Can the private sector solve the Saudi unemployment problem?

The future development of Saudi Arabia into a diversified, knowledge-based economy will depend on a strong private sector

Samar Fatany

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A Commission for Job Generation and Anti-Unemployment was recently established to address the decline in oil prices and a youth unemployment rate of 29.43 percent among Saudis aged 15 to 25 as of 2013, according to International Labor Organization statistics.

Economists welcomed the new initiative as the country has to deal with nearly 1.9 million Saudi youths who will be joining the job market in the next decade.

This situation raises major challenges for policymakers, mainly to diversify the economy and increase employment opportunities for the swelling Saudi population. Thirty-seven percent of all Saudis are 14-years-old or younger, according to a 2011 paper from the Woodrow Wilson International Center for Scholars in Washington, DC.

Ali Al-Zaied, director of human resources in Takamul Economical Solution Company, said that the reason for the failure of industrial companies to receive young graduates is their lack of sufficient training to prepare them to work in the industrial sector. “Most educational institutes need to work on modifying and developing their curricula and focus on creating artistic and technical workshops in order to produce graduates suitable for the industrial labor market,” he said.

Frustration among young people

Economists stress the need for immediate measures to absorb the young and growing working-age population into the workforce. Currently almost 185,000 students are studying overseas.

The future development of Saudi Arabia into a diversified, knowledge-based economy will depend on a strong private sector

Samar Fatany

The level of frustration among young people is very high due to the inadequate opportunities for social mobility and their limited participation in social, cultural, economic and political life. This kind of environment is detrimental to progress and could lead to social turmoil and political unrest.

Economic researchers acknowledge the role of nearly 7.5 million foreigners (as of 2013) working legally in Saudi Arabia and their contribution to the Saudi economy. The country requires skilled manpower in large numbers to implement its ambitious development plans. Labor was imported and technical knowhow was purchased at the cost of national human-capital development. Sadly, the educational system has remained underdeveloped and the contributions of citizens continue to be marginalized and inefficient. There is total reliance on foreign labor in every aspect of life in Saudi Arabia.

Unfortunately, the present demographic imbalance is the result of an economic necessity. It is still very evident that Saudi Arabia will continue to rely on foreign labor. What makes it worse is the refusal of Saudi citizens to take on occupations that every modern economy requires which include unskilled menial positions. The young generation seek only government jobs and are reluctant to take on the much needed services of laborers, technicians, plumbers and domestic workers, due to cultural factors that make these jobs seem demeaning. Sadly, unemployment and the continued over-dependence on expatriates continue with no real solutions in sight.

Dependent on foreign labor

Meanwhile, many unemployed youth remain disgruntled because the only alternatives that are being offered to them are the menial jobs done by expatriates, limiting their social mobility. Omar Al-Ubaydli, program director at the Derasat economic and political research center, told Al-Arabiya News that any Gulf Arab country, not just Saudi Arabia, should change the attitudes regarding what some consider “unsociable” jobs.

Other analysts warn that the country remains dependent on foreign labor in top-level positions and professions that are crucial to the infrastructure. This dependence has resulted in depriving citizens of the opportunity to occupy key positions, thus limiting their social status and economic contribution. The more threatening risk to society includes increased crime, ethnic hatred and civil discontent.

The sponsorship system is another negative aspect that blocks labor mobility, impedes productivity improvements and manipulates the market to enhance the dependency on foreign labor. However, scrapping the sponsorship system is not an easy task and it is highly unlikely to be implemented in the near future.

Under the current circumstances addressing the challenges facing the young remains very critical. “What is important right now for the government is to provide the right incentives for people to go into the private sector,” said John Sfakianakis, director of the Ashmore Group.

“Boosting private sector growth cannot be achieved through increased government spending—rather the opposite,” said Giacomo Luciani, an energy expert at Sciences Po in Paris, who said the government needs to pressure the private sector to deliver its part.

The future development of Saudi Arabia into a diversified, knowledge-based economy will depend on a strong private sector and its ability to attract and train young graduates and offer them the incentives to contribute to nation building.

Economists also assert that the development of SMEs can offer hope for the unemployed. They urge continued facilitation of SMEs’ access to finance and other forms of support to further the development of this sector. Among the current initiatives that need extra support and more efficient implementation are the Kafala Program (initiated in 2006), which provides SMEs with access to credit (credit guarantees); the Saudi Credit and Saving Bank, which extends loans to SMEs; the establishment of specialized SME units within banks; and the setting up of SIMAH, the Saudi Credit Bureau.

Meanwhile, the Commission for Job Generation and Anti-Unemployment is expected to come up with more innovative solutions to the rising unemployment problem that is a major concern for both the public and private sectors.

This article was first published in the Saudi Gazette on Jan. 9, 2016.

Samar Fatany is a Chief Broadcaster in the English section at Jeddah Broadcasting Station. Over the past 28 years, she has introduced many news, cultural, and religious programs and has conducted several interviews with official delegations and prominent political personalities visiting the kingdom. Fatany has made significant contributions in the fields of public relations and social awareness in Saudi Arabia and has been involved in activities aiming at fighting extremism and enhancing women’s role in serving society. She has published three books: “Saudi Perceptions & Western Misconceptions,” “Saudi Women towards a new era” and “Saudi Challenges & Reforms.”

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