On March 11, the worst fears of Saudi Arabia’s construction industry were confirmed by a report from leading data and analytics company GlobalData that government ministries had been instructed to cut spending by 20%.

The new wave of austerity measures in the kingdom are a result of the collapse in oil prices triggered by the fall in global demand due to the coronavirus (Covid-19) pandemic. Oil prices have fall over 40% since the March 6 and over 65% since the start of the year. Riyadh’s budget spending cuts are most likely to affect capital expenditure and new projects rather than current spending on salaries.

Colin Foreman, Deputy Editor at GlobalData, comments: “After five extremely challenging year’s for the Gulf’s construction industry, the big hope for 2020 was Saudi Arabia.”

At the start of this year, a series of government-backed ‘giga-projects’ were ready to move into their construction phase in the kingdom. These included the $500bn Neom future city project as well as a series of huge tourism developments including the Red Sea Project, Amaala, Qiddiyah and Dirriyah Gate. These would be in addition to a raft of major government infrastructure schemes including roads, airports and railways, were finally ready to start moving into construction.

Those hopes were dashed on March 6, when Opec and its non-Opec allies failed to reach an agreement on oil production cuts as global demand weakened due to measures to contain the spread of Covid-19.

The expected wave of austerity measures was confirmed on March 11 by the news that government ministries had been instructed to cut spending by 20%. The cuts are most likely to affect capital expenditure and new projects rather than current spending on salaries.

Foreman adds: “Although there is no sign of it yet, long-term austerity measures could also impinge on the progress of the giga-projects being delivered by the Public Investment Fund (PIF).

“If that happens, then the Gulf’s hungry-for-work construction sector will start to feel like it is 2015 all over again.”