Austerity Arabia: Saudis to slash billions in projects

Austerity Arabia: Saudis to slash billions in projects
3 min read
13 January, 2017
Consultancy firms swing the axe on projects across Saudi Arabia as construction firms and await billions in late payments from Saudi Arabia's government.
Hundreds of construction projects in the kingdom have been cancelled since 2014 [AFP]
Saudi Arabia is set to slash billions of dollars of projects as part of austerity measures to help the kingdom close a wide budget deficit by 2020.

London-based consultancy firm PricewaterhouseCoopers [PwC] has been tasked by the oil-rich kingdom with identifying between SR50bn and SR75bn [$13bn -$20bn] in savings, say sources cited by the Financial Times

The cuts will centre on capital expenditure, including infrastructure projects, as Riyadh aims to avoid making spending cuts that will trigger mass public discontent.
 
"PwC will be doing big number crunching, lots of accountancy work trying to understand the liabilities the ministries already have, who is doing what, and where the cuts can most easily be made," said the unnamed executive aware of the contract.

The firm is one of several consultants, including Mckinsey, Oliver Wyman and Boston Consulting Group, that have been awarded lucrative contracts by the kingdom in its bid to balance its books.

The role of these firms has triggered some public outrage, particularly due to the fast pace of change in the kingdom, where many had become used to government handouts and subsidies.

Since oil prices fell in mid-2014, Riyadh has stopped or restructured hundreds of projects around the kingdom.

The decline of the kingdom's prized natural resource has also resulted in delayed payments to companies, which has contributed to the country's non-oil growth being less than 1 percent in 2016 - one of the lowest levels in years.

To address this issue, the finance ministry has pledged to settle SR 105bn in payments by next month. 

The country's economic decision-making body, the Council for Economic Development and Affairs, said this week that it would be stablishing an electronic platform to increase transparency around late payments.

Many contractors have has to wait for months and even years for billions of dollars owed to them for goods and services delivered to Sadi Arabia's public sector.

Some have also complained that they are being forced to add hefty discounts to their invoices.

Debts from major construction companies to banks, including that of the Saudi Binladin group and Saudi Oger, have also caused chaos for the financial system.

The kingdom's woes reflect a broader trend now faced in the Gulf, where oil-rich states have drastically cut the number of projects.

In 2016, the value of infrastructure contracts in the Gulf fell by 44 percent to $100bn - a paltry figure compared to $178bn in 2015, according to the Middle East Economic Digest.

This has meant that while construction firms in the region have suffered, management consultants like PwC have raked in funds allocated by Deputy Crown Prince Mohammed bin Salman's project to wean his country off its dependence on oil.