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New Measures Adopted in Order to Boost Saudi Arabia’s Economy


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The end of September 2016 proved to be eventful for the Kingdom of Saudi Arabia: the country announced a severe drop in public spending, by cutting ministers’ salaries and bonuses, while offering concessions in the OPEC meeting (held in Algeria, 28 September), agreeing to slash the oil production after a policy of pumping up to the near maximum production level.

As a result, the oil prices jumped 5%, progress hailed by the producers on the market. The Saudi market awaits increases in revenue, which have highly depreciated for the last 18 months.[i] The concessions made mark the end of a two-year policy conducted by the Saudi (the Saudis acquiesced since November 2014 an oversupplied oil market). Moreover, such a step means that the cooperation between Riyadh and Teheran is not impossible, when the two parties have a great deal at stake. Bill FARREN-PRICE, an energy industry consultant declared referring to the measure that: “It shows the extent both sides wanted and needed to get a deal done.[ii]

The deal has been prepared for quite a long time through the means of influence of the OPEC state members such as Qatar, Venezuela, Algeria, together with Russia. But the economic component was the main driver behind the Saudi Arabia’s decision, being pressed by its financial situation.[iii]

The financial strain was depicted into first-timer stories about unpaid bills and workers within the Kingdom. The drop in crude prices has squashed the economy of Saudi Arabia, since an overwhelming part of the government revenues come from oil (the economy is almost entirely dependent on oil) and most of the private companies count on public spending. Despite receiving little attention outside the Kingdom, the business tycoons, names as Bin Laden Group or Oger included, have faced problems in paying their employees. It is thought that the Indian, Pakistani, Sri Lankan and other workers have not collected their wages (the construction sector being particularly affected) for more than half a year. Indian and Pakistani embassies attempted to approach the Saudi government and tried to ensure their citizens are not suffering.[iv]

The Arab News reported that “31,000 Saudi and other foreign workers have lodged complaints with the government’s labour ministry over unpaid wages”.[v] The construction companies are becoming highly indebted and the government is not keeping up the pace with the bills. Allegedly, the staff from the embassies of Philippines, France and of other countries of South Asia and the Middle East, have signaled the problems to the Saudi government.[vi] The Saudi government stands firm that it has paid all its checks.

In addition, reports have covered recently a strike at a respected private hospital in Eastern Saudi Arabia (the oil-rich province) that took place in mid-September 2016, the staff protesting with regards to overdue salaries.[vii] The medical personnel, comprising Saudi nationals, have declared to the publication Middle East Eye: “that more than 1,200 staff at Saad Specialist Hospital in the eastern city of Khobar have not been paid since May (2016).” This hospital strike is illustrious, as both foreign and Saudi workers are taking part in the strike. “It’s very unusual for Saudis not to be paid,” according to a British doctor who preferred to remain anonymous.[viii]

Trade union activity is strictly prohibited under the Saudi Arabia’s legal framework. Against all odds, the staff at Saad Hospital, organized an ongoing strike they planned to continue until receiving the overdue sums.

The hospital is part of the Saad Group, owned by the Saudi billionaire Maan al-Sanea. Saad group owns numerous investments in the Gulf and in the broader region. The Saad Group has not delivered an official response that could explain why the staff is not paid, fueling rumors among those on strike. Thus, the employees (eight hundred staff members) have signed a petition sent to King SALMAN himself, calling upon governmental intervention.[ix] On the other hand, foreign officials have stated they cannot interfere in the affair, the American consulate explaining that it does not have the ability to take any legal action on the matter.

Stories about unpaid bills and salaries are probably going to reemerge in the current context. On 26 September a royal decree announced cancellation of bonuses and allowances for public sector’s employees. The decree deciding that Saudi Arabia will cut ministers’ salaries by 20 percent indicates a measure generated by the low price of oil.[x] Allowances of the members of the appointed Shoura Council are going to be reduced with 15 percent. Overtime bonuses are diminished; equally the annual leave cannot exceed 30 days anymore.[xi] This represents a drastic measure, in order to save money and reduce fiscal deficit.

The new rules are to come into force in a month, being applied to all public sector workers, Saudi nationals and expats alike and to the military staff. Only soldiers serving in Yemen, where Saudi Arabia is leading the coalition anti-Houthi, are not subject to the cuts. The announcement did not mention if the imposed cuts will also be applied to the generous subsidies received by the members of the extended royal family (descendants of Al-Saud, the founding father of Saudi Arabia).

