Saudi companies reproach after oil prices fall

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Saudi companies seek to diversify and protect their businesses, as they are based on a slowdown in the kingdom after the geopolitical crisis triggered a strong fall in oil prices.

The economy of Saudi Arabia has long been dependent on government expenditure fueled by energy export, leaving it exposed to boom and boom cycles driven by changes in gross prices.

The recent fall of oil From $ 80 to the barrel in January to $ 60, the lowest from 2021 and well below the rupture price of the kingdom, has forced private companies to prepare once again for a fall despite the years of effort to diversify under the prince Colonel Mohammed Bin Salman.

A Saudi technology entrepreneur said he learned a hard lesson when he was forced to close his first business after the Government would cut off the bonuses and benefits of public sector worker after a collapse of oil price in 2016.

This time, one of its companies, which manages customer loyalty programs for other companies, has sought to reduce the number of government customers to protect the impact and expand to new sectors such as food and drinks, which said that it would be more resistant thanks to the increase in tourism.

“There will certainly be a fall in government spending, so we have diversified our revenue flows to mitigate this risk,” he said. He added that “government clients now represent less than 10 percent for us.”

But the entrepreneur said that his second company, which offers business software services, still gained most of the income from government contracts and probably struggled.

“If oil prices fall more, they will stop using us,” said the businessman, who requested that he were not named to protect his relationship with the Government.

Prince Mohammed in 2016 launched an ambitious plan, called Vision 2030, to reduce the confidence of the kingdom in the revenue of oil investing in everything, from tourism to Futuristic Infrastructure Projects. The Government also aims to increase the contribution of the private sector to GDP of 40 percent in 2016 to 65 percent until 2030.

Officials say that economic reforms, including rise in non -tax revenue through taxes, have made the economy less vulnerable to the volatility of oil price. Although they have helped exports other than oil to reach a maximum of $ 137 million by 2024, oil still represented 61.6 percent of state income.

Despite diversification efforts, government spending and state -related entities such as the public investment fund is still the key engine of economic activity. The $ 940 million Sovereign Wealth Fund is currently monitoring a wide range of projects that seek to unblock new sectors to create jobs and increase long -term growth.

After a decade of frantic activity, government departments have recently been told to released their belts as Riyadh emphasizes spending priorities. Some of the so -called kingdom Gigaprojects, including the neom flag regimeThey experience delays or are reviewed to be executed for a longer time line.

Saudi Arabia began to increase its oil production last month, which indicates a change in strategy in which the kingdom now appears ready to endure a lower pricing period of oil for the reasons of a larger market share.

“For Saudi companies, immediate concern will be a decline and a change in the cycles of awarding government contracts, a slowdown or a cancellation of prizes and changes in bank loans or the cost of capital,” said Karen Young, a lead researcher at the Center for Global Energy Policy at Columbia University.

Austerity measures during the last fall in oil, between 2014 and 2016, led to significant delays in paying government contractors and left lasting damage to many companies. Authorities say subsequent reforms say that contractors are paid on time.

One of the foreign executive veterans, who works for a company that operates a chain of franchise restaurants throughout the kingdom, said that the impact of the deceleration should not yet be felt. But he said he was concerned about the possible interruption of the world supply chains due to the commercial tensions after the rates imposed by the President of the United States, Donald Trump.

“We are still seeing people spending money,” he added, adding that sales and traffic were slightly higher during Eid al-Fitr’s holidays in April than a year earlier.

“But I’m very close to the side of the supply chain. We still care beef products and these kinds of things,” he added. “The hospitality industry works with a very thin margin in terms of profitability. So any fluctuation or change in the supply chain can affect our bottom line.”