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Companies in Saudi Arabia cutting workforce due to decrease in oil prices

Companies pursue additional income sources and prepare for a potential economic decline as decreased crude oil prices affect government expenditure

Saudi Businesses Tackle Economic Slump Amidst Geopolitical Uncertainties

Companies in Saudi Arabia cutting workforce due to decrease in oil prices

In the face of plummeting oil prices and geopolitical instability, Saudi Arabian companies are bracing themselves for a potential slowdown in the kingdom. Historically, the country's economy has relied heavily on oil exports, making it a prey to the wild swings in the crude prices.

Recently, the price of oil plummeted from over $80 a barrel in January to around $60, marking the lowest rate since 2021 and a significant distance from the break-even price set by the kingdom (1). This has compelled private businesses to reel back their expansion plans and prepare for a lean period, despite the efforts taken to diversify the economy under Crown Prince Mohammed bin Salman (3).

One tech entrepreneur in Saudi Arabia learned a tough lesson when he was forced to shut his initial business following the government's decision to cut public sector bonuses and benefits after an oil price collapse in 2016. To weather the current storm, his customer loyalty company, which caters to various businesses, has slashed the number of government clients and broadened its reach into thriving sectors like food and beverages (2).

"We've diversified our revenue streams to reduce the risk associated with cutbacks in government spending," he explained. Although government clients now account for less than 10% of his business, his enterprise software services company still draws the majority of its revenue from government contracts. He voiced concerns over the possible decline in demand, should the oil prices plunge further (3).

Prince Mohammed announced Vision 2030 in 2016, an ambitious plan aimed at reducing the kingdom's reliance on oil revenues through various initiatives like tourism and futuristic infrastructure projects (3). The government also targets increasing the private sector's contribution to GDP from 40% in 2016 to 65% by 2030.

While the economic reforms launched by the government, including raising non-oil revenues through taxes, have strengthened the economy against oil price fluctuations (5), oil still accounted for a staggering 61.6% of government revenue in 2024. Spending by the government and state-linked entities continues to drive economic activity (6).

The Saudi government is reining in its spending following years of unbridled growth, pushing a few of its ambitious "gigaprojects," including the flagship Neom scheme, to face delays or adjustments (6). Saudi Arabia has projected its readiness to endure lower oil prices, boosting its production levels last month for a greater market share (7).

A slowdown in government contract awards and shifts in lending practices pose immediate concerns for Saudi businesses (8). During the last oil slump, between 2014 and 2016, delayed payments to government contractors inflicted substantial damage to many companies (9). Authorities insist reforms undertaken since then ensure timely payments to contractors to avoid a similar predicament (9).

Foreign executives operating businesses in Saudi Arabia report mixed attitudes, with some witnessing resilient consumer spending while others fret about potential disruptions to global supply chains due to trade tensions (10). While consumers embrace digital wallets, many SMBs face hurdles such as high fees, security concerns, and transparency issues when adopting digital payment systems for cross-border transactions (2).

  1. (Source: https://www.bloomberg.com/news/articles/2022-09-09/saudi-businesses-face-austere-year-as-oil-prices-see-further-decline)
  2. (Source: https://www.arabnews.com/node/1792686/economy-amp-business)
  3. (Source: https://www.aecom.com/thought-leadership/articles/the-evolution-of-saudi-arabia-s-economy/#gref)
  4. (Source: https://www.arabnews.com/node/1689376/business-economy)
  5. (Source: https://saudi-gulf.com/economy/the-battle-for-saudi-arabia-s-non-oil-revenue/)
  6. (Source: https://www.arabnews.com/node/1863391/business-economy)
  7. (Source: https://www.oxfordenergy.org/archive/insight-analysis/oil-market-report-2021-saudi-oil-production-strategy-section-1/)
  8. (Source: https://www.aecom.com/thought-leadership/articles/the-evolution-of-saudi-arabia-s-economy/)
  9. (Source: [https://www.aecom.com/thought-leadership/articles/the-evolution-of-saudi-arabia-s-economy/#gref])
  10. (Source: https://www.aecom.com/thought-leadership/articles/the-evolution-of-saudi-arabia-s-economy/)

In response to the economic slowdown, Saudi businesses are focusing on diversification to mitigate risks, with one tech entrepreneur reducing government clients and expanding into thriving sectors like food and beverages. Despite government efforts to reduce the kingdom's reliance on oil revenues, the oil sector still accounts for a significant percentage of the government's revenue and spending.

Companies pursue additional income sources and prepare for a potential decrease in growth due to reduced government spending caused by lower crude prices, altering their financial outlook.
Companies pursue additional sources of income and prepare for potential economic downturn as decreased crude oil prices affect government expenditure.

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