Workers in Saudi, victims of meltdown

The 7,700 Indians who have been stranded without pay, benefits or food in Saudi Arabia are victims of the meltdown in the kingdom's construction industry. Thousands of Pakistanis and Filipinos have also been affected. Among the stricken firms are Arabtec  Construction, Saudi Oger, Saudi Bin Ladin Group and half a dozen other major employers of Asian labour.

Saudi construction firms are plagued with cash flow problems due to a decision by Riyadh to suspend contracts on government projects during the third quarter of 2015 while preparing for a new economic plan, dubbed “Vision 2030,” conceived by Deputy Crown Prince Muhammad bin Sultan, the king’s favourite son and presumptive heir.  Companies dealing in all manner of goods and services and construction firms have downsized and laid off workers, including Saudis afflicted with high unemployment.

Some contractors have received small amounts of cash, others may be fobbed off with promissory notes. To make matters worse, Riyadh has decided that the government workers would be given priority while labourers hired by contractors would be the last to be paid.

Saudi Bin Laden has laid off 70,000 of its 2,00,000 workers while 31,000 Saudi and foreign employees out of 50,000 at Saudi Oger have lodged complaints with the labour ministry about non-payment of salaries for seven months. Four thousand of them are Indians.

The steep fall in the price of oil during the summer of 2014 has had a dramatic impact on the economy of Saudi Arabia as 90% of government revenue comes from oil exports. Economic growth slowed to 3.4% in 2015 and is expected to fall to 1.1% this year.

During 2015, the kingdom’s budget deficit soared to 15% of the GDP and the International  Monetary Fund estimated that the kingdom needed the price of a barrel of oil to rise to $106 to equalise expenditures with revenues. With the price hovering around $40 a barrel and falling, Riyadh may have to rely on selling foreign exchange reserves which had been reduced from $746 billion in August 2014 to $646 billion by January this year, creating concern in Riyadh that reserves could be depleted in five years.

To deal with the crisis, the kingdom has  promised reforms to reduce dependency on oil and issued an “austerity” budget which no other country would consider to be austere. The main cuts were in construction projects, explaining the layoffs.  Riyadh has made no move to increase petrol prices, impose income tax or reduce billions of dollars paid to hundreds of luxu-ry-living royals. The value added tax is to be introduced in 2018.

The kingdom has also increased its defence budget to 87.2 billion, a rise of $5.3 billion over 2015, continued its war in neighbouring Yemen at a cost of $5.2 during last year and maintained financial and arms support for jihadi insurgents in Syria. Riyadh carries on with “cheque book diplomacy” by pr-oviding funds of cash-strapped Arab regimes and other allies.

To raise revenue, Riyadh did not cut oil exports thereby decreasing the oil glut and increasing the price. Instead, Saudi Arabia cut the price to Asian consumers and continued to export at about 7.5 million barrels a day with the aim of maintaining its market share as political rival Iran's oil exports grew by 25% and Iraq and Russia boosted exports.

No roadmap
Prince Muhammad bin Sultan's “Vision 2030” aims at reducing the government's dependence on oil exports and raise non-oil exports to 50% but the hastily drafted plan does not provide a roadmap for reaching that target. A carefully considered plan drawn up by professional planners was scrapped.

Furthermore, the country does not possess a progressive administration capable of implementing reforms or the infrastructure or legal system to support change.
The suspension of ongoing construction projects demonstrates that the prince and his father do not seem to know where they are going since cancelling construction on projects will entail waste while resuming work on others could raise costs, particularly if skilled Asian workers leave the country and are reluctant to return to the kingdom due to uncertainty.

Failing to deliver promised reforms could endanger the Saudi monarchy by raising and then dashing expectations of the 15-24 year-olds who demand secure, well-paying jobs in the public sector rather than lower salaried work in the private sector.

Visitors to Saudi Arabia have encountered Saudis working in fast food outlets but service jobs are unlikely to attract many Saudi youths. Asian construction workers do not have to worry about being supplanted by Saudis who are not prepared to work in hot, harsh desert conditions.

Experts warn "Vision 2030" must provide a costly welfare safety net for Saudis unable to find employment or unwilling to take up available jobs. If Riyadh fails to provide jobs and a safety net, there could be tribal unrest as well as recruitment of youths by Islamic State and al-Qaeda in the Arabian Peninsula which seek to overthrow the monarchy.