Expats on sharp end of expected rising prices in Saudi Arabia

Allowances for government employees will increase average incomes in the public sector by 10 percent. (Reuters)
Updated 15 January 2018
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Expats on sharp end of expected rising prices in Saudi Arabia

DUBAI: Expatriate workers in Saudi Arabia will bear the brunt of rising inflation, according to a report by a London based economics consultancy.
Jason Tuvey, Middle East analyst at Capital Economics, said that recent price increases for fuel and power, as well as value added tax, would affect expat workers more than Saudi citizens, who will be compensated by cost of living allowances for public sector workers and soldiers.
Foreign workers will also have to pay a higher “expat levy” for employment in Saudi Arabia and an increased fee for their dependents.
The cost of living allowances were announced in a series of fiscal adjustments made by Royal Order last week. “It is worth pointing out that the fiscal measures are likely to have varying effects on households. For example, households of Saudi nationals – particularly those working in the public sector – are likely to see a net gain. In contrast, expatriate households look set to be main losers,” Tuvey said.
He added that inflation in the Kingdom could rise by more than 6 percent in 2018, higher than the government’s own forecast of 5.7 percent and well up on the consensus forecast by other economists of 3.4 percent.
Tuvey’s estimate was reached after the recent price increases in the Kingdom and the introduction of VAT, as well as last week’s cost of living allowance, which will mitigate the effects of higher inflation for many Saudi households.
Most of the inflation increase will come from rises in petrol and electricity prices. Tuvey calculated that the price of fuel at the pump has risen by up to 127 percent, while electricity tariffs for low-end consumption — most households — have increased by 260 percent. VAT will add 2.5 percent to the inflation rate, he calculated.
“At the same time, expatriate households will have to contend with an increase and broadening of the expat levy,” Tuvey said. The levy now covers expat workers who will face a monthly fee of up to 400 riyals in order to work in the Kingdom. The monthly fee for dependents has doubled to 200 riyals.
The good news for the Kingdom is that the allowances for civil servants, soldiers and other government employees will increase average incomes in the public sector by 10 percent, offsetting the inflation hike.
It is also likely that any further price increases will be lower than those just introduced, especially for petrol.
“Gasoline prices in the Kingdom are closing in on those in the US and therefore seem to be much closer to market levels. The upshot is that further price hikes are likely to be less aggressive,” Tuvey said.
Other economists said that Tuvey’s inflation estimate was high, but not unrealistic. Ziad Daoud, Middle East economist at Bloomberg, said: “It is not that much more than the government’s own estimate.”
The inflation rate in Saudi Arabia last year was around zero, as the continued effects of the low oil price affected prices and economic activity in the Kingdom. Inflation began to rise around October.
Most economists believe, after a period of rising prices this year, the inflation rate will fall to under 2 percent in 2019.
The increased government spending announced last week will also have the effect of stimulating the economy. Daoud said that he was revising upwards his estimate for growth in the non-oil sector, from 2 percent to 2.7 percent.
But Tuvey said that consumer spending was not likely to be strong, given the price rises and despite the government’s allowances.
“While the government is loosening fiscal policy this year, the overall impact of households is likely to be neutral. As a result, we expect household spending to remain sluggish in 2018 and a weak spot in the broader economic recovery,” he added.


Britain unveils “short and sharper” code for companies

Updated 16 July 2018
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Britain unveils “short and sharper” code for companies

  • The new code emphasises the need for boards to refresh themselves, become diverse and plan properly for replacing top jobs
  • Company remuneration committees should also take into account workforce pay when setting director pay

LONDON: Companies in Britain must strive to rein in excessive executive pay and make boards more diverse under a new “short and sharper” corporate code, published on Monday.
The Financial Reporting Council (FRC) has updated its code of corporate standards for publicly listed companies, which must comply with it or explain to shareholders if they do not.
The new code comes as the watchdog, which oversees company governance standards and accountants, faces a review to see if it can uphold high corporate standards to maintain Britain’s attractions as a place to invest after Brexit.
British lawmakers have called for tougher corporate govenance standards following a row between food retailer Tesco and its suppliers and the collapse of retailer BHS and outsourcer Carillion. And shareholders have become much more active in terms of rejecting some executive pay deals.
“To make sure the UK moves with the times, the new code considers economic and social issues and will help to guide the long-term success of UK businesses,” FRC Chairman Win Bischoff said.
“This new code, in its short and sharper form, and with its overarching theme of trust, is paramount in promoting transparency and integrity in business for society as a whole.”
There is a new provision for greater board engagement with the workforce to understand their views — aimed at reinforcing an existing provision in law since 2006 which has had a patchy impact.
This, along with a requiremnent to have “whistleblowing” mechanisms that allow directors and staff to raise concerns for effective investigation, mark the biggest broadening of corporate standards in many years, the FRC said.
“The new code is much stronger on abilities to raise concerns in confidence,” said David Styles, FRC director of corporate governance.
It also emphasises the need for boards to refresh themselves, become diverse and plan properly for replacing top jobs.
It introduces a requirement for companies to explain publicly if a board chair has remain unchanged for more than nine years.
Company remuneration committees should also take into account workforce pay when setting director pay.
“To address public concern over executive remuneration... formulaic calculations of performance-related pay should be rejected,” the watchdog said.