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Saudi Arabia: Increased Yemen wars and decreased oil prices, terribly effects budget


The budget deficit was nearly $100 billion last year. Prince Mohammed set to to sell off a small piece of the country’s economic crown jewel, Saudi Aramco, to free up money for investment. The country’s foreign reserves have dropped by a quarter since oil prices started falling in 2014. The government has taken loans from foreign banks and will try to borrow more from the global bond market.

AL KHARJ – Highly increasing expenditure on armed materials and wars on Yemen with a terrible downfall of oil prices have torn apart the Saudi Arabia’s budget, resulting which the Government came up with decision of tightening its own citizens

Saudi’s are now facing reductions in take-home pay and benefits for government workers and a host of new fees and fines. Huge subsidies for fuel, water and electricity is increasing day by day.

One of the top most renowned Govt. Run dairy Almarai, which is also one of the top brands in the Middle East, will mean $133 million from the bottom line this year, company officials said.

Prince Mohammed’s plan for an economic betterment has sent waves of tremors through a nation whose citizens have long enjoyed a cosseted lifestyle underwritten by the state.

“The government is moving very fast at reforming things in Saudi Arabia, while the people are finding themselves left behind. Life as usual and business as usual can no longer continue,” said Lama Alsulaiman, a businesswoman and board member of the Jidda Chamber of Commerce and Industry.

“Rewriting the social contract carries high risks for the 31-year-old deputy crown prince, who has staked his reputation on transforming the economy. “People are looking to see if he can do it,” said Ibrahim Alnahas, a political-science professor at King Saud University in Riyadh, the capital. “If so, his future would be king. If not, his future would be lost.”

Crude oil does more than billions of dollars in profits to Saudi Aramco, the state oil company, and Sabic, the chemical giant. It also buttresses energy-intensive sectors like cement production and aluminum smelting.

“It is striking the extent to which every major industry relies on cheap energy, whether directly or indirectly,” said Glada Lahn, co-author of a study for Chatham House, a London think tank,that warned that the kingdom could become a net importer of oil within a few decades if it did not make significant changes.

In a meeting of the Organization of the Petroleum Exporting Countries in Algeria, Saudi Arabia’s agreement to cut production to raise the price of crude, showed the urgency policy makers here are feeling.

Prince Mohammed announced plans this year to sell off a small piece of the country’s economic crown jewel, Saudi Aramco, to free up money for investment.

The budget deficit was nearly $100 billion last year. The country’s foreign reserves have dropped by a quarter since oil prices started falling in 2014. The government has taken loans from foreign banks and will try to borrow more from the global bond market.

Hedge funds are wagering that the Saudi central bank will be forced to revalue its currency, the riyal. Zach Schreiber, the head of PointState Capital, which made $1 billion betting that oil would fall, told investors in May that the Saudi riyal was “massively overvalued” and that the country had only “two to three years of runway before it hits a wall.”

The government has abruptly cut construction projects, forcing contractors to lay off workers. This year, foreign laborers set fire to buses in protests demanding months of back pay. The sudden jump in water bills this spring led to such an outcry on social media that the minister for water and electricity was fired after telling customers to dig their own wells if they were unhappy with prices.

“If you’re a Saudi, you’ve grown up with that expectation of the financial largess that’s dished out,” said Adel Hamaizia, the vice chairman of the Oxford Gulf and Arabian Peninsula Studies Forum. “Things are likely to get more difficult for the government in terms of managing frustration from the everyday people.”

Adding to the pressure, the kingdom’s population has nearly doubled since 1990. With half of all Saudis younger than 25, the private sector is unable to offer enough good opportunities for the estimated 300,000 young people entering the work force each year, especially women. Fewer of the public sinecures that have sustained earlier generations are available, with plans for deeper cuts.

Despite Saudi Arabia’s image as a heaven for Ferrari-driving sheikhs with stables full of racehorses, oil revenue is much lower per capita than in small states like Qatar or Kuwait. There is poverty in the kingdom as well as an increasingly anxious middle class.

“The prices are increasing for everything,” Ms. Rashed ajewellery seller said. The couple’s electricity bill after the Ramadan holiday was so high they could no longer afford it, so the power was shut off. “Only a camel can live without electricity,” she said.

TheVision 2030 plan calls for a steady diversification of the economy over the next 14 years which would include expanding the country’s mining industries to exploit gold, phosphate and uranium deposits, and building up the financial, technology and entertainment sectors.

Alike many countries which generate added revenue through tourism, Saudi Arabia also has Mecca, which more than 1.6 billion Muslims worldwide are instructed to visit on a pilgrimage before they die.

Prince Mohammed gathered business leaders, government officials and even athletes and artists at the palatial Ritz-Carlton in Riyadh late last year to discuss the economic targets his team was developing.

“Subsidies should have been done a long time ago. Things are still so cheap,” said Salman M. Al Suhaibaney, a Saudi entrepreneur, holding up his drink to demonstrate. “This bottle of water is more expensive than the same amount of gas.”

Citizens are squeezed up at every step. After cutting pay for ministers, freezing hiring and curtailing regular bonuses and overtime for the entire public sector work force, the government announced last week that workers would be paid according to the Gregorian calendar (as in the United States and Europe), instead of the slightly shorter Islamic Hijri calendar, adding roughly one unpaid workday a month.

“If your salary is going down and your costs are going up, something’s got to give,” said Mr. Hamaizia of the Oxford Gulf and Arabian Peninsula Studies Forum.

Less expenditure by government, businesses and increase in consumers means less growth and fewer jobs. The only way to create more jobs for Saudis in such an environment may be by getting rid of foreign workers and replacing them with locals. That policy, known as Saudization, has been pursued at least since the early 1980s and always failed, with the number of foreign laborers ballooning from roughly one million to 10 million.

Despite the fact that Foreign workers cost less, the government has applied fines and has refused to renew visas for foreign workers. The kingdom’s targets for increasing employment include more than 450,000 new private-sector jobs by 2020.

The Almarai dairy employs 8,000 Saudis among its work force of more than 40,000. On a recent morning, 150 Holsteins moseyed into the milking parlor where workers from Kenya, the Philippines and elsewhere hooked them up to automated pumps. The business — which also produces yogurt and cheese and includes a bakery — has its own training academy for Saudis, drawing 15,000 applicants annually for just 400 slots.

Prince Sultan bin Mohammed bin Saud Al Kabeer, a member of the extended Al Saud royal family and one of those rich Saudis with a stable of thoroughbreds, founded Almarai in 1977 with the help of Irish dairy farmers.

“We try to keep it to a standard that if the prince wants to come in tomorrow with his friends, he’s welcome,” said Tony Gavin, the Irish manager of the largest Almarai dairy farm, in Al Kharj, southeast of Riyadh. Wearing brown shorts and Ray-Ban sunglasses, Mr. Gavin gave a tour of the sprawling farm.

Describing about the quality, one can see the herd resting under a cooling mist scattered by large fans, the temperature and quantity of water being computer controlled. A nutritionist optimizes the cows’ diet with cottonseed from Greece, sugar beet pellets from the Netherlands and locally grown alfalfa.

But the government has dictated that now the dairies must be provided local feed production because water is so scarce. Almarai has bought farmland in Argentina, California and Arizona to produce alfalfa to ship here.

Still, the business is getting squeezed. While utility and feed prices are rising, the dairy has not been allowed to raise the price of milk.

Therefore decrease in the oil revenue is deviating the the kingdom towards highly inclining poverty rate effecting not only the backward but also the middle class.

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