Some Saudi Arabian construction companies are struggling to pay their staff on time in a sign of growing pressure on the economy from low oil prices, which are causing the government to slow spending on building projects.
In an unusual move this week, the Ministry of Labour issued a public statement saying workers at a “major institution” had complained they had not been paid for months. It said it had established the complaints were true and taken remedial action.
The ministry did not name the institution or give details of its action; it did not respond to telephone calls seeking comment. But senior industry sources told Reuters that the firm was in the construction sector and that at least several other sizeable companies in the industry faced the same problem.
One executive at a large Saudi construction firm, speaking on condition of anonymity, told Reuters it had been having problems paying its employees for a few months. “It’s not just us, it’s several construction companies that work on government projects,” he said.
As the government of the world’s top oil exporter slows spending to reduce a budget deficit of around US$100 billion, construction is proving to be the hardest hit sector, because firms depend heavily on government business for their cash flow.
“The pace of execution on some of the existing projects has slowed down, so a project that would take six months to complete may now see an extended execution time line,” said Murad Ansari, analyst at EFG-Hermes in Saudi Arabia.
“Moreover, government payments have slowed down. As a result, contractors which normally rely on short-term funding for projects are feeling an impact on their working capital, so their ability to repay debt is not as strong as it was before.”
Construction accounts for only about 7 percent of Saudi gross domestic product. But in coming months the sector’s difficulties could have a wider impact as suppliers are hit and banks lending to the industry take more provisions for potential bad loans.
Delayed payments to staff, sometimes due to red tape and inefficient bureaucracy rather than financial difficulties, have been a feature of the construction industry in Saudi Arabia and the Gulf for years.
But the problem has worsened greatly in the last few months because of government austerity measures, industry executives said, speaking on condition of anonymity because of commercial sensitivities.
“Many contractors are awaiting payment from the government. It’s an industry-wide problem,” said an executive at another construction firm operating in the kingdom.
The 2016 state budget envisages total spending of 840 billion Saudi riyals; if the government keeps to that figure, it would represent a 14 percent drop from last year’s actual spending. Since the government has little political room to reduce spending on wages for civil servants, much or most of its cuts are believed to be in building projects.
During Saudi Arabia’s last economic slowdown in 2009, also triggered by an oil price slump, the government raised advance payments to builders to support their cash flow and ensure that projects continued without interruption, Ansari said.
That is not happening now. The finance ministry has cut advance payments to firms doing state construction work to 5 percent of contract value from 20 percent, the al-Hayat newspaper reported.
“Money is not being paid at the top level,” said one banker to the industry. “This has been going on since October and it is hard to know how long it will go on for.”
The vast bulk of many big builders’ business comes from the government.
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Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
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Engine: 2-litre or 3-litre 4Motion all-wheel-drive Power: 250Nm (2-litre); 340 (3-litre) Torque: 450Nm Transmission: 8-speed automatic Starting price: From Dh212,000 On sale: Now
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Ziauddin Yousafzai told The National his daughter was ‘very happy’ with her husband.
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● Company: Bidzi
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● Founders: Akshay Dosaj and Asif Rashid
● Based: Dubai, UAE
● Industry: M&A
● Funding size: Bootstrapped
● No of employees: Nine
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3. Roger Federer (SUI) 6,190
4. Daniil Medvedev (RUS) 5,705
5. Dominic Thiem (AUT) 5,025
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11. David Goffin (BEL) 2,335 ( 3)
12. Fabio Fognini (ITA) 2,290
13. Kei Nishikori (JPN) 2,180 (-2)
14. Diego Schwartzman (ARG) 2,125 ( 1)
15. Denis Shapovalov (CAN) 2,050 ( 13)
16. Stan Wawrinka (SUI) 2,000
17. Karen Khachanov (RUS) 1,840 (-9)
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Learn more about Qasr Al Hosn
In 2013, The National's History Project went beyond the walls to see what life was like living in Abu Dhabi's fabled fort:
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Red card: Christian Kabasele (WatforD)
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Engine: 2.0-litre 4-cylinder turbo
Power: 275hp at 6,600rpm
Torque: 353Nm from 1,450-4,700rpm
Transmission: 8-speed dual-clutch auto
Top speed: 250kph
Fuel consumption: 6.8L/100km
On sale: Now
Price: Dh146,999
Dates for the diary
To mark Bodytree’s 10th anniversary, the coming season will be filled with celebratory activities:
- September 21 Anyone interested in becoming a certified yoga instructor can sign up for a 250-hour course in Yoga Teacher Training with Jacquelene Sadek. It begins on September 21 and will take place over the course of six weekends.
- October 18 to 21 International yoga instructor, Yogi Nora, will be visiting Bodytree and offering classes.
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Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
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