RIYADH (Reuters) - Saudi Arabia has promised to launch major development projects towards the end of 2017 to re-energize an economy which has been hit by austerity measures, industry sources told Reuters.
Deputy Crown Prince Mohammed bin Salman, the kingdom’s top economic official, made the commitment at a recent meeting with a delegation representing the Saudi private sector, the sources, who spoke on condition of anonymity, said.
While they pledged support for Prince Mohammed’s economic reforms, which aim to rescue state finances and diversify the economy in an era of cheap oil, the representatives of the business associations complained that the private sector had been hit hard by cuts to state spending and subsidies.
The complaints underline growing pressure on the government as austerity policies in response to low oil prices enter their third year. While Prince Mohammed has cut a $98 billion state budget deficit and put the kingdom on track towards eliminating its deficit within several years, austerity has stifled the companies needed to create jobs for a growing population.
The private sector, which grew by just 0.1 percent last year, “is now suffering from increasing operating costs and declining purchasing power among the people,” Ahmed bin Suleiman al-Rajhi, the head of the Riyadh Chamber of Commerce and Industry, said in a report on the meeting.
“In addition, the industry is starting to lose its competitive edge because of the increasing cost of power and fuel as well as the rising cost of foreign workers.”
The report did not give details of the development projects planned by Prince Mohammed, whose media team did not respond to a request for comment, although the government said in December it would provide $53 billion of incentives to the private sector over the next four years and establish a fund to enable capital investments.
Riyadh has also suspended the introduction of major new austerity steps in the first half of this year.
The report said that although the government had resumed paying its debts to the construction sector in the past few months, some contractors remained unable to restart projects because banks had seized the money to cover loans.
The ten businessmen, who head the top business associations in the kingdom, told Prince Mohammed that only 17 percent of listed companies saw their profits grow in 2016, while 46 percent saw profits fall and 37 percent suffered losses.
Analysts have told Reuters that corporate earnings may finally have bottomed out after falling for two years, although a sharp rebound is unlikely.
Prince Mohammed said that without austerity measures, the country would not be able to pay state employees.
He also said the planned sale of shares in oil giant Saudi Aramco would boost growth, while investments in mining and car manufacturing would boost employment, the report said.
Riyadh’s Chamber of Commerce did not respond to a request for comment.
Editing by Andrew Torchia and Alexander Smith