While Saudi Arabian family businesses do not dominate the economy to the extent seen with family firms in some other Gulf states, they nevertheless play a crucial role in the country's economy. But ties to the petroleum sector makes some of them vulnerable to oil price fluctuations, as recent events show. Daniel Bardsley takes a look
Many of the Middle East's biggest family businesses are based in Saudi Arabia. These companies have seen their fortunes grow in past decades in tandem with the country's development since the discovery of oil. Many of the most prominent families operating in the nation of 31 million people, such as the Bin Ladins and the Hariris, have been linked to the construction or petroleum sectors.
Despite the vast size of many of Saudi Arabian family businesses, and the closeness of their senior figures to the country's rulers, the importance of family-owned firms to the economy arguably eclipses what's often seen in other Gulf Cooperation Council (GCC) nations.
“Compared to others in the Gulf … where family businesses predominate, the government and corporate sector [in Saudi Arabia] is strong,” says Dr Mohamed Ramady, a visiting associate professor in economics and finance at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia, and author of The Saudi Arabian Economy: Policies, Achievements and Challenges.
Indeed family businesses account for only 25% of economic activity in the country, according to some accounts, less than half the average for the Gulf states. But for all that, close to half of the country's top 100 companies are family owned and four out of 10 of the Middle East's largest family businesses are Saudi Arabian.
From Hajj-associated construction in the west of the country—pivotal in the growth of the Saudi Binladin Group in particular—to oil-related development further east, it is government contracts that have allowed the families with close ties to the ruling Saud family to grow.
As is the case elsewhere in the region, succession planning has often proved difficult, transparency tends to be low and mergers and acquisitions are relatively rare. However, before the global slowdown, there was a flurry of initial public offerings by family businesses, and activity picked up subsequently. It is something the country's government has been keen to see, taking the view that such listings will help these firms maximise their positive impact on the country's economy.
The slump in oil prices has, however, put a cloud over the country's economic outlook and has heavily impacted many family businesses, including those that depend on state construction contracts. Among them is Saudi Oger, owned by the Lebanese-Saudi Hariri clan. Owed billions by a government that has seen its oil revenues plummet, the company has—along with some other large family-owned businesses—struggled to pay wages.