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[2buckets]

Why the golden age of "The Great Training Robbery" is over.

Thanks to revolutionary extraction technologies, and alternative sources of energy, it will never return.


http://www.wsj.com/articles/kingdom-comedown-falling-oil-prices-shock-saudi-middle-class-1474623003

Mohammed Idrees used to travel to London once or twice a year, but these days the Saudi civil servant is asking his wife and children to cut back on using the family car to save fuel and has installed a solar panel for the kitchen to reduce electricity costs.

For decades, Saudi nationals such as Mr. Idrees enjoyed a cozy lifestyle in the desert kingdom as its rulers spent hundreds of billions of dollars of its oil revenue to subsidize essentials such as fuel, water and electricity.

But a sharp drop in the price of oil, Saudi Arabia’s main revenue source, has forced the government to withdraw some benefits this year—raising the cost of living in the kingdom and hurting its middle class, a part of society long insulated from such problems.

Saudi Arabia heads into next week’s meeting of major oil producers in a tight spot. With a slowing economy and shrinking foreign reserves, the kingdom is coming under pressure to take steps that support the price of oil, as it did this month with an accord it struck with Russia.

Sand dunes near the Shaybah oil field, some 500 miles southeast of the eastern Saudi oil center of Dhahran. Low oil prices have plagued the kingdom’s economy. ENLARGE
Sand dunes near the Shaybah oil field, some 500 miles southeast of the eastern Saudi oil center of Dhahran. Low oil prices have plagued the kingdom’s economy. PHOTO: IAN TIMBERLAKE/AFP/GETTY IMAGES
The sharp price drop is mainly because of a glut in the market, in part caused by Saudi Arabia itself. The world’s top oil producer continues to pump crude at record levels to defend its market share.

One option to lift prices that could work, some analysts say, is to freeze output at a certain level and exempt Iran from such a deal, given that its push to increase production to presanction levels appears to have stalled in recent months. Saudi Arabia has previously refused to sign any deal that exempts arch rival Iran.

As its people start feeling the pain, that could change.

The kingdom is grappling with major job losses among its construction workers—many from poorer countries—as some previously state-backed construction firms suffer from drying up government funding.

Those spending cuts are now hitting the Saudi working middle class.

ENLARGE
Saudi consumers in major cities, the majority of them employed by the government, have become more conscious about their spending in recent months, said Areej al-Aqel from Sown Advisory, which provides financial-planning services for middle-class individuals and families. That means cutting back on a popular activity for most middle-class Saudis: dining out.

“Most people are ordering less food or they change their orders to more affordable options,” she said.


To boost state finances, Saudi Arabia cut fuel, electricity and water subsidies in December, after posting a record budget deficit last year. It also plans to cut the amount of money it spends on public wages and raise more nonoil revenue by introducing taxes.

But in response to these moves, inflation more than doubled from last year to about 4% now, crimping consumers even more.

The government doesn’t have much choice. Saudi Arabia’s real growth in gross domestic product slowed to 1.5% in the first quarter from the year-earlier period, according to its statistics office, and Capital Economics says data suggest it may have contracted by more than 2% in the second quarter. Much of that slowdown is related to consumer-facing sectors, which have struggled since the start of 2016 as rising inflation has eroded household incomes.

The political stakes for managing this slowdown are high. Saudi Arabia survived the Arab Spring unrest that toppled several autocratic leaders across the region and forced some others to change, largely by offering cash handouts and more government jobs to placate its people. About two thirds of Saudi workers are employed by government related entities.

Besides cushy jobs, such middle-class Saudis also received substantial overtime payments and regular bonuses. At the time of his ascension to the throne early last year, King Salman ordered a hefty bonus payment to government employees.

Such largess is looking like a thing of the past.

Besides cutting state handouts such as subsidized electricity and water, the government also plans to reduce money it spends on public wages to 40% of the budget by 2020 from 45% as part of its ambitious plan to transform the oil-dependent economy. It aims to cut one-fifth of its civil service as well.

Saudis are beginning to speak out about a sense of anxiety about the economy. “I think we are going through a difficult period,” said Emad al-Majed, a Riyadh-based pharmacy technician. There will be suffering.”

Mr. Majed, who has two children, took a bank loan to purchase an apartment last year, a decision he said made him reconsider his spending habits.

“If you are used to a certain level of spending, how can you be told to limit your expenses and cancel some stuff?,” he asked. “It is a good idea, but in practice it will be difficult for so many people.”

Saudi nationals are reluctant to gripe about rising costs, but there is clear discontent, some analysts say. In a region engulfed in political and sectarian strife, Saudi Arabia can ill-afford similar turmoil.

“Discontent so far has been mildly expressed,” said Robin Mills, chief executive at Qamar Energy, a Dubai-based consulting firm. “If the slowdown continues and starts affecting local jobs, that could change.”

For the kingdom’s fiscal position to improve significantly, analysts say oil prices would need to rise to $70 a barrel, up from about $46 now.

Saudi Arabia and the other large producers failed to reach a production-freeze deal in April, but its people are now increasingly jittery over their future. That has made people like Mr. Idrees, the civil servant, more cautious about spending because he sees people like him bearing the brunt of efforts to offset slipping oil revenue.

“I have become more diligent about spending because my view of the future is pessimistic,” he said. “There is a lot of talk about diversifying the economy, but the focus seems to be solely on increasing taxes.”

[ginger123]

[plumpy nut]

The future is in fact pessimistic for Saudi Arabia. Cutting oil production does little to mitigate the fact that oil demand is low therefore there is less money going into Saudi Arabia. American oil companies are able to produce oil cheaper and cheaper affecting demand for Saudi oil in the future. What is in hold for ESL teachers? Expect continually decreasing pay, and increasing immoral "firing of employees" behavior combined with increasing haughtiness over "teacher standards". The banks should be downgrading Saudi Arabia pretty soon.

