Labour strikes in Kuwait, protests demonstrations in Saudi Arabia and now the most violent of the episodes burning down of company assets by frustrated workers in Mecca. The labour issue is becoming a problem in the Gulf region, especially in Saudi Arabia.
The social backlash on the back of lower oil prices and a slowdown in economy, which has pretty much brought the construction sector in the kingdom to a standstill, was expected. But if it goes to violent and unprecedented extremes it could well be something that the authorities have not anticipated.
Workers of Saudi Binladin Group (SBG) set on fire several company buses in Mecca, just a day after the company laid off almost half of its workforce, according to media reports.
SBG terminated the contracts of workers almost all of them foreigners and has given them permanent exit visas to leave the kingdom. The workers, however, have refused to leave the country without getting paid.
For several weeks, workers who say they have not been paid in some cases more than four months have been staging protest demonstrations in Mecca and Jeddah, where SBGs headquarter is based. SBG says it has fully compensated affected employees.
There were no injuries, according to the police, and the local media reports didnt say if any arrest were made. However, the longer the salaries delays are allowed to continue, the more violent the situation is likely to become, creating an unwanted headache for authorities who have historically managed the foreign workers with a very tight grip.
This is the latest trouble facing Saudi Arabias biggest contractor by turnover. The company, in March, had to seek help from the police and agreed to pay delayed salaries to its staff in a deal with labour ministry to end the labour protests in MEcca. About 2,000 engineers, management staff and workers who had not been paid salaries for months took part in the demonstrations. The agreement, drafted on Mecca Police letterhead, allowed the workers to stay at home until the salaries are paid by the company after deducting the period of absence. They were also given the option to leave the firm and get final settlement before exit, or they could transfer sponsorship to another company, according to the agreement seen by MEED.
However, by the looks of it, the agreements hasnt come to fruition.
Like many other contractors in the Saudi Arabia, cash flows is the real issue for SBG.
The company had prospered during Saudi Arabias building boom of the past decade and has been involved in some of the most iconic projects in the country including skyscrapers, bridges and airports. It had mainly relied on multi-billion dollar state contracting for businesses and this is one of the reasons why it is in such a strife.
The government, which is already running an austerity campaign, has cut spending and has capped the award of new contracts. It has delayed payments to contractors including SBG and the rippling effect of that is having consequences for the broader economy.
SBG is not a solitary example of the company running into financial troubles. The entire construction sector, which is an integral part of economy, is struggling. SBG has laid off 50,000 people and the news has come to fore perhaps because of sheers size of the layoffs or the significance of the firm as the one of the oldest contracting business in the Gulf region and the projects it has been associated with in the past.
The fact, however, remains that all contractors in the kingdom, large or small, are facing similar issues and are cutting jobs just to stay afloat. Their number of layoff may not be as staggering as SBG but jobs cuts are happening elsewhere in Saudi construction sector.
The consequences for banks, another engine of growth in Saudi Arabia, are equally bad. Most of the banks are heavily exposed to contracting and project finance and are struggling to get the payments due to them. SBG alone is carrying out an estimated SR80bn-worth ($21.3bn-worth) of schemes and a Riyadh-based banker estimated that half of that amount could be leveraged from banks and other financial institutions. Its only logical that they will, at some point, have to declare defaults on contracting firms in order to maintain their own books and if that happens, it will certainly takes things from bad to worse for construction sector.
It is time policy makers in Riyadh take a closer look at contracting payments and put an end to labour troubles before it really gets out of hands. Violent episodes like Makkah is the last thing the authorities need who are trying to kick start Saudi Arabias hydrocarbon-based economy through sweeping reforms. This issue demands attention and the contractors need a life-line. If one doesnt come now, there is bound to be more negative consequences for economy and labour unrest is more likely than not to escalate.