The sheer number of job losses announced by construction giant Saudi Binladin Group (77,000, or about one-third of its total workforce) last week is colossal. But the most telling sign of the company’s crisis is the warning that it is also planning to fire between 12,000 and 17,000 Saudi nationals, including some in top management and supervisory roles.
Locals are generally considered hands-off no matter how dire a business’s financial predicament, so the fact that Saudi Binladin Group (SBG) — local itself — is going down that expensive and legally difficult path is a tell-tale sign of how bad things really are.
The 85-year-old family company has refused to publicly divulge its financial situation, but two Gulf banking industry sources told Reuters it was believed to owe local and international banks about $30 billion.
Media have pinpointed the beginning of the group’s downfall to September 2015, when the Saudi government suspended billions of dollars’ worth of contracts with the firm after 111 people died in a crane crash at an SBG construction site in Makkah. SBG had been bestowed with the honour of managing the $20bn extension and renovation of the Grand Mosque (it also carried out the first such work on Islam’s holiest site in the 1950s), similar to the scores of other government projects it had been awarded over the decades.
It is perhaps precisely this consistent awarding of government contracts, including in recent years when the kingdom was vigorously working to expand and modernise its infrastructure with state-of-the-art airports, railways and economic zones, and the unquestionable expectation of receiving them that placed SBG in a precarious position even before the crane crash.
Without such complacency it may have been able to save itself – and its staff – following the disaster.
Deputy Crown Prince Mohammed bin Salman, the architect of Saudi Arabia’s new economic policies, lifted the veil on the kingdom’s method of working with contractors such as SBG during a lengthy interview with Bloomberg at the end of March when he explained that unrealistic longstanding ministerial policies had forced a suspension of government payments.
Prince Mohammed also blamed companies’ over-leveraging for their inability to pay staff, citing fellow construction firm Saudi Oger as an example.
“The problem with Saudi Oger is different to one we have here in Saudi. We have paid them many instalments, but they have debt in and out of Saudi. So as soon as money is transferred to their bank accounts, the bank withdraws it. Saudi Oger can’t cover their own labour costs. That’s not our problem, that’s Saudi Oger’s,” he said.
Having said that, on May 3, Labour Minister Mufrej Al Haqbani promised the crisis surrounding SBG would be resolved, with some employees receiving their benefits this month, others soon. However, he did not say how Binladin would get the money to pay them.
Such a crisis is not confined to Saudi Arabia; similar concerns over job cuts occur globally relatively regularly. Currently in the UK, for example, the government has agreed to buy a 25 percent stake in Tata Steel’s UK plants to help secure more than 4,000 jobs.
Saudi Arabia will not do the same for SBG. But with thousands of nationals’ jobs on the chopping block at a time when Prince Mohammed has promised to cut the unemployment rate from more than 11 percent to 7 percent by 2030, the government may well be forced to step in to some degree. The firm is also part-way through several major infrastructure projects that remain key to Saudi Arabia’s modernisation, although SBG may find contracts for new projects harder to come by.
Strike action similar to that in Kuwait last month (which forced the country’s oil output to be slashed to as low as 1.1 million barrels per day, compared to its average 3 million) is less likely in Saudi Arabia.
One thing does seems clear: Saudi Binladin Group’s position of the government contractor of choice is in serious jeopardy, at least for now. It will take years — possibly a decade or more — to recover financially, before it can even begin to restore its reputation.
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