Saudi companies are abandoned after the drop in oil prices

Digest opened free editor

Rola Khaleda, FT editor, chooses her favorite stories in this weekly newsletter.

Saudi companies seek to diversify and protect their business because they are preparing for a slow in the Kingdom after having caused geopolitical turmoil to a sharp drop in oil prices.

The economy of the Kingdom of Saudi Arabia has long relied on government spending that extends on energy export, which leaves it as an exhibition of prosperity and error -led errors in crude prices.

The last oil decreased From more than $ 80 a barrel in January to about $ 60-which is the lowest level since 2021 and much less than the tie price in the Kingdom-forced private companies to prepare again to defraud despite the years of his efforts during the era of Crown Prince Mohammed bin Salman.

One of the Saudi entrepreneurs said that he learned a difficult lesson when he was forced to close his first business after the government cut the rewards and benefits operating in the public sector after the collapse of the oil price in 2016.

This time, one of his companies, which runs customer loyalty programs for other companies, has sought to reduce the number of government customers to protect influence and expansion to new sectors such as food and drinks, which he said will prove more flexible thanks to the rise of tourism.

He said: “There will definitely a decrease in government spending, so we have diversified our revenue flows to mitigate these risks.” He added that “government agents are now less than 10 percent for us.”

But the entrepreneur said that his second company, which provides institutional software services, still gets the majority of revenues from government contracts and is likely to struggle.

“If oil prices decrease, you will stop using us,” said the businessman, who asked not to be called to protect his relationship with the government.

Prince Muhammad launched an ambitious plan, called Vision 2030, to reduce the Kingdom’s dependence on oil revenues by investing in everything from tourism to Future infrastructure projects. The government also aims to increase the contribution of the private sector to GDP from 40 percent in 2016 to 65 percent by 2030.

Officials say economic reforms, including raising non -oil government revenues through taxes, have made the economy less vulnerable to the volatility of oil prices. Although it helped non -oil exports to reach the highest level ever at $ 137 billion in 2024, oil still represents 61.6 percent of the state’s revenues.

Despite the diversification efforts, spending by government and state -related entities such as the General Investment Fund is still the main engine of economic activity. The sovereign wealth fund of $ 940 billion is currently overseeing a wide range of projects that seek to open new sectors to create job opportunities and increase long -term growth.

After a decade of frantic activity, government departments were recently informed of the tightening of their belts, as it is a priority of spending. Some kingdom is the so -called Projects, including the pioneering neom schemeShe suffers from delay or is reviewed to be implemented over a longer period of time.

The Kingdom of Saudi Arabia began to increase oil production in the past month, indicating a shift in the strategy that the Kingdom is now ready to bear a period of low oil prices for the largest market share.

“For Saudi companies, immediate anxiety will be reduced and shift in government contract courses, slowing or canceling prizes, and transformations in bank lending or capital cost,” said Karen Young, researcher researcher at the Global Energy Policy Center.

The austerity measures during the last oil recession, between 2014 and 2016, led to a great delay in pushing government contractors and left always damage to many companies. The authorities say that subsequent reforms are now sure to pay contractors on time.

One of the veteran foreign executives, who works for a company that runs a series of concession restaurants throughout the Kingdom, said that the impact of the slowdown has not yet been felt. But he said he was concerned about the potential turmoil of global supply chains due to trade tensions after the definitions imposed by US President Donald Trump.

He said: “We still see people spending money,” adding that sales and traffic were slightly higher during the Eid al -Fitr holiday in April more than the previous year.

“But I closely watch the supply chain side. We are still importing beef products and those types of things,” he added. “The hospitality industry works on a very thin margin in terms of profitability. So any fluctuations or change in the supply chain can affect the end result.”