Saudis tighten their belts for Eid in age of austerity
RIYADH/KHOBAR - Reuters
REUTERS photoA cartoon widely circulated in Saudi Arabia on Twitter last month showed three old men in traditional robes, named Unemployment, Prices and Poverty, looking down at a young boy with torn clothes named Salary.
"When will you grow bigger like us?!" the men ask the boy.
The annual Eid al-Adha holiday period is traditionally a time for ordinary Saudis to splurge on new clothes, accessories and travel. But this year's Eid holidays, which fall on Sept. 12-15, are set to be the most austere in well over a decade.
Low oil prices are forcing the government of the world's top oil exporter into spending cuts to curb a budget deficit that totalled a record $98 billion last year.
Those cuts, which began late in 2015, are now rippling through almost every area of the Saudi economy, reducing consumers' disposable income and weighing on the living standards of ordinary Saudis.
"Looking at individual consumption, you will find a significant shift in consumer habits, and the size of purchases has gone down significantly compared to last year," said Saudi economist Fadl Albuainain.
"Although corporations are the main reason behind declining consumer demand, the impact of individuals' spending cannot be overlooked."
The consumer spending slump has become a significant drag on the economy as a whole. Saudi Arabia's non-oil sector shrank 0.7 percent from a year ago in the first quarter of 2016, its worst performance in at least five years. Second-quarter data has not been released yet but London-based Capital Economics estimates the sector shrank 4.5 percent in June.
The value of imports into Saudi Arabia plunged 24 percent from a year earlier in June; while some of the drop may be due to reduced purchases of equipment for government projects, some appears due to weaker imports of consumer goods.
The official unemployment rate among Saudi citizens is around 11.5 percent. So far, relatively few have lost their jobs because of this year's slowdown; legal restrictions make firing Saudis difficult, so the kingdom's population of 10 million foreign workers has borne the brunt of lay-offs.
However, government ministries and state-owned firms, who employ about two-thirds of working Saudis, are adopting a more frugal approach to their staff.
Lavish bonuses, overtime payments and other benefits - once considered routine perks in the state sector - have been slashed. Essam al-Zamel, another Saudi economist, said such benefits accounted for up to 30 percent of Saudis' take-home income, so many people now felt significantly poorer.
Meanwhile, the government has raised domestic gasoline and utility prices to save money on state subsidies, almost doubling the annual inflation rate to around 4 percent.
Although Riyadh is encouraging Saudis to establish private businesses to reduce the economy's dependence on oil revenues, the economic slowdown is making this harder by cutting the incomes of some entrepreneurs.
"I used to travel three times a year to Dubai and Europe, but this year I didn't and I am not going anywhere this Eid...I cannot afford it anymore," said Sultan al-Dossary, 27, a Saudi who runs a small enterprise helping firms interact with the government.
He said his net income had fallen to around 3,000 riyals ($800) per month from 10,000 to 12,000 six months ago. He plans to sell one of his three cars to shore up his finances.
The impact of such belt-tightening can be seen in shopping centres and restaurants in Riyadh, Jeddah and oil-producing Eastern Province. Glitzy malls display signs such as "70 percent Sale", "Further Reduction" and "Clearance"; many restaurants offer cut-price lunch packages.
Jarir Marketing Co, one of the biggest retailers in the kingdom, reported a 25 percent year-on-year drop in net profit for the first half of 2016 as sales fell 15 percent.
The slide in retail consumer purchases at Jarir's stores has been in the high single digits, while the cut in corporate and government spending on office and computer supplies has been even steeper, Jarir's chairman Muhammad Alagil told Reuters.
There are reasons to think consumer spending may soon stop falling. Corporate surveys in the past two months suggest private sector growth is picking up somewhat on the back of rising oil output, and many people expect modestly higher oil prices next year, which could ease pressure on state finances.
"We believe it will stabilise next year," said Alagil.
But few expect any major rebound. Even with austerity, Riyadh is expected to run a budget deficit in the tens of billions of dollars this year - unsustainable in the long run - and officials have said more subsidy cuts are in store.
In 2018, the government plans to introduce value-added tax, probably at a rate of 5 percent with exemptions for items such as food.
Many Saudis accept that low oil prices make austerity inevitable, and there is no sign of a significant political backlash against government policies. But belt-tightening is being widely discussed on Twitter under hash-tags such as "Salary doesn't meet our needs".
"We are nowhere near the bottom, and we think the years to come will be even more painful," said Samih Jarjoura, an operations manager who handles distribution of foreign luxury goods to retailers in Jeddah.