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This Saudi private sector is struggling, as economy tries to absorb shocks

Saudi has been trying to shift its dependency on oil to other more sustainable sectors.

Privatization is one way, and recently Saudi authorities announced handing over 25 state-run schools to the private sector.

Other BOT projects are underway for similar aims in many other industries including energy, transport, and education.

These are signals the public sector is on the move to keep its promise of non-oil diversification, as per Saudi Vision 2030.

But have too many economic shocks started to take their toll on the private sector?

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Worst private sector decline in almost a decade

Saudi’s private sector witnessed a huge decline during the month of April, the worst in nine years.

According to Emirates NBD Research, Saudi Arabia Purchasing Managers’ Index (PMI), an indicator of the economic health of the manufacturing sector, dropped to 51.4 in April from 52.8 in March; knowing that a score above 50 indicates growth and below 50 a contraction.

A contraction in new orders combined with easing job creation and softer output growth all contributed to the slowdown recorded in April, according to RTTNews, a digital news platform.

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RTTNews quoted Emirates NBD’s Head of Research, Khatija Haque, as saying: “The further softening of the non-oil activity data in April is surprising given the sharply higher oil prices so far this year, as well as the expansionary budget that was announced for 2018.”

The NBD report mentioned that stocks of pre-production inventories declined, registering a first in the history of Saudi.  

Input costs increased at a sharper rate in April as well, with this largely due to higher purchasing costs.  

The report continued to explain that despite higher input costs, selling prices declined modestly in April for the third month in a row.   

Some firms indicated that they had offered discounts in a bid to stimulate demand.  

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Things look better ahead

Firms blamed subdued market demand, competitive pressures and “unpredictable economic conditions” as reasons for the decline, according to Emirates NBD.

The NBD report explained that some contractors in the Kingdom are still facing significant payment delays despite the substantial boost in government oil revenues since the lows of early 2016.  

Another consideration is that uncertainty following the November anti-corruption crackdown has weighted on businesses activity and investment in the private sector, the report added.

According to NBD, despite the overall weak survey in April, future expectations remained high, with around 43% of firms expecting their output to be higher in a year’s time.