Saudi Private Sector Economy Veers Off Track Due To Foreign Worker Levy

Saudi Arabia’s non-oil private sector has had the worst April results for nine years.

Softer output growth, slower job creation and a contraction in new orders were all features of the April results of Saudi Arabia’s non-oil private sector report by Dubai’s Emirates MBD Bank. The kingdom’s PMI score is now at a record low of 51.4, indicating growth is close to stalling and giving the possibility of a contraction being recorded at the end of May.

Economists are surprised by the figures, as oil prices are now sharply higher than in 2017 and the announcement of the 2018 expansionary budget was expected to stimulate the private sector economy.

Research chief at Emirates MBD Bank Khatija Haque told local media that companies are citing lower domestic demand translating to fewer orders, adding that export orders are also in decline. Companies are now blaming subdued market demand and competitive pressures for the fall in April’s results, noting that foreign sales have been falling for three months and falling demand is restricting the growth in purchases. Companies are now utilising stockpiled goods rather than placing orders for more. In employment, staff have been hired in accordance with the kingdom’s Saudization policy, but numbers of those taking up jobs are well below the historical average.

Worth a mentions as the possible cause of the poor results is the fact that the first quarter of 2018 coincided with the introduction of higher power and fuel prices, the five per cent VAT consumer tax and the monthly levy payable by companies who employ expat workers. According to Saudi lawmakers, there is no plan to reduce the expat worker levy, set to increase next year, nor are there plans to reverse other new laws which may prove detrimental to the kingdom’s economy.