[scot47]

I did reasonably well from working in KSA. It treated me better than my own native land which could not offer me a job that paid a living wage !

I am puzzled as to why Plumpy still holds so many grudges. Is he not in Indonesia these days ?

[Spelunker]

Too true. You know what these high paying employers don't like, westerners who come over and bleat and grumble about each and every little thing, this is what drives salaries down. There is one bloke on the net who wrote about how a year teaching in Saudi enabled him to move and rent in Chiang Mai. There is an aussie with chinese wifess and kids in tow who is struggling in a menial job in Aus on another thread, those blokes with only a BA should be thankful, the dole queue is long in England and white blokes with east asian wife and mixed kids fall well down the line for housing behind other immigrants, when the doors are closed to blokes like that (and me!) with only a BA, we may not realize how good we had it.

[plumpy nut]

Complaining has not driven salaries. A view like that is ridiculous. Dishonesty and the inability of the Wahabist Saudis to make things work pure and simple has driven down salaries.

[nomad soul]

[bigdurian]

[plumpy nut]

I have never complained about the job while I was working for a Saudi company. I am a very skilled teacher. However you enter a system, with no morals in place, no demands expected from the students like you have to do the work, homework or participation or whatever it may be. On top of that their is no concerns about every student being placed in a class at their level, just words about "excellence" and "standards". All this tends to take any initiative out you, indeed it makes you leery of initiating standards or expecting any good outcome. Indeed as far as complaining goes, it appeared to me the teachers that aggressively criticized and openly criticized the administration went far in salaries and prestige. Perhaps the Saudis respond positively to the treatment they hash out to everyone else, they're unfamiliar with anything else.

[nomad soul]

[Balzac]

Folks,

the Saudi middle classes may be feeling the pinch but it will only get worse unless the oil price gets back up to somewhere nearer the $US 70 a barrel level.

Some...neigh...many believe that it's about time as most Sunni Saudis have had it pretty good with the government handouts and the zakkad subsidies. That has made many of them quite lazy and unmotivated.

The other side of the coin of course is that expats will also be feeling the pinch even more so soon. Income taxes are almost certainly coming to the that great Magic kingdom in 2017. I have it on very good authority from a British friend who works in finance and at the Ministry of Finance in Riyadh. I mean he works with the ministers themselves.

He says it's all but signed and sealed e.g. income taxes and other direct and indirect taxes are being introduced to offset the low oil price, and that there will be a whole raft of other changes in 2017 in all walks of life in KSA through the Saudi Vision 2030 initiative.

If you think it's pretty bad now, with salaries hitting the floor and jobs being cut and prices skyrocketing for accommodation, consumables and gas, wait till next year

It may be that you'll see a trail of expat car rentals at Saudi airports!

B

[desertfox]

I too have it on good authority that income tax will be introduced for ex pats next year at a rate of 10%.
Things are certainly changing...

[bigdurian]

[cnthaiksarok]

I dunno...taxing expats was a "sure thing any day" back when I first arrived in 99' and...here we are. I've got a Saudi friend in finance too. He's been with Al Rajhi bank in Riyadh since around 2000 and (to be honest) he's projecting all sorts of troubles....but I'm still not convinced.

I understand that this is different in terms of being an across the board taxation (as mentioned above), but this was denied by the finance minister back in June.

"JEDDAH: Ibrahim Al-Assaf, minister of finance, has denied alleged reports that the Kingdom will impose taxes on either Saudis or foreign residents, pointing out that imposing taxation on residents was an old proposal, which will be discussed later.
Nothing so far has been approved in this regard, he said, adding that it is among initiatives proposed by the Ministry of Finance.
He was answering journalists’ questions at a press conference on Tuesday regarding the National Transformation Program 2020."

http://www.arabnews.com/node/936826/saudi-arabia

With that said, we're still in an era of unprecedented changes in various ministries and it's hard to keep up with who is in charge of what, sometimes.

At the same time (and given that taxes are technically unIslamic), it'd be a VERY precarious move by the authorities given their obvious concern over localized reprisals, IE; circumnavigating the Arab spring, etc.

10% is...significant to say the least.

The instant backlash of losing Western support at military bases alone (no, I don't mean the language instructors) would be pretty harmful to the Government's far-reaching plans.

Top 2 returns on "Saudi News Economy"

Weathering all storms, Saudi economy remains strong at SR3 trillion

Saudi Arabia's central bank to inject 20 billion riyals to boost financial stability


Here's another fairly interesting take on the situation:


Despite Low Oil Prices, Saudi Arabia Stabilizing Economy

"The Saudi economy is stabilizing after the government implemented pivotal reforms in order to address a fiscal and economic crisis because of plunging oil prices.

Over the past two years, Saudi Arabia cut energy subsidies, slashed public spending, and started to look for new ways to raise revenue outside of the oil sector. The IMF forecasts the Saudi budget deficit to narrow from 13 percent of GDP in 2016 to 9.6 percent in 2017. That is a dramatic improvement from the 16 percent deficit the country posted last year.

The improved forecast earned praise from the IMF. “The fiscal adjustment is under way, the government is very serious in bringing about that fiscal adjustment,” Tim Callen, the IMF’s Saudi mission chief, told Bloomberg in an interview. “We’re happy with the progress that’s being made.”

http://oilprice.com/Energy/Energy-General/Despite-Low-Oil-Prices-Saudi-Arabia-Stabilizing-Economy.html

[ginger123]

Can anyone tell me again pleases, how they'd determined Saudi middle class?
I lived there for sometime but couldn't distinguish or tell the difference between Saudi social classes.