Saudi Arabia’s economy needs a makeover
The country's economy is asymmetric with some sectors burdened while others becoming prosperous
Saudi Arabia’s economy needs a makeover. It is asymmetric with some sectors burdened while others becoming prosperous. A makeover is therefore needed to eliminate burden in some sectors while enhancing the positives features in others.
It seems that the country is already taking steps in this direction. A decision generally unnoticed by the media was taken a few days ago to Saudize the telecom sector. This news wouldn’t have been important if it only applied to this sector, which doesn’t represent a significant proportion of the Saudi economy. There are not more than 20,000 people working in the sector while there a few thousand fewer investors. But if what is being said in the corridors of the Labor Ministry is true, then the Saudization of the retail sector has begun.
These measures will not only make a big difference to the Saudi economy and the labor environment but will also transform the society by reducing pressure on cities, organizing work hours and eliminating hundreds of thousands of useless shops that have made a city like Riyadh overcome other cities of the world in retail space measured in meters per capita. It is time we admit this as an enormous challenge and tackle it. However, such an initiative will generate the talk of “recession”, which is disliked by economists in the Ministries of Finance and Planning. But is it really bad for our economy?
Saudi Arabian economist and author Barjas Al-Barjas believes that the kingdom needs a productive economy that will liberate it from excessive dependence on the oil sector. Oil prices are low and will remain so for many years with a surplus in production of up to one million barrels over at least the next three years.
Al-Barjas calls for an increase in the Gross National Product (GNP) and has criticized the McKinsey plan. The retail outlets, services and restaurants owned and managed by foreigners do not contribute to this rise. In light of the oil market data, recession would be the appropriate solution as it would ease the burden on millions of people who do not contribute toward the national economy, neither in the form of taxes nor through export.
We must learn from the two economic booms witnessed by Saudi Arabia in the 70s and during the first decade of this century, which made those who do not fear poverty spend excessivelyJamal Khashoggi
All data point to the need for the economy to adapt to low price of oil. Even if a miracle was to happen and the prices of each barrel became $80 again it will cover the kingdom’s primary need, employees’ salaries, which is covered with the current price of $30. Whatever exceeds this amount will then be allocated to development projects and to the private sector.
This is why we must learn from the two economic booms witnessed by Saudi Arabia in the 70s and during the first decade of this century, which made those who do not fear poverty spend excessively. Let us not repeat the same mistake.
We should therefore establish rainy-day funds which is roughly what we are doing now as the kingdom’s economy is stable thanks to these saved funds exceeding 2 trillion Saudi riyals. However, oil price decline and the kingdom’s commitments have raised pessimism among economists fearing economic instability unless structural reforms are implemented.
It seems that the Deputy Crown Prince of Saudi Arabia, Mohammad bin Salman, is currently working on this through the Council of Economic and Development Affairs which includes ministers and experts who manage serious challenges facing the country.
Dr. Barjas was in the limelight for his important article entitled “McKinsey plan 246”, which was one of the most read articles last year. Saudis exchanged it via emails and whatsapp messages. The article did not anger anyone but, at the same time, no one clarified whether Dr. Barjas was being overly pessimistic.
This shows that the fears he expressed in his article are real and must be discussed. Many officials asked him for his opinion while he was calling for greater transparency and a more open dialogue about this great challenge.
One of his main ideas came in the following sentence: “The Ministry of Planning and Economy assigned the task of preparing ‘Saudi Arabia beyond oil: the investment and productivity transformation’ plan to McKinsey Global Institute that adopted the plan (6-4-2), (2) meaning the economy of the kingdom must double over 15 years to reach SAR 6 trillion, (4) meaning that the private sector will invest $ 4 trillion, i.e. SAR 15 trillion during the next 15 years to produce 6 million jobs for Saudis, which stands for the last number (6).”
Dr. Barjas believes that it is impossible to agree to the McKinsey plan of doubling the Saudi economy by pumping SAR 15 trillion to produce 6 million jobs to Saudis. I agree with him as the kingdom’s reserves – before the current withdrawals - is slightly over SAR 2.6 trillion and the assets of the private sector do not exceed more than 3.5 billion. Making the foreign investment cover the difference is therefore impossible. So how can this case be resolved?
This is another reason why prospects of recession should be handled and reviewed by the state. What is more important for the kingdom: to be at the top of the list of developing countries’ economies and preserve the rank it is proud of, which, in reality, depends on the high prices of oil, or to provide a happy life and a job for its citizens? I think priority should be given to the second option for political and economic reasons. Providing a home, good education, good health care and a happy life is more important than waving figures that do not affect the Saudis’ life.
Perhaps even Dr. Barjas will disagree with me here as the word “recession” is disliked by economists as I have mentioned before. He wants a productive economy based on exports with an income equivalent to the one produced by oil while no one wants oil to be the main source of income. How will we achieve this considering the previous data and the challenges facing the economy?
Let it be a temporary “recession” applied to market reality until the equation of “creating jobs for Saudis” instead of “creating just jobs” is achieved. Before carrying out any reforms, this equation must be achieved while consolidating the work culture. A Saudi middle working class must emerge and regain its position as a catalyst for development so we do not generously feed foreigners instead of our own people.
This article first appeared in Al Hayat on Mar. 19, 2016.
Jamal Khashoggi is a Saudi journalist, columnist, author, and general manager of the upcoming Al Arab News Channel. He previously served as a media aide to Prince Turki al Faisal while he was Saudi Arabia's ambassador to the United States. Khashoggi has written for various daily and weekly Arab newspapers, including Asharq al-Awsat, al-Majalla and al-Hayat, and was editor-in-chief of the Saudi-based al-Watan. He was a foreign correspondent in Afghanistan, Algeria, Kuwait, Sudan, and other Middle Eastern countries. He is also a political commentator for Saudi-based and international news channels. Twitter: @JKhashoggi