Declining Oil Prices Put Pressure On Contracting Market

Declining Oil Prices Put Pressure On Contracting Market

A Saudi government agency revealed that the local contracting market was witnessing a slowdown; as a result of the decline of oil prices and the outbreak of COVID-19.

It also added that with the containment of the pandemic; the Kingdom will see a gradual growth of demand for existing buildings and new construction activities.

The Saudi Contractors Authority said that a survey conducted over 600 contracting companies in Saudi Arabia revealed challenges facing contractors; which are cash flow; project delays; and supply chain disruptions. It also noted in a report issued recently; that awarded projects could decrease by 20% this year due to the virus outbreak.

Nonetheless, the oil price factor was a fundamental reason for the diminishing demand for construction.

The report states that Saudi Arabia confirmed its estimates of a fiscal deficit of 22 percent of GDP; with oil prices declining from estimates of $60 to $30 per barrel. Cutting government spending by 20 percent had clear repercussions on the contracting market.

But thanks to a package of multiple government initiatives to help the contracting sector; especially small and medium-sized companies, about half of the contractors surveyed by the Saudi Authority said that they could benefit from government support so far.

The report stressed the need for contractors to take immediate measures to protect the workforce, manage cash and liquidity, and support supply chains to resist risks and review contracts.

Dr. Abdul Rahman Baashen, head of the Shorouk Center for Economic Studies, said that the policies that Saudi Arabia has taken to support the private sector and SMEs were consistent with efforts to reduce the repercussions of Covid-19. He explained that the balance between spending and consumption was necessary to address budget deficit for the current year.