Gulf businesses battle cash crunch despite stimulus
Despite spending billions to prop up economies, scaling back of state projects blunting impact
DUBAI/ RIYADH: Saudi Arabia and the United Arab Emirates (UAE) are spending tens of billions to prop up their economies during the coronavirus crisis and oil price slump but the scaling back of state projects is blunting the impact.
The pain felt by the tourism, retail, hospitality, and logistics sectors due to global travel disruptions and closure of most public venues is spreading to the contracting and oil services industries in the Arab world’s biggest economies. Saudi Arabia last week announced the suspension of work on the third phase of a $100 billion expansion of the Grand Mosque in Mecca over coronavirus fears. Two days earlier, construction giant Saudi Binladin Group said in an internal note, seen by Reuters, that the two employees on the project had been infected.
Riyadh-based MOBCO Civil Construction sent a memo to staff in the Saudi cities of Riyadh, Mecca and Medina notifying them that it plans to cut wages between 25-50% due to “unforeseen circumstances of COVID-19”, according to the internal document dated March 25, which was seen by Reuters.
A source at a major Gulf contracting firm, who declined to be identified due to sensitivities around discussing business plans, told Reuters that he has not seen any new Saudi projects awarded in the last two months.
“There are a lot of concerns, though work has not been suspended in the project we have now,” a Saudi contractor, who also asked not to be identified, told Reuters, voicing fears the state-backed project could be at risk.
“These workers eat, drink and sleep in the same place. If one only is infected, the whole project will stop,” he said, adding that it was too costly for contractors to halt work unless there is a government directive to do so.
State spending in the energy-producing Gulf is the main engine of economic growth. Saudi and UAE authorities have announced nearly $70 billion in stimulus to ease the impact of the coronavirus outbreak. Fitch Ratings said this accounted for more than 10% of the UAE’s GDP and over 4% of that of Saudi Arabia. The stimulus consists largely of monetary and off-budget measures, for example, loan repayment holidays to distressed businesses and individuals.
But there is a limit to how much money governments, who rely heavily on oil export income, can inject as oil prices tumble to 17-year lows. A supply battle between Riyadh and Moscow is exacerbating the impact of an unprecedented drop in demand as governments put countries on lockdown to stop the virus’ spread. Even giant state oil firms have tightened belts, with those of Abu Dhabi and Kuwait issuing directives for cost cuts.
Abu Dhabi’s energy department last week postponed the announcement of winning bids for a solar power plant and said it was monitoring energy prices and supply chains.
Published in The Express Tribune, March 31st, 2020.
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