Aramco joins Saudi firms raising pay
riyadh — Saudi Arabian Oil Company and some of the kingdom’s biggest companies said they’ll pay Saudi staff more money, matching a royal order that extended handouts to government workers.
Aramco, preparing for what could be the world’s largest initial public offering, will pay “eligible employees” an extra 1,000 riyals ($267) a month for one year beginning in January, it said in response to questions from Bloomberg. The payments will be for workers inside the kingdom who make 20,000 riyals a month or less, according to two people familiar with the decision. People who belong to the apprenticeship and college degree programme will get an extra 10 per cent of their monthly stipend over the same period, the firm said.
The decision may not go down well with investors as Saudi Arabia seeks to sell as much as five per cent of the company. The share sale is part of Crown Prince Mohammed bin Salman’s plan to set up the world’s biggest sovereign wealth fund and reduce the economy’s reliance on hydrocarbons.
Investors considering the IPO “will look at efficiency and cost control” to achieve the best possible returns, said Tariq Qaqish, managing director of the asset management division at Mena Corp. Financial Services in Dubai. If Aramco wants to attract longterm investors, its management should watch key performance indicators closely, he said.
Aramco joins some of the kingdom’s largest companies in the decision to temporarily boost wages after Custodian of the Two Holy Mosques, King Salman bin Abdulaziz decided to pay Saudi civil servants an extra 1,000 riyals a month to ease the burden of austerity. Saudi Basic Industries Co, Al Rajhi Bank and National Commercial Bank announced similar measures, according to Saudi-owned Al-Arabiya television. Samba Financial Group, Saudi Research and Marketing Group, Saudi Electricity Co and the local stock exchange are among other companies giving allowances to employees.
“There is a financial impact on the company for sure but this won’t be significant because Aramco’s profit margin is one of the highest in the industry due to the low cost base it has,” said Mazen Al Sudairi, head of research at Al Rajhi Capital Co. “The Saudi government relies heavily on Aramco and oil income for the foreseeable future and maintaining the profitability of the company is still a priority for the government.”
The allowances follow complaints from Saudis on social media and television about rising prices after the government introduced a five per cent value-added tax and a substantial increase to gasoline prices and electricity tariffs, all on January 1. The measures were part of Prince Mohammed’s plan to raise non-oil revenue and repair public finances strained by low oil prices.
In response, royal decrees issued early on Saturday restored an annual pay raise for Saudi civil servants and ordered a 5,000-riyal bonus for soldiers fighting in Yemen. On his Twitter account, royal court adviser Saud Al Qahtani said the measures will cost the government more than 50 billion riyals and called for private sector companies to respond in turn.
Mohamed Abu Basha, an economist at Cairo-based investment bank EFG-Hermes, estimates that the measures could add as much as 0.5 percentage point to non-oil gross domestic product growth. The payments will “nearly negate 2018’s planned fiscal consolidation” barring an unexpected increase in oil prices, he said.
“The move is definitely positive for 2018 GDP growth outlook but clearly at the expense of fiscal discipline,” he said. “It also confirms worries that authorities will use any fiscal room created by rising oil prices to defer fiscal reforms.” — Bloomberg