50,000 Laid Off In Saudi Arabia As Oil Crisis Bites Deeper

May 2016, Vol. 243, No. 5

Saudi construction giant Binladin group has laid off tens of thousands of workers, leading to rare protests, as workers torch seven buses demanding compensation as low oil prices begin to bite in earnest.

The numbers of layoffs range from 50,000 to 77,000, many of who say they were not paid for several months.

Binladin group, which last year had all of its contracts frozen after a crane fell over the Grand Mosque in Mecca, killing 107, denied that it owed its workers any compensation. The company said the layoffs were a “routine” adjustment to a slowdown in construction activity in the country.

It certainly is routine to cut your workforce when times are bad, and the times seem to be especially bad in Saudi Arabia, and not because of a “slowdown” in construction per se. The country is increasingly feeling the pinch of low oil prices, and despite deputy crown prince Mohammed bin Salman’s bold reform plan, chances are that things will get worse before they get better.

Last year, when bin Salman effectively took the reins of the government, it was with surprise that this government found out how quickly money was flowing out of the state’s coffers now that oil had lost two-thirds of its value.

As a nation almost entirely dependent on oil for its revenues, the adjustment that the oil price rout prompted has been a painful one, and this pain is now becoming increasingly evident, with civil unrest a possibility. Civil unrest in Saudi Arabia will, in all likelihood, pull oil prices up higher, even if the country, as has been suggested, increases its production further.

One of the first things bin Salman did when the effect of low oil prices really started to be felt in the treasury was to raise the prices of consumer goods and utilities—and substantially at that—by removing state subsidies.

Naturally, this led to disgruntlement among the population. Further measures foreseen in the Vision 2030 plan include the introduction of VAT and other taxes on luxury goods and soft drinks. This, again, will not be taken well, even though bin Salman said the plan involves measures aimed to make the transition easier on lower-income Saudis.

The workers laid off by Binladin group are foreigners, mostly Egyptians, according to the media reports. This doesn’t mean they will go gently into the good night with their newly issued exit visas.

What’s more, an unnamed company official was quoted by Saudi daily Al-Watan as saying that Binladin group planned to sack another 12,000 people¬—all Saudis. The company employs some 17,000 Saudi nationals.

That doesn’t look like a routine adjustment of the workforce. It looks like a radical restructuring in a hostile market environment and an unfriendly government that is delaying payments to the company and has barred it from starting new projects before the Grand Mosque accident is fully investigated.

The government is at a crossroads and the decisions it makes in the near future could entirely change the game in the desert kingdom.

By Irina Slav for Oilprice.com

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