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Portraits of Mohammed bin Salman, Saudi Arabia's crown prince and King Salman of Saudi Arabia sit on display at a construction site in the King Abdullah Financial District (KAFD) in Riyadh, Saudi Arabia, on Tuesday, May 19, 2020. Hit simultaneously by plunging crude prices and coronavirus shutdowns, the non-oil economy is expected to contract for the first time in over 30 years. (Photo: Tasneem Alsultan/Bloomberg)

‘Back to Square One:’ Saudi Arabia’s Double Crisis Hits Home

Portraits of Mohammed bin Salman, Saudi Arabia's crown prince and King Salman of Saudi Arabia sit on display at a construction site in the King Abdullah Financial District (KAFD) in Riyadh, Saudi Arabia, on Tuesday, May 19, 2020. Hit simultaneously by plunging crude prices and coronavirus shutdowns, the non-oil economy is expected to contract for the first time in over 30 years. (Photo: Tasneem Alsultan/Bloomberg)

It was a sharp descent for Rakan Al-Ghalayini.

A graduate of Northeastern University in Boston who moved back home to Saudi Arabia, he just found work at the start of 2020 in the kingdom’s new entertainment industry, booming at the time under plans to reinvent the oil-based economy.

But in March, as the pandemic struck and the oil market went into meltdown, the crisis obliterated his job of bringing in hundreds of guests for Saudi Arabia’s first international film festival. The event was indefinitely postponed, along with all the others he’d hoped to work on — leaving him unemployed, again.

“My future looked bright after a year of not working,” said Al-Ghalayini, 26. “What do I do now? Back to square one?”

Shoppers maintain social distancing while forming a long queue for access to an Ikea AB store in Riyadh, Saudi Arabia, on Tuesday, May 19, 2020. Hit simultaneously by plunging crude prices and coronavirus shutdowns, the non-oil economy is expected to contract for the first time in over 30 years. (Photo: Tasneem Alsultan/Bloomberg)

It’s only over the past month that the full extent of the damage sank in for Saudi businesses. Hit simultaneously by plunging crude prices and coronavirus shutdowns, the non-oil economy is expected to contract for the first time in over 30 years. Many of the kingdom’s new-found strengths suddenly became vulnerabilities, threatening a transformation that was just taking root.

Read more: ‘This Has Changed Everything’: Saudi Economy Shaken by Oil Crash

As the pandemic sends the Saudi economy into a downward spiral, people across the kingdom are adjusting to a harsh new reality.

Read more: Saudi Arabia Triples VAT, Cuts State Allowances Amid Crisis

Naif, a 25-year-old who runs an events company, had been upbeat last month in anticipation of a turnaround. The downturn had forced him to pause expansion plans, but he’d been able to keep paying employees with the help of an interest-free bank loan of 750,000 riyals (US$200,000) — part of the Government’s stimulus package. Now he’s dreading laying them off.

An advert for the Al Arabia outdoor advertising company stands on display at a highway construction site in Riyadh, Saudi Arabia, on Tuesday, May 19, 2020. (Photo: Tasneem Alsultan/Bloomberg)

While the pandemic drags on and consumers come under pressure, Naif fears firms like his will collapse and he won’t be able to pay back the loan. He asked to withhold his last name so he could speak freely about his financial situation.

‘Much Worse’

“I guess things are much, much worse now,” he said. “I don’t think we’ll be back in business for a year at least.”

The Government initially bought time with a stimulus package and trimmed spending elsewhere. A PwC survey found that firms reported higher levels of government support in Saudi Arabia than in neighbouring countries.

But as the crisis grew worse, the world’s largest crude exporter made a sharp turn toward austerity in May, a move that will likely pinch consumption long after this year’s shocks dissipate. Oil prices have begun to recover, with Brent crude trading near US$37 a barrel on Thursday. Still, that’s less than half the level the Government needs to balance its budget.

Hit simultaneously by plunging crude prices and coronavirus shutdowns, Saudi Arabia’s non-oil economy is expected to contract for the first time in over 30 years. Many of the kingdom’s new-found strengths suddenly became vulnerabilities, threatening a transformation that was just taking root. (Photo: New York Times)

Data from PwC shows outlooks are worsening at firms across the kingdom. In a survey of chief financial officers in mid-April, 77 per cent of respondents in Saudi Arabia said the pandemic was causing them “great concern” — up from 55 per cent two weeks earlier. Half said they expected to make lay-offs over the next month.