The current situation might increase criticism towards “Operation Decisive Storm”, transformed later into “Operation Restoring Hope” in Yemen, led under Saudi rule, which is costing the government heftily. Moreover, this military campaign is not reaching its initial goals, to the dismay of the Saudi rulers.[xii]

The reforms presented under the rule of King SALMAN would probably make many Saudi regret the times of King Abdullah, when they received financial incentives in the wake of the Arab Spring. Unlike his predecessor, King SALMAN appointed his son - Deputy Crown Prince, Mohammed bin SALMAN - for conducting some harsh reforms. Therefore, the plan called “Vision 2030” aims to reduce the public sector spending dramatically (by 40%) by the start of the next decade and give impetus to private sector initiatives. One has to take into account that “Vision 2030” is not a universal cure for Saudi Arabia's financial challenges.[xiii] The austerity measures proposed recently are likely to affect the middle class mostly.

Saudi analyst and editor of Al Arab News, Jamal KHASHOGGI declared in relation to the public sector cuts: “It’s one more economic measure to balance spending. Of course people don’t like it, but it’s a sign of the times”.[xiv] The measures should boost the private sector. “It shows why it’s important for the private sector and Saudi GDP to diversify”.[xv]

In response to the royal decree announcing austerity measures, the top religious authority- the Grand Mufti- made appeal to the Saudi citizens (on Thursday, 29 September 2016, few days after the decree was enacted) to respect these measures, as they are temporary measures dictated by the public interest.[xvi]

Okaz newspaper used quotes of the Grand Mufti, Sheikh ABDULAZIZ Al al-Sheikh,who was highlighting the temporary character of the measures and stressed the need for “Cooperation and helping the state in what it sees to be in the public interest and honest vision is necessary,” during his weekly radio address on Wednesday (28 September).[xvii]

The public sector cuts were followed by the agreement in the interior of OPEC in order to reduce production of oil. Overall, the measures might trigger concerns regarding the satisfaction of the Saudi citizens. The Saudi lifestyle was known as a win-win situation in which citizens could expect a public sector job (paid fairly well) in return for accepting the status quo in politics.[xviii] In the current context, it becomes clear that Saudi Arabia is moving into a difficult period in which its society is having to adjust to the current state of economy. Therefore, the ruling house has crucial task to convince its citizens to accept that the times of lavish spending are over.

 

 



[i] BBC, Michael Stephens, Can Saudi Arabia's bold reforms cure growing financial woes?, 30 September 2016, http://www.bbc.com/news/world-middle-east-37516495.

[ii] Idem.

[iii] The Financial Times, David Sheppard, Anjli Raval, Opec deal: How Riyadh and Tehran poured oil on troubled waters, 30 September 2016, https://www.ft.com/content/1ee0aeb2-870d-11e6-bbbe-2a4dcea95797.

[iv] The Independent, Robert Fisk, Saudi Arabia cannot pay its workers or bills – yet continues to fund a war in Yemen, 8 September 2016, http://www.independent.co.uk/voices/saudi-arabia-cannot-pay-its-workers-or-bills-yet-continues-to-fund-a-war-in-yemen-a7232466.html.

[v] Idem.

[vi] Idem.

[vii] Middle East Eye, Rori Donaghy, 21 September 2016, Saudi and foreign workers unite to strike over unpaid wages,http://www.middleeasteye.net/news/saudi-and-foreign-workers-unite-stage-rare-protest-over-unpaid-salaries-1140206956.

[viii] Idem.

[ix] Idem.

[x] Reuters, Business News, Saudi Arabia slashes ministers' pay, cuts public sector bonuses, 26 September 2016, http://www.reuters.com/article/us-saudi-economy-idUSKCN11W1VS?il=0.

[xi] Idem.

[xii]The Independent, Robert Fisk, Saudi Arabia cannot pay its workers or bills – yet continues to fund a war in Yemen, 8 September 2016, http://www.independent.co.uk/voices/saudi-arabia-cannot-pay-its-workers-or-bills-yet-continues-to-fund-a-war-in-yemen-a7232466.html.

[xiii] BBC, Michael Stephens, Can Saudi Arabia's bold reforms cure growing financial woes?, 30 September 2016, http://www.bbc.com/news/world-middle-east-37516495.

[xiv] BBC, Middle East Section, Saudi Arabia unveils first public sector pay cuts, 27 September 2016, http://www.bbc.com/news/world-middle-east-37482690.

[xv] Idem.

[xvi] Reuters, World News, Mufti tells Saudis to back government austerity moves, 29 September 2016, http://uk.reuters.com/article/uk-saudi-economy-mufti-idUKKCN11Z1W7

[xvii] Idem.

[xviii] BBC, Middle East Section, Saudi Arabia unveils first public sector pay cuts, 27 September 2016, http://www.bbc.com/news/world-middle-east-37482690.

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