of Hamas’s terrorist attack on Israel
By Eva Morletto26 octobre 2023
With the attack initiated by the terrorist group Hamas against Israel on October 7, there's an escalating risk of inflaming the entire Middle Eastern region. Concurrently, there's an intensifying polarization between the West and the East, which includes the Arab world, China, Turkey, and Russia. Recent days have seen nations aligning with one or the other warring side. The conflict has had dire humanitarian repercussions, but the economic toll will also be significant.
At the inaugural event of the Future Investment Initiative (FFI) in Riyadh on October 24, the president of the World Bank, Ajay Banga, stated: "The war threatens to have a severe impact on economic development... I believe we are at a very perilous juncture."
In Israel, the entity known as the "Silicon Wadi" - named because of the multitude of startups and high-tech industries - has also facilitated the emergence of a new generation of young millionaires from this sector. These areas could face temporary paralysis. As for the domestic market, Israel's per capita GDP was about $43,700 at the end of 2022. Israel's economic performance in 2022 was notably robust, surpassing the average of other OECD countries. In the luxury sector, even though it's a small country, Israel is an attractive destination for brands. Some niches, like watchmaking, prove to be exceptionally profitable. According to Hublot's regional director, Italian Augusto Capitanucci, the company's watch sales have doubled year-on-year since 2015. It's hard to believe this trend will continue.
Another aspect of the conflict to consider is the jeopardy faced by the Abraham Accords, signed in 2020 between Israel and the United Arab Emirates, Bahrain, Sudan, and Morocco. These accords facilitated $2.85 billion (€2.67 billion) in trade in 2022 while also promoting the region's political stability. The attack, which occurred as Saudi Arabia— the new luxury Eldorado— was preparing to join the Arab countries in the accord, jeopardizes everything. The Vision 2030 plan, championed by Mohammed bin Salman and centered on multiple development projects involving luxury giants (like the Accor group in real estate and hospitality, or indirectly many brands of the LVMH and Kering groups with various mall projects), relied on Israeli technology support.
A recent study by the Italian luxury business association Altagamma, in collaboration with the Boston Consulting Group, estimates the Middle Eastern luxury market to be nearly €15 billion in 2023. It's expected to double by 2030, reaching €30-35 billion, primarily driven by the UAE and Saudi Arabia. Specifically for Saudi Arabia, the luxury market's value is around €3 billion in 2023 and is projected to reach €6 billion by 2030. Canceling future agreements with Israel and the ongoing war will undoubtedly disrupt these forecasts.
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