‘Tough to See’

“We’ve made so much progress that at this point it’s kind of tough to see it go another way,” said Fawzi Mudawwar, who co-founded a free consulting service called Kalbonyani to help businesses adapt to the pandemic.

This year was meant to be a turning point for the conservative Islamic kingdom: a key milestone for Prince Mohammed bin Salman’s plan to overhaul the economy and loosen social restrictions.

Read more: Saudi Prince’s Year of Prestige Is Unraveling in Front of Him

“These are the priorities: the health care of people and the livelihood of people.”

— Saudi Arabia’s Finance Minister Mohammed Al-Jadaan

Only weeks ago, consumer spending was soaring as businesses finally started to recover from the impact of the last oil price rout, in 2014. Riyadh was abuzz with pop-up restaurants frequented by flirting couples in scenes that would once have been unthinkable.

Now, the streets fall silent each evening after a 5 pm curfew imposed to slow the spread of the virus. Cafes and even mosques are shut as cases spike in crowded labour camps, while security guards stand watch with thermometers at the entrance of malls.

The sectors key to the prince’s plan — from entertainment and tourism to sports — are among the hardest hit.

Construction workers operate at a development site in the King Abdullah Financial District (KAFD) in Riyadh, Saudi Arabia, on Tuesday, May 19, 2020.
(Photo: Tasneem Alsultan/Bloomberg)

More worryingly for many businesses, officials have turned to drastic measures to steady public finances as oil revenue falls. They’ve trimmed State workers’ allowances and tripled a value-added tax to 15 per cent, shocking many citizens. The crown prince’s programme to diversify the economy, known as Vision 2030, itself is facing spending cuts as money gets redirected to public health and aid for businesses.

What Our Economists Say…

“The danger is that Saudi Arabia’s austerity measures will plunge the non-oil economy into a deep and damaging downturn. With demand already depressed and ongoing social distancing making shoppers unlikely to flock back to stores, tripling the VAT rate is at particular risk of doing harm and failing to raise the planned revenue.” — Ziad Daoud

“These are the priorities: the health care of people and the livelihood of people,” Finance Minister Mohammed Al-Jadaan told Bloomberg.

A street vendor sells fruit and vegetables on a roadside in Riyadh, Saudi Arabia, on Tuesday, May 19, 2020. (Photo: Tasneem Alsultan/Bloomberg)

The Saudi Arabia that will emerge from the crisis is likely to have lower average incomes, with a younger generation that won’t match its parents’ standard of living, according to Karen Young, a Gulf-focused scholar at the American Enterprise Institute in Washington.

At the same time, the upheaval could ultimately aid the process of replacing the foreign workers who dominate the private sector with Saudis, said Young. It’s a trend already visible over the past few years.

Read more: Saudi Arabia’s Post-Oil Plan Faces Cuts as Crude Plummets

At Coyard, an independent coffee shop in Riyadh, almost all of the workers are Saudi — a point of pride for 29-year-old Ghanem Binyousef, who opened the cafe in 2018.

An attendant returns the pump handle after refilling an automobile with fuel at a gas station in Riyadh, Saudi Arabia, on Tuesday, May 19, 2020. (Photo: Tasneem Alsultan/Bloomberg)

His business is facing a steep decline in revenue. But it’s adapted so far, delivering coffee beans to customers at home and trimming salaries while avoiding lay offs.

“We are trying to hang on,” Binyousef said, noting that they benefited from a government programme that covers 60 per cent of wages for some Saudis in the private sector.

Khalid Al Omran, chief executive of Maestro Pizza, a local chain with over 2,000 employees, said he’s avoided lay offs by making swift changes to cope with the curfew. It offered free delivery, added a breakfast menu, and began selling prepared pizzas that people can cook later at home.

An employee prepares a pizza for a takeaway order at a Maestro Pizza food store in Riyadh, Saudi Arabia, on Tuesday, May 19, 2020. (Photo: Tasneem Alsultan/Bloomberg)

Even so, he’s less certain than he was a few weeks ago.

“Although things are getting better day by day, we have less visibility than we thought we had a month ago,” Al Omran said. “We don’t know when this will end.”

As for Al-Ghalayini, who lost his job, he’s thinking about going back to tutoring children, which helped him get by during his last job search.

“That’s why it’s sad, because we had just built ourselves up again,” he said. “But I’m sure that we will get back on our feet.”