Spending cuts in GCC but reforms proceed
LONDON - Austerity measures taken by traditionally oil-dependent Gulf Cooperation Council (GCC) countries are reverberating in a number of key industries but the International Monetary Fund (IMF) said the six Gulf Arab states are on the right track to remedy their problems and ensure long-term economic prospects.
The United Arab Emirates, one of the first GCC members to drop fuel subsidies, has seen significant layoffs in its energy sector. Abu Dhabi National Oil Company (ADNOC), one of the world’s biggest oil companies, has shed hundreds of jobs and plans on dropping its overall workforce by 5,000 positions this year, with the cuts mostly affecting expatriate employees.
ADNOC also recently went through an upper management reshuffle.
“In keeping with the entire oil and gas industry, ADNOC is constantly looking at ways to be more efficient and more profitable, particularly in the current market environment,” said an ADNOC spokesman.
In Saudi Arabia, a report by the National Commercial Bank (NCB) revealed the local construction market is constricting, attributed mostly to a huge drop in government-awarded contracts.
According to NCB’s Construction Contracts Index for the first quarter of 2016, as a result of declining oil prices, the Saudi government’s fiscal restructuring resulted in a decline in infrastructure spending.
Many firms in the Saudi construction business will look to the private sector to supplement the decline in government contracts. The oil and gas sector accounted for 47% of the total value of contracts awarded in the first quarter of 2016, residential real estate accounted for 16% and the hospitality sector for 21%, according to NCB.
However, the kingdom’s efforts to realise its Vision 2030 plan, an ambitious package of economic and social policy reforms, proceed as deals have been signed with US multinational conglomerate General Electric (GE). The deals, worth $1.4 billion, would see GE create 2,000 jobs in the kingdom, doubling the firm’s workforce.
One of the biggest deals was a Memorandum of Understanding (MoU) with the Saudi Arabian Industrial Investments Company (SAIIC), which, according to GE, would help develop industry and manufacturing within the kingdom, as well as create jobs for Saudis.
“This agreement with GE to form joint ventures and co-invest in strategic, high-growth industrial and digital sectors is at the core of SAIIC’s mission and supports the Saudi Vision 2030 to strengthen the kingdom’s economic diversification,” SAIIC Chairman Abdullatif al- Othman said in a statement.
The GE deal has an important social component, which will complement the Vision 2030 goal of promoting workplace diversity and empowering women professionals. An MoU with the Asharqia (Eastern province) Chamber of Commerce & Industry will see digital training workshops, including small and medium-sized business start-up training, in which GE aims to train 1,000 women in five years.
“We are a committed partner in supporting the kingdom’s transformational and diversified growth, underscored by our 80 years of presence in Saudi Arabia,” GE Chairman and Chief Executive Officer Jeffrey Immelt said in a statement.
The IMF lauded the GCC’s spending cuts and the Saudis’ Vision 2030 initiative in particular.
“Since the 2015 Article IV consultation, there has been a significant acceleration in reforms in Saudi Arabia. Vision 2030 sets out the goal of an appropriately bold and far-reaching transformation of the Saudi Arabian economy to diversify growth, reduce the dependence on oil, increase the role of the private sector and create more jobs for nationals,” the IMF said in a statement.
The IMF said a gradual but sizeable and sustained fiscal adjustment needs to continue with the aim of achieving a balanced budget over the medium term. This should include further adjustments in domestic energy prices, firm control of expenditures and further increases in non-oil revenues.
Since mid-2015, GCC members have curtailed spending on construction projects and some reduced energy subsidies to limit budget deficits caused by low oil prices.