Saudi and Emirati businesses struggle with cash flow shortage despite coronavirus stimulus
RIYADH / DUBAI (Reuters) – Saudi Arabia and the United Arab Emirates are spending tens of billions to support their economies during the coronavirus crisis and falling oil prices, but cutbacks in state projects mitigate the impact .
The pain felt by the tourism, retail, hospitality and logistics sectors over the disruption of global travel and the closure of most public places extends to industries in the sub -treatment and oil services in the largest economies of the Arab world.
Saudi Arabia last week announced the suspension of work on the third phase of a $ 100 billion expansion of the Grand Mosque of Mecca over fears of the coronavirus. Two days earlier, construction giant Saudi Binladin Group said in an internal memo, seen by Reuters, that two project workers had been infected.
Riyadh-based MOBCO Civil Construction sent a note to staff in the Saudi cities of Riyadh, Mecca and Medina, informing them that it plans to cut wages by 25-50% due to “unforeseen circumstances of COVID-19 According to the document dated March 25, which was seen by Reuters.
MOBCO, a mid-size firm that manages commercial, residential and infrastructure projects, did not respond to a request for comment from Reuters.
A source from a large Gulf contracting firm, who declined to be identified due to the sensitivity of discussions over business plans, told Reuters he had not seen any new Saudi projects awarded to the course. the last two months.
“There are a lot of concerns, although work has not been suspended on the project we currently have,” a Saudi entrepreneur, who also asked not to be identified, told Reuters, expressing fears that the state-supported project is not threatened.
“These workers eat, drink and sleep in one place. If just one is infected, the whole project will stop, ”he said, adding that it was too costly for contractors to stop work unless there was a government directive for it. make.
State spending in the energy-producing Gulf is the main driver of economic growth. Saudi and UAE authorities have announced nearly $ 70 billion in stimulus measures to mitigate the impact of the coronavirus outbreak. Fitch Ratings said this represented more than 10% of the UAE’s GDP and more than 4% of Saudi Arabia’s.
The stimulus mainly consists of monetary and off-budget measures, for example holidays to repay loans to companies and individuals in difficulty.
But there is a limit to the amount of money governments, which rely heavily on oil export revenues, can pump in as oil prices drop to their lowest level in 17 years. A supply battle between Riyadh and Moscow is worsening the impact of an unprecedented drop in demand as governments lock countries down to stop the spread of the virus.
Even state-owned oil giants have tightened their belts, with those in Abu Dhabi and Kuwait issuing cost-cutting guidelines.
Abu Dhabi’s energy department delayed announcing winning bids for a solar power plant last week and said it was monitoring energy prices and supply chains.
Yousef al-Benyan, chairman of the Group of 20 economies group of companies, told Reuters that small and medium-sized businesses were most vulnerable to the coronavirus outbreak, the impact of which he said could spread until 2021.
“This is where regulators try to come up with support programs to help these SMEs stay focused on their work … and so as not to have any implications on employment,” said Benyan, who is also managing director. by Saudi Basic Industries.
Job losses are not unusual during Gulf downturns – Saudi Arabia and the United Arab Emirates suffered steep cuts during the last drop in oil prices in 2015, when state spending was slumped. reduced.
Bankers have said liquidity is the biggest immediate challenge.
“Across the region, we have spoken to every client across all industries over the past 10 business days from a commercial banking perspective. The key element is the concern about liquidity – do I have enough money to trade, ”said Daniel Howlett, head of commercial banking for HSBC, MENA and Turkey.
Mazin Al Khatib, CEO of Nostalgia Classic Cars in Dubai, told Reuters his company is negotiating a bridge loan to help cover operating costs, but it may still have to make painful decisions.
“I’m worried about the wages at the end of the month, a lot of orders have been canceled, a lot of orders that were almost on the verge of being filled have been delayed,” Khatib said.
Hathal al-Utaibi, managing director of Riyadh-listed Alandalus Property, agreed that the main challenges for the retail industry were cash flow management and loan servicing.
“It goes without saying that the second quarter 2020 financial results for many companies will reflect the business challenges of this period,” he told Reuters.
Saudi Arabia could see its 2020 deficit widen to 16.1% from a previous projection of 6.4% if oil prices average $ 40, according to Arqaam, a securities firm. At $ 30, the deficit would reach 22.1%, he said – about $ 170 billion, according to Reuters calculations.
The kingdom’s debt-to-GDP ratio was around 20% in 2019 and, according to the S&P rating agency, it will rise to almost 34% in 2020 and around 36% in 2021.
S&P expects the budget deficit of the government of Abu Dhabi, the richest of the seven emirates of the United Arab Emirates, to fall to 7.5% in 2020, from 0.3% in 2019.
Additional reporting by Hadeel Al Sayegh; Yousef Saba, Alexander Cornwell and Davide Barbuscia; Editing by Ghaida Ghantous, William Maclean