Saudi faces uphill task of ending unemployment

Government counts on private sector as it is unable to absorb more jobs

Saudi Arabia should reform its educational sector to push more nationals into the job market as it counts on the private sector to tackle its festering unemployment problem due to high population growth, a key bank in the Gulf Kingdom has said.
“Education reform and job creation in Saudi Arabia and across Arab countries could come under the glare of publicity in the coming months as successful popular revolutions in Egypt and Tunisia
renew the urgency to address these most-pressing social dilemmas,“ Banque Saudi Fransi said in a study sent to Emirates 24/7.
The study noted that for years, improving the quality of education in a bid to engage youth in the kingdom’s expanding economy has been a top state priority. Its figures showed Saudi Arabia’s budget dedicated to education spending has more than doubled in size since 2005, with allocations for education and training programmes in 2011 amounting to 26 per cent of the Gulf country’s record SR580 billion budget, or nearly SR150 billion.
“With unemployment among Saudis hovering around 10 per cent according to the most recent labour ministry estimations – and youth unemployment as much as four times greater than that in some age brackets – education and labour market reform are the foremost challenges facing the country,” it said.
“Concern over whether the education system is arming students with relevant technical skills for the workforce is paramount since only one out of every 10 employees working for a Saudi private sector company is a Saudi citizen. This scenario must be drastically reversed if the private sector can shoulder the burden of future job creation to meet the needs of the nearly 66 per cent of Saudis below the age of 30 in 2009. Of the country’s indigenous population of 18.5 million, 47 per cent are 18 years old or younger.”
The report noted that over the past few years, Saudi ministries and publicly linked firms absorbed many new job market entrants, offering better salaries and greater job security than private sector work.
Yet the bias among Saudi citizens toward government jobs has had the effect of weakening public sector productivity, stifling labour competition, and propelling current expenditure upward, it said.
Comprising recurrent costs on items only used once such as salaries, current expenditure has almost doubled since 2000 and is a key cause for rampant public overspending, it added.
“The government sector’s ability to create jobs will erode as it seeks to curtail unnecessary spending growth… otherwise it will have few alternatives than to keep on hiring.”
Citing official data, BSF said Saudi Arabia, the largest Arab economy, held nearly SR1.65 trillion in net foreign assets at the end of 2010, a figure which is expected to rise to record levels of at least $471 billion by the end of this year due to higher oil prices and anticipated increases in output among OPEC producers.
The surge in income allowed the government to slash its debt-to-GDP ratio to 10.2 per cent last year from more than 80 per cent just seven years go, giving it the financial muscle it needs to formulate short and medium-term policies to enable its population better cope with inflation, housing shortages and the tenuous job market.
Saudi quality of life indicators have also improved in recent years unlike oil-importing countries in North Africa, but recent floods in Jeddah are a reminder that “complacency is not an option.”
“Saudi Arabia’s young population is swelling in size and throwing light onto a pronounced and risky trend toward joblessness among youth. Overall Saudi unemployment was about 10 per cent in 2010...this marks a slight decline from 10.5 per cent in 2009, although higher than 2008’s rate of 9.8 per cent,” BSF said.
“This fails to capture a more complex predicament facing Saudis under 30 years of age, more and more of whom are completing studies to find there are not enough appropriate jobs on the market.” The report showed unemployment among youth below the age of 30 was as high as 27 per cent in 2009. Some 39.3 per cent of Saudis between the age of 20 and 24 was unemployed in 2009 – up from 28.5 per cent in 2000, according to government data.
Youth aged 25 to 29 also faced 20.3 per cent unemployment in 2009, more than double the ratio in 2000 of 9.9 per cent.
“The gender gap is one factor exacerbating the youth unemployment
figures. Female jobless rates are much higher than those of males… overall unemployment among women in 2009 was 28.4 per cent, including joblessness of 45.5 per cent for women aged 25-29. Even excluding female unemployment, joblessness among men was also substantial in 2009. Men aged 20-24 experienced 30.3 per cent unemployment, while nearly12.7 per cent of men between the ages of 25-29 are without work,” the report said.
“While a large proportion of unemployed women are university
graduates, many men without jobs do not hold higher degrees.
A whopping 78 per cent of unemployed Saudi women hold university degrees, compared with 16.9 per cent for male graduates. Women
holding bachelors degrees are 35 per cent of total unemployment.”
BSF said that between 2005 and 2009, less than nine per cent of the more than 2.2 million jobs created in the private sector went to Saudis. While private sector growth slowed to just 2.7 per cent in 2009, it was able to generate new jobs for expatriates.
 
“As many young Saudis struggle to find work, 982,420 work
visas for foreigners were issued to the private sector in 2009, more than double the number granted in 2005... In 2007 and 2008, more than 1.2 million work visas were issued in each year.”
The report cited government data showing around 6.21 million of the country’s total 6.89 million private sector employees in 2009 were non-Saudis, up almost 30 per cent from 2006.
“This reveals the ineffectiveness of so-called ‘Saudisation’
policies in remedying the disparity. The government is simply unable to absorb all of the new workers entering the job market.“
BSF referred to recent statement by Saudi Arabia’s labour minister, who said the Kingdom must create five million jobs by 2030 to meet the demands of the young, male-dominated workforce.
The Minister spoke of the private sector generating three million, or 60 per cent, of these jobs, according to the report.
“State expectations of private sector job creation are substantial. It wants to raise the number of employed Saudis by nearly 30 per cent to 5.04 million by 2014 from 3.9 million now, accounting for more than half of total employment of 9.4 million,” BSF said.
“A robust private sector creating jobs for nationals and higher education programmes tailored to suit the economy’s needs are essential so the state can move away from heavily subsidizing water, electricity and fuel that are draining its financial resources. But we are many years away from this scenario and current rates of economic growth are too low to make a meaningful difference in the job market. Private sector GDP growth should surpass six per cent per year in order to catalyze job creation.”
The report noted that the government has indicated the goal is to create jobs that would attract high wage earners in order to reduce the gap between nationals and expatriates in the private sector.
“At the moment, private sector companies have greater incentives to employ foreign labour…foreigners tend to demand lower wages than Saudis and, in many technical posts, they are more highly qualified than some of their Saudi counterparts,” it said.
“Another crucial deterrent for private sector companies has been labour laws which make it prohibitively difficult to fire Saudis and easy to fire expatriates….the labour law should instill less protection and engender greater competition among Saudis if the private sector can take its place as the first and last employer for nationals….the private sector’s dependence on foreign cheap labour is a dilemma.”
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