(2 of 3)
Retailers too are noticing a change. "There is a slowdown in business, no doubt," says Ibrahim Al Touq, general manager of E.A. Juffali & Bros., a Saudi appliance dealer. "The main source of liquidity in our country is the government, and when it starts squeezing spending, the effect is immediately felt in the marketplace." The Saudis, for example, are buying fewer imported cars. "Frankly, I am delighted by that," says Saleh Toaimi, secretary-general of the chamber of commerce and industry in the Saudi capital of Riyadh. "Saudi families had too many cars, and I hope that the trend will continue to decline."
While the gulf slump has caused few formal bankruptcies, some firms have simply been closing their doors. Explains one foreign moneyman in Saudi Arabia: "Companies here tend to fade away. We are seeing some of that. Small concerns that operated with two desks, a phone and an Indian secretary are finding it hard to stay in business."
Ambitious development projects have also been affected. Although work continues on mammoth undertakings like Jubail, the $18 billion Saudi Arabian industrial city, other complexes still in the talking stage are being scaled back or dropped. The Saudis quietly slapped a freeze on most new construction, causing the country's index of new contracts to slide 56% between December 1982 and last July. Notes a foreign banker: "They could have tried riding the crisis out by slowly adjusting without a sharp drop in spending. But they bit the bullet in a disciplined way that you have to admire."
The falling oil income has led some normally prompt-paying gulf nations to start acting like cash-strapped debtors. Earlier this year, the Saudis resorted to slowing down payment of bills, sometimes holding up checks for months. In Qatar, officials have been asking contractors to accept oil rather than cash in exchange for their services.
Despite the cutbacks, work already under way in the gulf could persuade a visitor that a boom rather than a bust was in progress. Riyadh remains noisy with the pounding of jackhammers and the rumble of trucks and earthmoving equipment. "Most of the projects that were planned and contracted," says Saudi Assistant Deputy Planning Minister Hussein Sajeeni, "have not been affected by the cuts in revenue." Concurs a gulf banker: "The full impact of the reductions will not be seen for some years. The pipeline is very full and very busy."
The heavy use of workers from abroad also cushions the region against the slump. At least half the Saudi labor force consists of foreigners. In some gulf nations, such "guest workers" can outnumber the local ones. "We are lucky in some ways," says one oil-state minister. "When times get tough, we export our unemployment." In Dubai, three times as many Pakistanis have registered to return home this year as in 1982.
Even those gulf citizens who have lost their jobs can enjoy a level of well-being that their U.S. counterparts would envy. Medical bills throughout the region are typically paid by the government. Education is free as well. Those short of cash have little fear of losing their homes, since the public institutions that hold mortgages will wait for payment and do not charge interest.