Re-establishing the private sector in Saudi Arabia

Oil revenues greatly deteriorated this year to the extent that many Saudis accept the call to give up complete dependence on oil which they’ve grown addicted to for decades. The proposed solution is bitter but it’s necessary to save the country, protect the future of the coming generations and build a stronger state and healthier economy.

The declaration of the state’s new budget a few days ago woke many people up to the fact that we are entering a new phase. Work has begun to reduce dependence on oil and decrease the role of the “mother” government. Saudi Arabia is transferring within the spirit and text of the project. It says it depends on the private sector a lot as it chose it as a major partner to provide key services in terms of education, medication, transportation and other fields. This successful model can be seen in countries which do not count on the public sector in their economy.

Transferring a big part of these tasks to the private sector is a wise move but I think the problem is that the private sector is weak and it cannot be depended upon to perform the major aspired-to tasks as except for a few companies, the rest are just a massive market of scattered shops that live off the easy money coming from oil. If the government looks forward to transforming into a country where the private sector is efficient and productive, it must rely on the economy of big companies. With all my respect to experts who always talk about supporting medium and small-sized institutions and who believe it’s a solution to hire thousands of people, I think the best option for Saudi Arabia is the opposite of that. Transforming into a market of large-scale companies will contribute to developing services and industries, facilitate citizens’ training and employment process and protect Saudization which the government failed to impose on the private sector for 30 consecutive years. Big companies can organize the market and develop it in their favor. Companies that have high capital can introduce complicated and costly technology, spend on building big networks for distribution and expand across the country. Perhaps it’s best for countries with labor intensive industries, like Egypt, or countries with low investments, like Pakistan, to develop small institutions because they are the way to employ people with minimum costs.

Saudi Arabia’s option is to transform into the economy of big companies in construction, industries and healthcare, educational, technological and technical services, including engineering, plumbing and electricity. By resorting to global expertise and adopting the most modern technologies, it will build a massive and organized market. Big companies’ work alongside governmental institutions and can help them serve the market by imposing their needs on the educational and training sectors. The state’s important role will be “producing” giant companies by developing regulations and granting contracts and loans. We have few old examples in this field. Sabic is an example of a developed and industrial institution as it has 40,000 employees, most of whom are Saudis serving in advanced fields.

There are experiments which failed, most of the time due to regulations or lack thereof. The most recent was Panda’s groceries project in neighborhoods. This is in addition to the experience of franchise shops that are similar to giant American companies. These may have failed due to the market’s disorder and due to the lack of controls on licenses. Failure is clear evidence of the bad role of small institutions as they’ve turned into cover-up businesses and they monopolize the market in favor of foreigners.

The government will remain the source of economy’s life as it’s capable of building the market all over again. For instance, through its massive construction contracts, it can set the condition that a percentage of the work is performed by major local companies that are specialized in providing engineering and electrical services. This will employ thousands of professional Saudis for minimum wages, provide long-term contracts and guarantee consumers the safety of services for many years, like the case is with organized societies.

Now, the Saudi private sector is poor except for major specialized companies. Most available companies are commercial brands which are not enough to depend on to establish a real, productive and permanent market. Big companies are few and can be counted on the fingers of one hand and it’s impossible for them to contain thousands of graduates especially after the government decided to abandon the role of the employee. The government’s philosophy is that it helps them learn and encourages them to train but they must work in the market and the market is small as there are thousands of small shops that do not train, expand and develop.

Since the government decided that the private sector is its partner, it must shake it up and re-establish it. The current market was established for different aims and during a past era. I think the government should plan and encourage building different companies that resemble those in developed markets and list them on the stock exchange like it did with Sabic and the electricity and transportation companies. By doing so, the state can depend on the private sector and the government’s role can be organizational and regulatory.

This article was first published in Asharq al-Awsat on December 25, 2016.

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Abdulrahman al-Rashed is the former General Manager of Al Arabiya News Channel. A veteran and internationally acclaimed journalist, he is a former editor-in-chief of the London-based leading Arab daily Asharq al-Awsat, where he still regularly writes a political column. He has also served as the editor of Asharq al-Awsat’s sister publication, al-Majalla. Throughout his career, Rashed has interviewed several world leaders, with his articles garnering worldwide recognition, and he has successfully led Al Arabiya to the highly regarded, thriving and influential position it is in today. He tweets @aalrashed

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